Welcome to Stantec’s Fourth Quarter and Year End 2021 Earnings Results Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer and Theresa Jang, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today’s call is also webcast. Please be advised that if you have dialed in while also viewing the webcast, you should mute your computer as there is a delay between the call and the webcast. All information provided during this conference call is subject to the forward-looking statement qualification set out on Slide 2, detailed in Stantec’s management’s discussion and analysis and incorporated in full for the purposes of today’s call. Unless otherwise noted, dollar amounts discussed in today’s call are expressed in Canadian dollars and are generally rounded. With that, I am pleased to turn the call over to Mr. Gord Johnston. Please go ahead sir.

Good morning and thank you for joining us today. We are very pleased to report our Q4 and full year 2021 results which reflect the solid execution of our multiyear strategy. We grew our global employee base by around 15% through strategic acquisitions. We saw an increase in our employee engagement scores from pre-pandemic levels and our financial performance was strong. For the year, we delivered record earnings per share, both on an adjusted and on an as reported basis on stronger margins, the ongoing execution of our 2023 real estate strategy and lower taxes, net revenue of $3.6 billion approximately the prior year and on a constant currency basis increased by roughly 3%. Excluding Trans Mountain, every one of our business operating units had flat or positive organic growth in Q4. And sequentially, we had improving organic growth in each quarter of the year, with Q3 and Q4 returning to positive organic growth as expected. Our adjusted EBITDA margin increased to a record 15.8%. And we entered ‘22 having built our backlog to a record $5.1 billion, representing 13 months of work. And this is a 17% increase from 2020. We significantly advance our growth ambitions in 2021 through the completion of 6 acquisitions, deploying more than $700 million of capital and adding more than 200 employees to drive synergistic revenue growth. Each of these acquisitions are consistent with our strategy of pursuing targets small to medium sized firms that bolster Stantec’s presence in key business lines and geographies. In doubling the size of our footprint in Australia, and materially boosting our Environmental Services offerings in the U.S., we strengthen our ability to address the growing demand in both of these markets. The Cardno integration is going well. And a particular note, we are pleased to announce that Susan…

Thank you, Gord and good morning everyone. Before I dive into the details, we have made some minor presentation changes in order to comply with the new National Instruments on non-GAAP measures. You’ll note that we’re also using the new term project margin for what we used to call gross margin. There is no difference in how it’s calculated. As Gord mentioned the change in the Canadian/U.S. exchange rate has a substantial impact on our U.S. earnings this year, and it was particularly pronounced in the first 9 months of the year. We’ve summarized the impact on our key financial line items on this slide for your reference. For the fourth quarter we reported EPS of $0.15 compared to $0.13 last year, and adjusted EPS of $0.57 compared with $0.60 last year. Operating performance was stronger than Q4 last year. But recall that last year’s results included the favorable recovery of claim costs and resolution of certain tax matters. Net revenue grew by 6.3%, with 2.0% organic growth and 6.7% acquisition growth, partially offset by a 2.4% reduction due to foreign exchange. Project execution was very strong in the fourth quarter, increasing project margins by $51.6 million and by 250 basis points as a percentage of net revenue to 55.3%. Adjusted EBITDA increased $142.1 million, representing a 15.5% margin. The decrease from Q4 last year is mainly due to increased share based compensation expense, which translated to 146 basis points of margin. Decreased margin also reflects lower utilization in the U.S., as well as previously mentioned recovery of certain claim costs recorded last year. Our Q4 net income on an as reported basis also reflects an aggregate pretax $37.3 million in impairment and onerous contract costs arising from the ongoing execution of our 2023 real estate strategy. For the full…

Thanks Theresa. As we enter 2022 with a record 13 months of confirmed backlog on our books, we see a number of macro trends that Stantec is particularly well positioned to capitalize on in the years to come. Much has already been said about the magnitude of infrastructure stimulus spending that’s occurring around the world and that we’re well positioned to capitalize on. However, a growing component of this infrastructure spend will be directed towards disadvantaged communities, which is an area where Stantec community focus is a particular benefit to our clients. Our multidisciplinary expertise and our supplier diversity and equity team, helps to align funding to strengthen the resilience of these communities and is a competitive advantage for us. In addition, we have over 150 funding specialists that work with communities across North America. Collaborating with community leaders, technical staff and other partners, this team is focused on helping communities access public funding for infrastructure with an eye towards long-term sustainability. This is a further benefit to our clients as they look for additional sources of funding for their projects. So these are just two great examples of the full breadth of our service offering that continues to create our competitive advantage. A major takeaway from the pandemic for governments around the world has been how fragile the global supply chain is. And the exposure this creates for domestic economies if access to critical products or resources is curtailed. As I mentioned earlier, we are seeing growing investment in domestic manufacturing capability for strategic or essential products like vaccines, radioactive isotopes, solar panels and electric vehicle batteries and we are actively involved on all of these fronts. Another great example of this domestic supply chain strengthening involves the more than $80 billion that’s been announced related to semiconductor manufacturing…

