Gord Johnston - President, Chief Executive Officer Theresa Jang - Executive Vice President, Chief Financial Officer

Welcome to Stantec's First Quarter 2019 Earnings Results Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Theresa Jang, Executive Vice President and Chief Financial Officer. Today's call is webcast, and Stantec invites those dialing in to view the slide presentation, which is available in the Investors section of stantec.com. All information provided during this conference call is subject to the forward-looking statement qualification set out on slide two detailed in Stantec's Management Discussion and Analysis and incorporated in full for the purposes of today's call. With that, I am pleased to turn the call over to Mr. Gord Johnston.

Thank you and good morning. I'll begin with a brief overview of our first quarter performance, then Theresa will provide the details of our results. After that, I’ll share some highlights for our operations and touch our expectations for the remainder of 2019. We started 2019 with solid Q1 results that remind us of what has made Stantec a success for the past 65 years: Our drive to diversify both our geographic reach and our business mix. Our results also reflect the work we've done to drive organic and acquisition growth and maintain an efficient cost structure. I'm especially pleased with performance in our global business this quarter, where we achieved 8.1% organic net revenue growth with increases in all global business operating units. This validates our acquisition strategy in Australia, New Zealand and the UK markets we believe provide us with ample opportunity to continue to expand. Another key accomplishment in Q1 was closing the acquisition of Wood & Grieve Engineers. Wood & Grieve is an award winning buildings engineering firm that serves clients throughout Australia and we're so excited to be adding the 600 talented people to our team. We're currently working through integration, but are already pursuing projects together that neither one of our teams have been able to pursue individually. I look forward to the new opportunities we’ll have in Australia’s building market, which is forecast to grow steadily through the remainder of 2019. With that, I’ll hand it over to Theresa.

Thanks Gord. On January 1 we adopted IFRS 16 Leases using the modified retrospective approach, which means that we did not restate comparative information. While IFRS 16 didn’t have a significant impact on our Q1 net income or EPS, it did reduce admin and marketing expenses by $35.5 million, increase depreciation expense for leased assets $27.4 million, increased interest expense by $8.1 million and increased EBITDA and adjusted EBITDA by $35.5 million. We provided tabular reconciliations of Q1 financial statements in our MD&A and in the appendix to the slide presentations and has also been posted as supplemental information in the investors section of our website. For purposes of this morning’s call we presented Q1‘19 results both before and after the adoption of IFRS 16 and for ease of compatibility all my comments will refer to Q1‘19 excluding the adoption of IFRS 16 in comparison to Q1 ’18, which again was not restated. Our Q1‘19 results were consistent with our expectations, reflecting a typically slower quarter for earnings and cash flows. We reported adjusted net income of $50.3 million or $0.45 on a diluted per share basis, increases of 5% and 7.1% respectively. I will point out that adjusted net income includes the benefit of a $4.9 million tax recovery, the recognition of which was previously uncertain and was not baked into our guidance. Net revenue was $904.1 million, reflecting growth of 11.8% with increases across all geographies. Adjusted EBITDA was $91.6 million representing 10.1% of net revenue. Excluding the impact of IFRS 16, admin and marketing expenses increased from 43% to 43.4% of net revenue mainly due to acquisition integration costs. And yesterday our Board of Directors declared a dividend of $0.145 per share payable on July 15 to shareholders of record on June 28. Moving on to slide…