Thank you. [Operator Instructions] We will now take our first question from Jacob Bout from CIBC. Please go ahead.

Good morning.

Good morning, Jacob.

Yes. First question is on margins, so 2022 EBITDA, you are saying 15.3% to 16.3% range, 2023 at 16% to 17%. I am assuming that’s still valid. Maybe just comment on some of the moving parts in your 2022 guidance. I mean, I think SG&A moves higher with reopening and there is going to be higher labor costs with inflation, I guess you offset as mix and I guess better reduced real estate footprint. So, that’s on 2022. And then maybe on ‘23, just talk about the bridge how you get from your guidance on ‘22 to ‘23?

Sure. So you have outlined really nicely, actually, Jacob, the – what we are expecting in 2022 and where we expect to come out for the year. As we move into 2023, a part of that underlying expectation is that the investments we are making in 2022 to really strengthen our internal resources, whether it is on the back office front, HR, accounting, IT systems and so on. And the investments we are making in innovation, the expectation is that as we move into 2023, we will continue to see growing benefit from that. Because we see such a strong multiyear cycle coming ahead of us for 2020 and beyond that, that productivity and efficiency should just continue into 2023. So that’s not in a large part, we’re expecting. We are also thinking about continuing to work toward our goals on synergies and integration savings through the Cardno acquisition, continuing to grow our pruning operation, which we have grown substantially in 2022 and continue to focus on where we can grow that delivery center and now determine how much we can grow the Manila operations that came with Cardno as well. So, there is a number of things. And as I have always said, there is just one or two key things that we can do to really change the margin, but it is a number – a multiple of things that we will drive towards.

And in your mind, what’s the biggest risk as far as actually achieving these 2023 targets?

I guess we have talked about the – everyone is talking about the labor shortage. You’ve heard Gord described why, although we’re not going to be immune to that, why we feel good about our positioning with the culture that Stantec has drawn people to us. But that remains a bit of a risk just because of the unknown elements of that. Will we be able to hire the people – to hire the people that we need to address the growth that is kind of coming towards the back end of this year and into next? And I think as much as we are very confident in our abilities to integrate acquisitions, Cardno is a large one. And it is complicated. So we – as it’s progressing, we feel good about the progress we’re making and are confident that we will be successful in that integration, but there is always risk associated with the timing and how disruptive that kind of activity can be to a firm that you’ve acquired. So those are a couple of things that we’re watching.

Last question here. Any exposure or how are you thinking about the Russia-Ukraine conflict and implications for Stantec?

We – as the temperature began to increase in the Ukraine last fall, we researched any project that we might have ongoing in the Ukraine. We did have an EU-funded project, a development project that was ongoing. We withdrew our people from the Ukraine late last year and this year, as the temperature continued to increase in January, we met with our clients and we wrapped the project up, wrote our final report. So we really haven’t had historically very much exposure to the Ukraine other than through some EU development projects. And certainly – so all of our people are out, all of our people are safe, and we don’t see at this point it to be a significant impact on us one way or the other.

That’s helpful. Thank you.

Thank you.

We will now take our next question from Jean-Francois Lavoie from Desjardins Capital Markets. Please go ahead.

Yes. Thank you very much and good morning. So I know it’s still early in the integration process, but I was wondering if you could talk about what’s your vision for the margin profile of Cardno’s as you have Pacific business over the next 2 to 3 years, please? Thank you.

Certainly. As we talked about when we announced the acquisition, overall, we expect Cardno’s margin profile to be largely consistent with ours and to continue to improve over time as we’re driving within legacy Stantec. And we have noted that between the U.S. business and the Australia business, the margin profile is different. In the U.S., where it is largely focused on environmental services work is that, that does tend to be a higher margin business. And so that portion of Cardno will generate stronger than average Stantec margins. In Australia where the business is more focused on transportation and other sectors that are still consistent with Stantec’s businesses, but not as high as ES. We would say that those margins will continue to be a little bit lower than our average. So all in all, it’s kind of a distress why it was such a good fit for us, very consistent margin profile to our specific sectors and opportunities to continue to streamline and expand margins as we continue those initiatives within Stantec.

Okay. That’s really helpful. Thank you very much. And then I was wondering if you could talk a bit more about your M&A strategy. You mentioned that the pipeline was full, but considering that the integration is on its early phase, should we expect more of a tuck-in approach in the near-term for 2022? Or is there still some opportunities that could materialize later this year?

Yes. So firstly, our primary focus is to ensure the smooth integration of the teams that are joining us from Cardno. So we’re working hard on that. To your point, that said, our balance sheet remains really strong even after the Cardno transaction. The pipeline of potential firms is really robust. So we’re continuing to look for firms. We’re in active discussions as we are at any time with firms in different geographies. Primarily right now, we’re looking at firms in Canada, the United States, the UK, Western Europe, New Zealand, primarily looking at firms water, transportation, buildings, environment and so on. And so while we’re continuing to look in Australia, the teams there, we’ve almost doubled the size of our group there. So we wouldn’t want to layer on another significantly sized acquisition in Australia. I think certainly within the first half of this year until we kind of get over the hump with the overall integration there. So I think the pipeline is still very full. Our appetite is still very strong. And our ability to integrate additional firms, we still have the capacity to do that. We could do it in Australia as well, but I think it just would be probably too much to later on an additional one there, because remember, in Australia in 2021, we acquired GTA, Engenium and then Cardno. So we’re really in the process of integrating three firms into our One Stantec philosophy in Australia. So we want to give a good chance for that to settle and ensure we’re getting the success of that before we layer on too much more.

Okay. That’s great. And the last one for me, on the – you mentioned in the press release the investment you’re making for commercialization of the technology. I was wondering if you could provide a bit more detail about that and the impact it might have on margin in 2023 and beyond. Thank you very much.

Yes. So within our – excuse me, within our innovation group, we’re working on a number of things. Firstly, we’re working on systems and processes that can make ourselves more efficient internally so that we will be able to develop projects – to deliver projects faster, be able to increase the net revenue generation per employee per FTE. And so we’re working on a number of things there to automate and expedite the design process. But externally, we’re working with clients to develop a number of systems that will meet their needs. And so I mentioned in the prepared remarks, the floodplain predictor model that helps us to assess where there might be flooding events where we might see landslides and these sorts of things. We have other products that we’ve developed and have 60 or more clients using it, which is like a financial management system that helps clients automate their capital planning process. And the beauty of that is that it – both is a sort of a software as a service and annual renewal – software renewal type of an agreement, but then we’re often hired as well on our consultative practice to help them work with the software and deliver it. So those are just a few examples of the types of things we’re doing both internally and externally. So we are investing in those things this year. We have also talked previously about some of the investments that we’re making in third-party firms like BlueSky Resources that are getting – that are underway and will add additional benefit to our clients. So as an example, BlueSky Resources that we’ve talked about previously, uses remote sensing information to provide information on –concentrations of contaminants in the atmosphere, and it can be used really anywhere around the world to provide some of our multinational clients with understandings of, are they meeting their regulatory requirements in terms of pollutants and things in different locations. So these are the types of things that we’re delivering, investing in now, but a number of them are bearing fruit already for us. So we’re really pleased with the progress in that area.

Great. Thank you very much.

Thank you.

We will now take our next question from Yuri Lynk from Canaccord. Please go ahead.

Hi, good morning, Gord and Theresa.

Good morning.

Good morning.

Wondering, I don’t know who wants to take it, but just wondering if you could talk about your expectations for utilization in 2022 versus last year?

Sorry, Yuri, – would you – just you were really soft there. I couldn’t quite hear, did you ask utilization?

Utilization for 2022 over 2021. Yes.

Yes. Okay, excellent. From a utilization perspective, as you have seen reflected in our results for 2021 and the guidance we’ve given for 2022, the U.S., we said a lot has – was slower to come up and recovered than we expected. And so as much as we have been managing our workforce in the U.S., there is some latency there because as we look at the size of our backlog and notified awards and then the momentum we expect to continue to build when infrastructure spending starts to flow. We’ve maintained a good portion of that workforce, which in 2021 was not as highly utilized as we would typically want or expect. And so as we go into next year, we do think and we’re seeing in Q1 that is continuing to be slow in terms of that ramp-up. And so U.S. utilization will probably be, again, a little bit lower. And that’s why we’re saying that our EBITDA margin in Q1 is probably going to be at the low end or maybe even a bit below the low end of our range for seasonal reasons, it’s typically a little bit lower, but coupled with the lower utilization in the U.S. that we expect to really build as we get past the first quarter into the second and beyond. So that’s the situation we expect to improve. And, of course, in light of the labor shortage and the very technical and skilled employees that we need, we believe it’s the right thing to retain those employees so that we have that were, of course, available to address the growth that is coming.