Thank you, Teresa. Our Canadian operations generated a 4.6% increase in net revenue, driven largely by acquisition growth from three acquisitions completed in 2018. As anticipated, organic net revenue was muted at less than 1%. This reflects the slower Canadian economy and our overall project mix. We are coming off some large building projects in Ontario and some water projects in Ontario and Western Canada; however we are back filling that with work that we can't get that make public. A number of Canada's largest cities are expanding their public transit systems and we're involved in several those projects as well. We also won a Significant Environmental Services, MSA in the quarter. Looking out over the balance of the year, we're optimistic about oil and gas in terms of both engineering and environmental work. We've been hiring in both our energy and resources and environmental services businesses and we expect that to continue as fuel season begins. We continue to see good opportunity in LNG in Canada and if Trans Mountain is approved, work will pick up there. In the United States net revenue increased 8.6% with organic net revenue increasing by 2.4%. Our backlog of work in the U.S. is high and growth is driven by working on water and transportation. We also saw organic growth in buildings. We have a strong position in the education space, particularly in student housing, but we're also seeing growth in the commercial and civil sectors. We had some retraction in energy and resources, which is mostly due to the wrap-up of projects; however we won some significant power projects in the U.S. this quarter. On the water side organic net revenue growth was offset by the effect of a large recovery recognized in Q1‘18. Our water backlog is solid and we continue…

Sure. Thank you so much, sir. [Operator Instructions]. We will now take a first question from Jacob Bout from CIBC.

Good morning.

Good morning Jacob.

Looking at your net revenue organic growth, we compare it to what you saw in the fourth quarter of 2018. You know it looks like there's a big drop in energy and energy resources in water. Is this just tough comps or are we just seeing an overall slowing. I guess specifically on the water side, I mean I thought that industry should be growing at kind of 4% to 5%. I think your peers have actually put some pretty good numbers there too.

Yeah, good question. In energy and resources we are coming off a high comp. Q1 ‘18 had almost 22% you know organic growth over the year-on-year. So energy and resources is a bit of a tough comp. We do have some good opportunities in energy and resources and I think that that will continue to improve throughout the year. Our water backlogs are still at an all-time high for that group there. Part of this comp, we did receive a big input of our provision recovery in Q1 of ’18, so that, when you compare to that it kind of drops a little bit, but if you normalize that out, you know water would have been you know roughly flat or a little bit above the line, but that's still not good enough. As you say the market is very robust. For us in water we have the backlog – I think what we will see in Q2 and Q3 is the ability now for us to start to move that backlog out the door.

And how do you think about the water industry as far as an organic growth rate?

You know I do see us in that still consistent with the overall corporate growth rate and I see it in that low to mid-single digits.

Okay, and then maybe just turning to EBITDA margins outside of the guidance range, maybe just talk a bit about you know how the seasonality of margins should look.

Well, I think the seasonality will be – you should see it improve over the course of the year, still within the range that we've been guiding towards. But you know I think historically you’d see where Q1 is outside of the range, a little bit below what the range is set that’s been posted, and so we do expect that to improve as the year progresses.

Last question here just on backlogs. So you talked a bit about you know the pipeline for water looking good, but you know clearly you’re seeing some strong growth quarter on quarter-on-quarter and year-on-year. How is that mix in backlog evolving here?

You know, we've recently secured and I mentioned in my comments, we recently secured some good awards in our buildings group in our water group that we are not able to disclose yet, because the clients are asking us to hold off for a couple weeks or months, but those will come out. I think you'll see that certainly in water and in building some good recoveries there or good additional backlog generation. I would say in general we've got some good backlog as well in environmental services and you saw in Q1 a big up-tick in organic growth and environmental services. In general I would say that the backlog mix is pretty consistent with our overall revenue proportion.

Thank you.

Thanks Jacob.

Thank you, sir. [Operator Instructions]. We will now take our next question from Yuri Lynk from Canaccord.

Hey, good morning.

Good morning, Yuri.

Good morning. Gord can you comment on how the quarter fared versus your expectations. I mean there had been some talk about it being a little bit weaker kind of below the normal seasonality for the quarter. So did it turn out as you guys had thought or a little bit better?

You know, I think we're pleased with the way that the quarter turned out. As you know February was pretty rough up in Canada from a weather perspective and that you know slowed the number of our – February into March slowed a little bit of our field work. I think in general we’re pleased with it. You know 2.5% organic growth in the first quarter is okay. You know we do see that picking up in Q2 and Q3, which are normally our more seasonally adjusted, a little stronger quarters for us.

There were some comments made that maybe the seasonality would be around 18% of total EBITDA, 18% to 20%. Do you think that's where things shook out?

Yeah, I think it did come out about where we expected. It might have been slightly stronger and you know there's never a perfect science to this. We can look historically, we can look at our forecast and see how things are shaking out and that 18% to 20% is about what we expected.

Okay. I think on the last call Gord you would express confidence that Canada would have positive organic growth this year. Is that still your expectation and where would that strength be coming from?

You know we do see strength in Canada overall. I think it'll be a little more muted than the growth that we’ll see and in the U.S. but I still think we'll – we just won as I mention – the projects that we won in both water and buildings were in Canada. So I think that will strengthen our backlog even further in those groups going forward. We see environmental services pretty robust in Canada and we are still engaged on a number of the LNG projects, coastal gas tanks, archaeological work on Keystone and so and so and if we can get Transvaal approved, then that will only further strengthen our revenue generation in Canada.

Okay, I’ll turn it over. Thanks.

Great, thanks Yuri.

Thank you, Sir. We now take our next question from Benoit Poirier from Desjardins Capital Markets.

Yes, good morning everyone. Just to come back on the back log, so there was obviously a nice sequential growth in the overall backlog. Would it be possible to comment or provide more granularity about what has been done organically and maybe what is driven by FX or maybe more color about the backlog please?

Yeah, done on the FX impact.

I don’t have FX pulled out directly. There will be some impact there just because of the movement in the dollar, but I don't expect that that would have played a very large role in our growth and our backlog.

Okay and organically, Theresa have you – do you have some numbers on organically what does it represent?

No, actually I don't have that here broken up for me. I think when we gather our backlog information and when we look at the slide by business and by geography, you know I don't think that we kind of go through and this wasn’t come through an acquisition in this, the data that I see, and certainly would be available in there somewhere, but I don't have that.

Okay, perfect and from a free cash flow standpoint, could you comment a little bit about how the IFRS 16 impacts your free cash flow? It seems that there’s mostly just the boost of $25.6 million on the free cash flow side. Is that the way we should see it?

Yes, I think so. I think that impact that you saw in the operating activities about $24 million or so in the quarter would be what you'd expect really for each quarter of the outgoing years and from a capital expenditures standpoint, of course that doesn't impact that number at all.

Okay, and net debt to EBITDA including the IFRS 16, you’re at 2x obviously. Any color about where you would like to end 2019, Theresa?

Well, I think if we used to state that our internal guideline with that 1.5 to 2.5x, we shifted that metric down to 1.0 to 2.0x. You know my expectation is that by the end of the year if we stayed the course that we have in our plans that we’ll be well within that 1 to 2x range comfortably. Of course that doesn't factor in additional acquisitions which are always under consideration, but all things being equal based on where we are today, I'm comfortable that we’ll be well in that range by the end of the year.

Okay, perfect. Thank you very much for the time.

Thanks Benoit.

Thank you, sir. We now take or next question from Devin Dodge from BMO Capital Markets.

Hey, good morning. I just wanted to come back to the – Good morning, I just wanted to come back to the leverage, obviously at the upper end of your target range. I know some of this would be related to the seasonal uptick in working capital, but do you feel that the elevated leverage may be restricts your ability in any way to pursue M&A in next couple of quarters?

No, not at all. Again, recognizing its high for all the reasons that we've already stated; seasonality and the discreet uses of funds this quarter, but no, I don’t see there’s a restriction from a liquidity stand point and access to capital you know as I mentioned. We have an accordion that we can draw on. It requires approval from the bank that we can use that feature and we already are seeing from the end of March a strengthening in our overall capital position. So all of that gives me confidence that there really is no constraint in terms of looking to do additional acquisitions this year.

Okay, and maybe just switching gears here, but U.K. water projects supporting M6. It seems like they are nearing completion. I was just wondering, is it likely that we’ll see a bit of softness in the U.K. water business until AMP7 activities ramp up in a more meaningful way?