So not – on the whole, maybe not a big change in utilization in ‘22?

I think as we get towards the second half of the year, we expect a significant improvement, but I think Q1 maybe not so much.

Yes. Okay. And correct me if I’m wrong, but utilization would be one of the biggest drivers of your project margin?

Not project margin, but EBITDA margin because to the extent that project margin is your revenue minus direct labor, that we expect to just continue to be quite strong, but it’s when you have a workforce that isn’t chargeable that goes into your admin and marketing costs, and that will cause those expenses to be a little bit higher. So it will be more reflected in our EBITDA margin and not in project margin.

Okay. And second one, just digging in on the first quarter, why would your organic growth be back half weighted when you’re facing really, really easy comps in the first quarter, it was down almost 7.5% last year?

I think as we’re looking into the first quarter, we continue to see in the U.S. and somewhat in global as well, but these larger projects that we are winning and are in our backlog, so that gives us confidence that the backlog – the work is there. We are finding it is taking a little bit longer to complete the processes and get the work started. There we’re winning larger sized projects. They are more complex. And so the early work that we have to do is not labor-intensive. It’s a handful of specialists kind of dealing with the client to get the specific scoped out in the work orders issued. And then as those projects ramp up, it’s really when we can deploy large numbers of our staff to really get those projects up and running. So that’s what we’re seeing in the first quarter. And despite Q1 being an easy comp, I would say that, that’s probably the biggest factor is just that lag in getting the backlog converted into task orders and work orders that we can actually deploy large portions of our workforce towards.

Okay. And last one why wouldn’t that bleed into the second quarter?

It may. I think our expectation is that given what’s in our backlog and that sort of early work that as we get towards the second quarter, that we will largely have passed that hurdle and have those projects up and running. That’s our expectation.

And I think another factor there too, Yuri, is the environmental services backlog. And then that typically really gets rolling in the second quarter, particularly in Northern United States and in Canada, when we can put those people out in the field. And you’ve seen in our U.S. ES backlog up by 50% organically add on that, the Cardno folks. And so I think – which, of course, won’t show up in organic growth for the first year. But I think we see pretty robust growth in our Environmental Services business, and that really ramps up in quarters two and three.

Thank you.

Thank you, Yuri.

We will now take our next question from Michael Tupholme from TD Securities. Please go ahead.

Thank you. Good morning.

Good morning.

Maybe just to build on one of Yuri’s last questions there just with respect to organic growth guidance in 2022. Are you able to provide just sort of a little bit more detail about the cadence and the progression through the year, I guess, overall, but also across the regions, the various regions, Global, Canada and U.S.?

Yes. So sure, I’ll start with that and perhaps Theresa can dive in when it’s appropriate. So – maybe I’ll start with Global. We had a really strong year in Global, almost 9% organic growth in 2021. And we really, with the backlog that we’ve got, we see that coming in good backlog growth. We mentioned high single to low double-digit growth in 2022. So we’re seeing a lot of transportation work. I mentioned in the prepared results in the UK – certainly, Australia and New Zealand we are seeing some buildings work down there. We’ve talked about the Footscray Hospital and others. And so – and we talked about the amount of infrastructure stimulus, UK, Australia and so on. Also, we’re getting support from high copper and some of the other commodity prices in our mining businesses in South America and Western Australia. So I think we feel pretty good about our Global organic growth. Even though it was strong, in 2021, we feel it’s going to be pretty strong and robust in 2022 as well. Then maybe talking about Canada, excluding Trans Mountain – and we will be so happy that we don’t have to ever mention that again after this quarter, the impact on revenue of that project. Excluding that, we had organic growth this year in Canada, just over 5%. And so Canada came out of the gates pretty quick as did Global in 2021. And – so we expect good performance still in 2022. But because a lot of Canada sort of came out of the gate in 2021, we see organic growth in Canada in that low single digits in 2022. U.S. is interesting because you’ve seen the organic growth that we’ve got there, 10% organic growth in the U.S. And when you add in our acquisition backlog, U.S. backlog is up over 23% to a record of CAD3 billion, so pretty significant there. Strong backlog as we go into 2021, the tailwind from infrastructure stimulus, and I think will be a second half of the year. We are starting to see some of those RFPs hit the street now from the bipartisan infrastructure law that is anticipated to come. We’re seeing some state and local work coming out in anticipation of it. In water, lead service line replacement, transportation. Interesting, we’ve responded to five EV charging network RFQs in the past 2 weeks alone. So there is a lot of work coming out in those areas, too. We talked about semiconductors, where we’re working on a number of these facilities already. And certainly, there is more to come. So we do feel pretty good about organic growth in the U.S. But I think you – many of our other multi-sector global peers have talked about the first part of the year being a little slower than the second part. And I think what we’re feeling is consistent with that.

Okay. Thanks very much, Gord. That’s very helpful. Just shifting over to your margin, your EBITDA margin guidance, in the release, you talked about the guidance reflecting investments in internal growth resources to support the growth in the business and the commercialization of new innovations and technologies as being factors that are going to weigh on the margins. Can you just elaborate on the investments you’re making and what you’re doing in those areas?

Sure. So again, there are a couple of components to it. But as I mentioned earlier, the growth that we see coming, coupled with some disruption in overall labor that everybody is experiencing. We are seeing a need, for instance, to bolster our internal resources and human resources because we need the talent acquisition people, to hire the people to deploy to these projects. And that’s a really hot market right now. And so hiring additional people in HR, hiring additional people on our other back office teams to support the growth is something that we have been quite brutal on in the last couple of years and just believe that in order for us to be able to achieve the growth that we see coming, we need to now kind of loosen those per strings a little bit. Cybersecurity continues to be an area that requires just constant investment, and we see some of that coming. And as well, our IT system to support – we’ve talked about the increased work we’re doing on – both U.S. and Canadian federal and there are requirements there around your IT systems, the increased IDIQ work that Gord has been referencing, it requires us to put some investment toward our IT systems to meet the regulations and the requirements of that particular client. So those are the kinds of things that we are focused on internally. And from an innovation standpoint, it is around ensuring that we are not penny-wise and pound foolish when it comes to innovation, but that we are really critically determining where to put our capital dollars toward what innovation activities that will either create opportunities with our clients in terms of new services or make them stickier to us through as an entry way and add on other services to it, or in our ability to deliver our work such that we can be more efficient and can either drive to more competitive pricing or greater margin expansion that we’re able to keep. So that’s kind of the general suite of things that we’re looking at.

Okay, thanks very much, Theresa. And then maybe just one last one, probably for you as well, Theresa. Just sticking with the subject of your EBITDA margin guidance, I know you said you’ve not made any assumptions around the impact of share price movements since year-end as it relates to stock-based comps. But what have you baked into your 2022 adjusted EBITDA margin guidance with respect to stock-based compensation relative to what you would have expensed in 2021?

So what we have baked in is an assumption that we – that the share price remains stable as of where it was at the end of the year. So given market activity today and how long it lasts, it may help or hurt us as we go forward. One thing I will mention with respect to our stock-based comp and it’s in our MD&A, and I suspect we haven’t gotten to those pages yet in our public disclosures. But we did at the end of the year enter into a swap for a portion of our stock-based compensation to try and mitigate some of the volatility that we saw this year. And so in aggregate, about 35% of the units that we have outstanding have been hedged effectively, and we should have – we should be able to then offset volatility in the share price movement for that portion of the units we have outstanding. The balance remains subject to share price fluctuations, but those swaps will help to mitigate it somewhat.

Okay. I’ll take a look at that and follow-up. Thank you.

Thanks, Michael.

We will now take our next question from Frederic Bastien from Raymond James. Please go ahead.

Good morning. Have you seen the coming together of Cardno and Stantec drive new revenue opportunities that might not have been attainable prior to the combination?

Yes. I think what’s been interesting with combining Cardno and Stantec, Frederic, is that while we are working through the process, doing the due diligence, certainly it was only the executive level that was aware of the transaction and we are chatting about it. And we felt that there was really good synergy in clients and with some of the individuals. But when we announced that the transaction, the – just the outpouring of folks from both Cardno and Stantec who said, we work with this group on a project here or I worked with them previously at their company or this company, just the amount of synergy between the employees has been fantastic. So, without question, that has driven more excitement and more opportunities, I think in terms of – than we actually thought that there was initially. So, it’s been a pleasant surprise for us.