You know it is typical that in the last year of an AMP cycle things slow a bit, but I think we’ve chatted earlier that some of the [inaudible] type of provisions where they can renegotiate fees and roll into AMP7 and you know we're starting to have discussions with some of those clients now, and you know we can't say whether they will or not, really the decision is up to them, but you know we’ve been doing good work for them there and so if we are able to just roll into AMP7, then that will mitigate some of that slow down and pick up again. If you recall, we also have already won two AMP7 projects that are brand new. So we are – you know work is ramping up on those already.

Okay, that's helpful. Maybe just one last one, just on Wood & Grieve, can you give us a sense for the revenue and maybe EBITDA margin going in after that business. I just I saw the notes of the financial statements, the consideration given was maybe a bit higher than we were expecting.

You have that information Theresa?

Yes, I just shared that information. We will extract, I think maybe the better way to think about it is in the quarter Peter Brett and Wood & Grieve would have collectively contributed about 4.1% of the 6.6% growth we saw in our global business. I think that's a decent run rate to use if you were to extrapolate it out for a full year. I think we also expect from a margin perspective that you know it's going to be a little bit lower than what we might expect for our broader business in the first year as we integrate and we spend some time and resources on getting this integrated into Stantec. But on the whole, you know we do expect to have made a solid contribution for that some period in Q1 and we will expect that to continue through the year.

Okay, so maybe put a different way, just if we put reasonable assumptions on like revenue per headcount and maybe going in margins, we are kind of backing into a number of kind of low to mid-teens EBITDA multiple. Is that at all what you are saying or is there something else that we should be thinking about?

I think for the first year we would expect it to be a little bit less, not from a EBITDA margin perspective, again just for the reason I cited. You know the cost to get them integrated into Stantec will cause this margins to be a little bit lower than what you're citing.

Okay, I'll turn it over, thank you.

Thanks Devin.

Thank you, sir. We now take the next question from Maxim Sytchev from National Bank Financial.

Hi, good morning.

Good morning Max.

Just, if we may continue on the topic of Australia, do you mind maybe providing a bit more color in terms of the outlook specifically for what grieves in terms of you know backlog opportunities and if there is any sign off growth plateauing on the horizon?

So you know Max maybe you know Wood & Grieve is – has good geographic diversity throughout Australia. So in the west what our office in Perth, Stantec had a legacy environmental office as well in Perth. So the combination of those two, our two offices working on projects for some of the miners there, now we're able to provide additional services that Wood & Grieve couldn't provide to those mining companies before, as well as Stantec. So we are – both firms are hiring in Western Australia to continue to meet the demand there. Moving on the eastern side, certainly there is still robust activity in land development and community enhancement and Easter. Part of Wood & Grieve is active in that; certainly the Legacy Stantec Group active on the water side there. So we do see kind of throughout whether it's you know Western Australia good opportunities there or the buildings environment and opportunity for growth, primarily associated with land development and inbound migration in Eastern Australia, you know we still see good activity in 2019 Max.

And it is assure to say – I mean it's still going to be greater relative to kind of the consolidated run rate on an organic basis, kind of like mid-single digit plus, is that what we should be expecting from this asset on a going forward basis.

That would be our thesis as well.

Okay and then quickly just in terms of, you mentioned some positive activity on mining in LatAm. Do you mind expanding a little bit in terms of what exactly you are involved in right now and how real is that potential rebound?

You know what we’ve seen there Max is that we work for the Global Multinational Miners down in Latin America and so after a number of years of sort of needed capital expenditure, we're seeing them come back with – these aren’t huge projects that are coming back with, but a lot of sustaining capital type work, a lot of base hits that we are seeing and then that’s all good work for us. We are seeing a lot of – a big increase in proposal activity and we're hiring in that region as well. So in a way this isn’t swinging for the fences type work. This is just ongoing sustainable working and we see a continued improvement in that through 2019 as well.

Okay, that’s helpful. And just a last little question. If we were to combined environmental and water services, can you maybe let us know what is the exposure of these two verticals to energy and the kind of resources, just again trying to get a bit more color on sort of the second derivative of oil and gas exposure for these two verticals.

Yeah, you know so far I would say you know from an environmental services and energy and resources that our exposure of those two groups is likely around 7%. You know those two groups together make up about 28% of our firm and when I extract out the portion that they do for environmental service, for oil and gas, that would be about like 7% of the overall revenue generation of the company would be in oil and gas now. That was part of our strategy Max. If you compare us back to you know coming up to 2013 and ’14, that – our exposure to oil and gas was more in that 35% of overall company revenue and through a rebalancing you know that now currently sits at about, and this is roughly this 7% to 8% of overall corporate revenue.

And there wouldn’t be much exposure to water.

Yeah, not much exposure to water, your right.

Okay, that’s helpful. Thank you very much.

Thanks Max.

Thank you, sir. We now take our next question from Mark Neville of Scotiabank.

Hey, good morning. Maybe just a first question for Theresa. Just so to clarify, just on the EBITDA impact from IFRS, the best way to think about this is just take $35.5 million and annualize it.

Yeah, I think that's right. Maybe the other way to think about 3.8% to 4% of net revenue is what has shifted from admin and marketing to below the line.

Okay, yeah, I guess if I do that math it’s still fairly close to those – those two numbers are roughly the same right. Yeah, hang on, yeah okay. And I’m not sure if you answered this question, it’s on the backlog. How much was that was Wood & Grieve, the increase?

We did not answer that.

Yeah, I don't know that we analyzed it in that way Mark. I don't have that information available, but...

We can tell you that of the change in our global backlog, of our backlog that global was about 15% increase and so Wood & Grieve would certainly play a role in that, but just to what degree I haven't got that here.

Okay, and then maybe if I can just, one last one if can ask the balance sheet question I guess another way, you're at the high end of your range. You know I appreciate cash flow comes in through the year, but you are also talking about, I forget the wording, but the most robust pipeline in M&A you’ve seen in a while. So I’m just curious, sort of how high you will be willing to take the leverage if something were to come along.

You know I don't think that that's a data point that I can give you directly. It’s going to depend on, you know on the acquisition of where we are at the time. I think the only thing I can say is what I have to say and that is that we've got good access to capital, we don't see any constraints there. We have the capability within our lending arrangements to expand beyond the covenant thresholds that we have to accommodate acquisitions for a period of time, so there isn’t a constraint. You know how comfortable I'd be willing to go beyond the range today is going to depend on the acquisition itself and what we see as it urges the generation capabilities. So I don’t have a hard number in my head, if that’s another way for me to help you get the answer. There is no fixed number in my head.

Yes, no that’s fair and maybe we can just ask another one I guess. I think you sort of touched on this earlier, but just on the earnings pattern on a quarterly basis, I think if we take the Q1 number, and sort of multiply by five, assuming it's 20%, we get a fairly big number. So I'm just curious if the Q1 maybe a little stronger than you thought or if Q1 is maybe a bit more than what Q4 would be or a bit more than 20% this year.

Yeah, well I think the only thing I would point out, I'll go back to saying it came out about where we expected that sort of 18% to 20% and the reason if you take, you know our actual results and extrapolate it by four, you are going to get a big number, is likely that $4.9 million tax recovery that you know – you kind of have to take that out of the mix and then normalized it, and then kind of annualize it from there and you’ll get to a number that makes a little bit more sense.

Sure, but that $4.9 million was not in EBITDA right, that's a tax number right?

That's correct, but as we think about, when I think about that sort of 18% to 20%, I do think about that from an adjusted earnings perspective.

Okay, okay thanks a lot.

And Mark, I had a quick – just looking at [inaudible] and of the backlog growth which was just shy of $250 million, the majority of that backlog growth was in the United States. So there was certainly was some global backlog increase and certainly some of that would have come from Wood & Grieve. But as the overall backlog increase, you know Wood & Grieve wouldn't have been the major contributor to the overall quarter-on-quarter backlog growth.

Okay, thank you.

Thanks Mark.

Thank you. We’ll now take our next question from Ben Cherniavsky from Raymond James.

Hi, good morning.

Hi Ben.