I don’t like asking that question, but were there anything that surprised you from more of a cautionary example or something that may not have been super pleasant about the acquisition, or is overall everything pretty good to go?

We – through the due diligence, we had really searched hard to unearth any concerns that we might have from tax and project due diligence, IT due diligence and so on. So no, there has actually been no real downside surprises because we had unearthed those things during due diligence.

Okay. Super. Where do you expect the leverage to finish by the end of this year, assuming you don’t do any major acquisitions? Is it possible that you go towards the low end of your target range?

Yes. That is my expectation, assuming that if we don’t pay around any assumptions around acquisitions, we should be towards the low end of our range.

Excellent. That’s all I have. Thank you very much.

Thanks Frederic.

We will now take our next question from Ian Gillies from Stifel. Please go ahead.

Good morning everyone.

Good morning.

Good morning.

Could you elaborate a little bit on how you have factored in a rate hiking cycle and the impacts it may have on the buildings portion of your business, whether it would be on the commercial side and/or on the residential side?

So, as we have been talking with our clients, they haven’t really been too – we haven’t seen a lot of sensitivity in our discussions at this point to rate hikes. Where we have seen more sensitivity from some of our commercial buildings clients has been with regards to inflation in terms of supplies. And if the cost of the building increases by a certain amount, how can we value engineer it to kind of get the cost back down in line with where things might be. So yes, so the discussions that we have been having so far have been less about rate hikes and more about just inflationary pressures overall.

Okay. That’s helpful. And the other thing I wanted to ask about with respect to the infrastructure bill in the U.S., you are already starting to see some commentary that proponents or people are going to participate or moving to smaller projects rather than larger projects, given inflationary pressures. I mean does Stantec have any preference on whether we are working on small or large projects with respect to this bill, or is it kind of all equal?

Yes. I think that’s one of the beauties actually of the Stantec model is that we work on projects from $5,000 in fees to several hundred millions of dollars in fees. And we have kind of scaled our whole operation from the smaller community ones to those larger sort of global class type projects. So no, I think we are okay. However, our clients decide to put out the projects will be just fine with us.

Okay. Thanks very much. I will turn it back over.

Thank you.

Our next question comes from Maxim Sytchev from National Bank Financial. Please go ahead.

Hi Gord there. Theresa, good morning.

Good morning.

Gord, just a quick question in terms of the U.S. potential benefiting from Biden stimulus in the back half, I think when we look at some of the peers, people are sort of pointing to 2023. So, just wondering what gives you sort of the confidence about that inflection point maybe a little bit earlier. Yes. So, I guess any comment there?

Yes. No, great point, Maxim. It’s interesting. One of the ones that came out earlier this week, they were talking about 2023. I think their 2023 starts in our Q4. So, as they are talking about 2023 it’s kind of maybe even back half to us. So, I do think because we are starting to see some of the projects hit the streets now that – this won’t be a Q1 story for us or I think we will start to see some revenue generated in Q3. But I do think this will be a Q3, Q4 story for us and certainly providing strong, strong tailwinds as we go into calendar year 2023 also.

Okay. That’s helpful. Thank you. And then just one last question, in terms of expectations of sellers, obviously, we have seen a deflation of multiples in the public market, but wondering if the conversation that you have right now with the potential private targets, if you are seeing any change in the bottom line, which – or it’s still kind of pretty sticky. So, maybe just any color there?

Yes. Some of the discussions that we have been having, certainly, in the latter part of last year, expectations of sellers from a multiple perspective crept up as in concert, the public company multiples were creeping upwards as well. So, it’s been – since the beginning of the year that we have seen some of the public multiples come down a little bit. So, we – the firms that we are talking to, I think the academically, they understand that there is a certain accretive delta between that we need to hold on to. So, we have had some discussions on it, on those with some sellers. And I think they are just waiting to see kind of what happens with things. So, I think everyone is being reasonable, but this response in the public market since the beginning of the year, has it quite crept into some of these private firms yet. But I think it will, if things stay where they are, but we haven’t seen any transactions since the beginning of the year to really know how that all plays out.

Okay. That’s very helpful. Thank you. Thank you so much.

Thanks Maxim.

We will now take our next question from Mark Neville from Scotiabank. Please go ahead.

Hey. Good morning. Two questions. First, just to be clear, do you expect the business to put up some organic growth in Q1?