Theresa I guess you've been there now maybe six months or so. I'm just curious what your observations are as you settled into the role about the opportunities that, you know the impact you can have, the changes you can make and what the priorities might be for the near term phase, the next you know 12 to 24 months from the CFOs perspective?

Sure. You know I think it's been there has been an awful lot to learn certainly in the months that I've been here, but it also has highlight for me that you know that there is you know something I can bring to the table in terms of my experiences, both in terms of from a capital markets perspective, from an investor relations perspective and M&A perspective. So all of those things which are high on our priority list here at Stantec are really where I see the focus of my energy and attention. I’ve been spending a lot of time just kind of understanding historically what Stantec’s philosophy has been around capital allocation. How we think about acquisitions which are really central to our growth strategy and then just you know from my own perspective then formulating, and I would say I don't have a fully formulated picture yet, but formulating how I think about the rigor that we go through as we make those acquisitions. I think everything I’ve seen point gives me – gives me confidence that this is a good management team. Its knowledgeable and disciplined and so part of it I think I could bring to the table is just some perhaps more formalized metrics around how we think about where we allocate our capital to the growth I think over the years have been positive, its created value for our shareholders, and so for me it has to be highlight to extract that message and be able to delineate and tell the story in a way that the markets can then take and hold up against our own measurement and understand and see the value that we created. So those are all things that I’m focused on. You know I think from a capital structure standpoint we thought we had some opportunity to enhance further our overall structure and then you know from and an internal standpoint this is – you know I’ve been really pleased with just the strength of my team and as a talent that they bring to the table, an so you know working internally as well to continue to develop and work with the folks that I have in my team, those are all my key areas of focus for the next sort of while.

Okay, thanks. Maybe as a follow up I could just open to wither you or Gord, but if you look at the stock price, it’s been kind of range bound for six or seven years now. What do you think – what do you think that tells you guys? What signal are you getting from the market and what do you think the market might be missing from your perspective if there's any incongruences between those two.

Well, you know Ben I go back to actually I think a comment that you made in one of your last investor notes, which is “show me” and I think that's sort of where we're we. You know we knew certainly coming into 2014, we were on a real trajectory, an upward trajectory. That leveled off as we mentioned earlier and we are pretty heavily embedded or exposed to commodities in oil and gas at the time, which was you know a good ‘make hay while the sun is shining’ strategy. That leveled off a little bit with the downturn in commodities prices. Then when we acquired MWH, I think that was moving us in the right direction, and then we had the problems with construction. So now as we come into 2019, you know we're trading a bit of discount from a multiple perspective to some of our peers, but I think that’s – you know we'll put up good numbers. We’ll put up good numbers for the next couple quarters and I think you know hopefully we will show you, you know fellows like yourself who are just waiting to see that.

Great, that’s a good answer. Thanks very much.

Great, thanks Ben.

Thank you, sir. We now take our next question from Chris Murray from AltaCorp Capital.

Thanks folks, good morning. Gord, you made the comment about the U.K. and about your acquisition strategy there and the comment about monitoring the situation. Can you give us some thoughts around what it is exactly that you are monitoring or what would be kind of go or no-go decisions around further acquisitions?

We, starting in the summer of 2017 when I was first selected for this role, we spent a lot of time over there talking to really solid, you know tier one U.K. companies and really in business lines that line up with our business lines. And so we've got a pretty robust group of folks that they want to join us, but because these are tier one firms, you know we haven't seen their valuations come down at this point. So if their valuations that come down, we would gladly buy now on the uncertainty, you know related to Brexit, but now because you know these valuations are still sort of a valuation – pre-Brexit uncertainties, you know we don’t want to over ay for something and then have Brexit go south on us. So really that’s where we are, just waiting and monitoring. I know some of our competitors have made moves in the U.K. lately and that’s appropriate for them. For us we are just talking a bit of a wait and see.

Okay, fair enough. My other question, and I'm not sure if you or Theresa want to take this, but you know it’s kind of interesting as I kind of go through the financial statements and of course it's always interesting to see the Q1’s and how they kind of changed. But one of the things that’s becoming evident is call it may be a more equal focus on the way you guys think about net revenue and gross revenue, and I know that’s been something that some investors have been concerned about, about historically you’ve always focused more on gross revenue versus net which the construction business caused maybe a lot of confusion. But I guess my question is, how are you thinking about how you run the business from a revenue, from an organic growth rate. You know is it on a gross basis or is it on a net basis and is that kind of thinking even filtering down into your business unit later.

You know Ben, that’s a great question. And you know net revenue is really where we generate revenue and generate EBITDA, and so that's really what we have continued to focus on, is from that perspective. You’re right, when we got into construction, the growth to net ratios are completely different there, but now that we are back to our consulting business, really net is – we want to continue to grow net, that's where we hire more people and get more people busy and utilized. There still will be – historically we've had a pretty consistent relationship between gross and net, but what we are finding now and its interesting and that as we become larger, and as we become more dominant in a number of our fields, a decade ago we might have been a sub-consultants to someone on a very, very large project. Now we are taking the prime position. So in that prime position, we have to – you know we’ll have a partner, we’ll have – in the United States in particular we might have a minority or disadvantage or small businesses that we have to bring on as part of the team, but really where we generate the revenue, where we hire the people is based on net revenue. So that’s really the area that we want to continue to focus on.

And I think I’ll just add on to that in terms of what you are seeing in our disclosures. You know I'm sure you've heard us say before and others in our peer group that you know it’s the accounting rules that drive us to have to show growth and net revenue in you know equal prominence. I think we've been willing in the last year to sort of test the boundaries of that a little bit so we still show the information because we have to, but to try and focus the discussion around what really matters, which to Gord’s point is net revenue. So we’ll never get away from having to provide the gross revenue number, but try to minimize the focus on it, because it really, it’s not what drives our EBITDA.

Okay, that’s helpful. Thank you.

Thanks Chris.

Thank you. We’d now take our next question, from Michael Tupholme from TD Newcrest.

Thank you, good morning.

Good morning Michael.

Can you just talk a little bit about expectations as far as how you see admin and marketing expenses as a percentage of revenue evolve as you move through the year, and I know that one of the comments you had made was that integration costs were said to be part of the reason that they were up here year-over-year, so I was just wondering how you think about those as we through the year as well.

Yeah, we dis expect it to normalize back down over the course of the year into the range that we provided. You know the effort that we put in last year to bring admin and marketing as a percentage of net revenue down, those efforts continue and so whether you think of it, the 41% to 43% on a excluding IFRS basis or 37% to 39% with IFRS, you know that is a range that we believe that we can hit. So you will see that over the course of the year we will fall back into that range.

Okay and then just as a clarification, as far as the new annual financial targets that conform to the new reporting including IFRS 16, are all of the changes you've made strictly to account for that accounting change or have there been any underlying changes in any of the assumptions that went into the full year targets.

No. And in terms of the targets that we revised, the only exception would be tax. So setting that aside for a second, in terms of margin cost, EBITDA, net income, leverage, those are all only reflective of the change in the accounting rules. The tax piece where we are seeing the effective tax rate is going to notch up from 27% to 28%, is just updated forecast in terms of, you know generating income and higher tax jurisdictions and new projections on non-deductible expenses and that sort of thing. So that would be the only one that changed slightly because of something other than IFRS 16.

Okay and you’ve been asked about this a couple of times, but just to be clear, when you provide the earnings pattern in the percentage of earnings, I suppose that will fall into the first and fourth quarters versus second and third. We should not be looking at those percentages as applicable to the EBITDA, the adjusted EBITDA for the company. This is strictly as it relates to earnings or adjusted earnings.

Yeah, I’m looking at it from an earnings standpoint.

Okay. Alright, thank you.

Thanks Michael.

Thank you, sir. It appears there are no further questions at this time sir. I'd like to turn the conference back to you.

Great, well thank you again for joining our call. I appreciate your questions and we look forward to seeing you next month at our Investor Day here at Edmonton. Thanks very much.

Thank you, everyone.