Yes, absolutely. We sort of – Theresa and I were looking at each other in terms of who is going to respond. But we do expect organic growth in Q1, just strengthening quarter-over-quarter as we go into the latter part of the year.

Okay. Got it. In terms of the investments that you have laid out, Theresa and Gord, I appreciate the color. But is there any – could you maybe provide sort of a quantum of the size of that investment, just to understand sort of the impact that’s having this year?

It’s effectively embedded in the adjusted EBITDA range that we have put out, the 15.3% to 16.3%. So, our assumptions around where that spending will go coupled with some increased spending. I think that’s the one – actually, the one area that I haven’t hit on. I talked about HR IT is our marketing and business development activities. So, that assumption is baked into that EBITDA margin, and we haven’t provided sort of specific dollar ranges for what those additional costs might be explicitly.

Okay. No, that’s fine. Maybe just last question, just on free cash flow. I mean the expectation sort of grows in line with earnings. Is there anything sort of to think about in terms of CapEx or working Cap or I don’t know?

Well, I would say that I agree with you. The expectation is that free cash flow will grow along with our earnings. So, that should be pretty robust this year. CapEx is never a huge part of our overall spend. It will probably notch up a little bit next year just because through the pandemic, we have been pretty careful in camping back cost for capital spending. It won’t be outsized by any stretch, but it will probably creep up a little bit relative to this year.

Got it. Alright. Thanks for the time. I appreciate it.

Thank you.

We will now take our next question from Sabahat Khan from RBC Capital. Please go ahead.

Hi. Great. Thanks and good morning. I guess there has been a bit of discussion on the U.S. and the infrastructure build contribution. I just trying to get an idea of when you think about sort of building a buffer, the mid to high single digit organic growth guidance, is this some of the spend from the infrastructure bill that get pushed into ‘23. Is that what maybe pushes the organic growth into sort of the mid-single digit range for the year for total company. Just want to understand kind of the buffering or how much contribution may be reflected in the guide for this year?

Yes. So, there – as we put our thoughts together on what our expectations were for the U.S., the things that we are starting to see both from what’s in our backlog to the level of activity on the marketing front is embedded in that mid to high-single digit organic growth. And you are right. I mean some of it is – there is always a component of revenue that you think you are going to win, but maybe isn’t explicitly identified two projects yet. And so that is embedded in that mid to high-single digit range. And as we have talked about in Q1 with a bit of a slower uptick, again, how the year unfolds and how quickly we get actually moving and getting utilization up and getting those projects up and running towards the end of the year, whether that pushes us towards the higher end, it remains to be seen. But those are the assumptions that would be embedded in that range.

Okay. Great. Thanks for that. And I guess just one related to kind of the real estate rationalization strategy. And I think it looks like from your income statement buildup, there is a non-cash impairment related to some of the leasehold assets on your balance sheet. It looks like there was one last. I just want to make sure I understand that. Is that really just being able to sublet space that you might be operating in at a lower rate than maybe what you might have gotten? I just want to make sure we understand the accounting here. And then also if you can comment on if you are subletting space, is that going to be recognized as maybe an offset to your SG&A costs, or where would that kind of flow into your income statement? Just a bit of clarity on those – the line items, please.

Yes, sure. So, I mean if anyone can crack the nut on IFRS 16, they deserve a metal. It is very convoluted and complex. So, let’s talk about the lease impairments first. And so we did take a large impairment last year and not related to space that we identified that we could both downsize and then make available to sublet or leases that we could exit at that time. And so as we advance through this year, the lease impairment that we took in 2021 made up of two pieces. One is the further identification of spaces that we could rationalize and the second relates to some of the space that we impaired last year. There is all kinds of modeling that goes into the determination of the value of those leases and what you write-off. And for some of that space, market conditions in 2021 ended up to be outside to the low end of what we would have modeled. So, we had to take a further impairment on those spaces. So, then as we look forward into what that means, it does mean that there is going to be a combination of cost savings from having exited spaces that we are no longer paying for or spaces that we have rationalized and are subleasing and that will result in some inflow of earnings and cash. And so as far as I can see, that inflow of cash will not flow through our admin and marketing expenses. I think the majority of it is going to still be outside of our EBITDA calculation. And it will – if this cash flow, of course, it will show up in our cash flow statement. But it is a little convoluted and a bit tough to pick apart. But the effects of leasing now really largely reside outside of the EBITDA calculation.

Okay. No. I appreciate the color and definitely a bit convoluted. And I guess in terms of just the work towards, it seems like a good chunk of the savings already came in ‘21. Is there just, I guess a bit more of this subleasing/exiting of leases remaining, or maybe just in terms of the amount of leg work left to get those savings done for the next year or so?

We have identified a good portion of the space that we have both impaired or sort of available for subleasing. There is still a bit to go. But I think from an identification perspective, we have done a lot of that land work. But it’s being managed pretty carefully. And so the potential that there might be some spaces that become available or that we identified that we hadn’t initially paid is always possible. But we would continue to say again $0.20 to $0.25 over the next 2 years of EPS uplift from this initiative.

Great. Thanks very much for that.

Thanks.

We will now take our final question from Devin Dodge from BMO Capital Markets. Please go ahead.

Hi. Thanks. I wanted to start with the Global segment. And can you help us understand that, that really strong net revenue growth figure that you reported. I just don’t see – I don’t recall seeing an organic revenue growth number that high before. Were there some favorable closeouts or settlements, or is this a true reflection of the underlying demand.

Go ahead.

In Q4, there was some collection of previously provided for reserves, not material enough to kind of swing things, but there was a bit of that in Q4. But overall, for the year, what we saw was just really strong performance in Australia and New Zealand, some pretty large projects that we were successful in winning and that we are executing on. Mining was really strong as we – especially as we talk towards the back half of the year and some of the community development and transportation work we were doing in the UK, was also pretty strong. So, the AMP program in the UK is in full swing, and that is also being really supportive from a revenue organic growth standpoint. So, those two regions, in particular, Australia, New Zealand and the UK is where much of the growth occurred. And really as we look into next year, what we would continue to expect is really, really strong macro factors in those regions that will drive growth.

And it’s interesting, as I go back and look at the organic growth each quarter this year, we did have a retraction in Q1, but Q2 and Q3 organic growth were both in plus or minus the 10% range. And then so we finished the year at 9%. It’s certainly like – it’s kind of reflective of what we have seen sort of in the mid part of the year, a little higher in Q4. But overall, that 9%, 10% is sort of what we have been seeing.

Okay. Have you been – I am just trying to understand, have you – is a lot of this, let’s say, internal hires that you guys have been able to accommodate that work, or is it more subcontractors coming on, or I guess how should we think with that because, obviously, that kind of plays into how the next year – 2022 unfolds in that Global segment?

We have been actively hiring in the majority of our regions from a global perspective. And it’s certainly a robust labor market out there. The one thing that I think we have been able to do is we continue to be able to move our work around. So for example, we can send project work from the UK over to Australia and vice versa and then into Canada and so on. So, I think that’s certainly been beneficial. I think the one benefit that we have going into 2022 is that a lot of the – the size of our workforce in Australia and New Zealand is influenced by in ground migration as well. And really, in 2021, there was very little to none of that because the borders were sealed in those locations. And so now that we are starting to see those borders open again, I think that will give us an additional source of individuals that we can draw from as we hire people into Australia, hire people into New Zealand. That will certainly help in those locations as well, something that we did not have really in 2021.

Okay. Thanks a lot. Maybe just to close off here, the cadence of EPS in 2022, part of the guidance was pointing to 40% EPS in Q1 and Q4. You are pointing to a stronger second half, so presumably Q4 will take more – a greater share of that 40%. So, I usually don’t like to get too granular on this stuff, but I just wanted to give you an opportunity to frame the consensus numbers here. So, do you expect to improve earnings sequentially, so from Q4 into Q1 despite a full quarter contribution from Cardno?

Yes. Thank you for bringing that up. The 40/60 split is what we will expect for the shoulder quarters and the second and third quarter being stronger than that, that will be the case just because of the – that’s when we can be most productive. But you are absolutely right. Typically, we expect Q1, Q4 to be roughly even part of it because of weather, probably because your ramp-up in Q1, Q4 is very happy with holiday and time away. But in 2022, we do expect that Q4 will be stronger than Q1. So, that 40% overall, you should not expect – we don’t think that to be easily split between Q1 and Q4, it should be more weighted towards the fourth quarter.

Okay. Thanks a lot.

Great. Thank you.

As there are no further questions in the queue at this time, I would like to turn the call back to your speakers for any additional or closing remarks.

Great. Well, thanks again, everyone, for joining us on the call today. And we look forward to continuing to speak with you throughout the year about our continued progress, a year that we are pretty excited about. So thanks again, everyone. Have a good day.

Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.