Earnings Call Transcript - STN Q4 2025

Operator, Operator

Welcome to Stantec's Fourth Quarter and Full Year 2025 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Vito Culmone, 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 being 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 discussion and analysis and incorporated in full for the purpose 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'll turn the call over to Mr. Gord Johnston.

Gord Johnston, President and CEO

Good morning, everyone, and thank you for joining us today. 2025 marked another record year for Stantec. We delivered solid mid-single-digit organic growth and completed three acquisitions despite a year of ongoing geopolitical uncertainty. Global trends across the water, mission-critical, transportation, and energy transition sectors continue to underpin strong demand for our services, and our diversified portfolio across sectors and geographies continues to enhance the resilience of our operations. As a result, we grew our net revenue almost 11% compared to 2024 to $6.5 billion, driven by 5% organic and 3.9% acquisition growth. Organic growth was achieved in all of our regional and business operating units, with our Water business achieving almost 11% organic growth. Adjusted EBITDA increased close to 17% year-over-year, and continued strong project execution drove our adjusted EBITDA margin to 17.6%, achieving our 2024 to 2026 strategic plan target range of 17% to 18%, one full year earlier than originally anticipated. We also delivered adjusted EPS growth of almost 20% compared to 2024. Looking at our results in each of our geographies, in the fourth quarter, U.S. net revenue increased 13.5%, driven primarily by 11.5% acquisition and just over 2% organic growth. On a full year basis, net revenue grew by almost 11%, supported by just over 5% acquisition and 3.4% organic growth. In our Buildings business, net revenue increased over 30% in the year, primarily due to our acquisition of Page, but also from solid organic growth. Public and private sector investments in data centers and other mission-critical facilities, science and technology, and civic continue to drive organic growth in this division. Organic growth in Water was driven by large wastewater treatment projects, and growth in Environmental Services was primarily driven by the energy transition, mining, and infrastructure sectors, as well as continued work for a large utility provider. In Canada, fourth quarter net revenue grew 5.5% in the quarter, driven completely by organic growth. For the full year, net revenue grew over 8% compared to 2024, primarily through organic growth. We're pleased that our Water and Energy & Resources businesses continued to deliver strong double-digit growth. Momentum on major wastewater projects contributed to over 20% organic growth in water, and consistent progress on major industrial process projects drove 15% organic growth in Energy & Resources. Solid growth in Infrastructure was primarily supported by land development projects in Alberta, airport sector projects in Quebec, and bridge sector work in Eastern Canada. Public sector investment continued to drive growth in buildings, primarily in our civic and health care markets. Lastly, in the fourth quarter, our Global business delivered net revenue growth of 11%, achieving over 6% organic and 2.5% acquisition growth and, to a lesser extent, positive foreign exchange impact. For the full year, the Global business grew net revenue by almost 13%, underpinned by almost 6% organic and over 4% acquisition growth. Our industry-leading Water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the U.K., Australia, and New Zealand. The ramp-up of new projects in Chile and Peru drove strong organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German Infrastructure business due to continued momentum on a major public sector electrical transmission project and increased volume on transit and rail projects. I'll now turn the call over to Vito to review our fourth quarter and full year 2025 financial results, as well as to provide an update on our backlog and financial targets for 2026.

Vito Culmone, CFO

Thank you, Gord, and good morning, everyone. 2025 truly was another exceptional year for Stantec, and we are very pleased with our fourth quarter and our full year 2025 results. Sustained demand across our diverse multi-sector platform, underpinned by favorable global trends, continues to support our strong results. In the fourth quarter, we achieved gross revenue of $2.1 billion and net revenue of $1.6 billion, an increase of 10.9% compared to Q4 of 2024. This growth was driven by 3.9% organic growth and 6.5% acquisition growth. As a percentage of our net revenue, project margins once again remained in line with our expectations at 54.5%. We achieved an adjusted EBITDA margin of 17.3% in the quarter, which is a 60 basis point increase compared to Q4 of 2024. The increase in margin primarily reflects lower admin and marketing expenses as a percentage of our net revenue, mainly due to higher utilization and our continued discipline in the management of our operations. And our adjusted EPS in the fourth quarter increased 12.6% to $1.25. Looking at the full year, as Gordon mentioned, 2025 was another record year for Stantec. Our gross revenue reached $8.1 billion, and we grew net revenue to $6.5 billion, up 10.7% when compared to our performance in 2024. This was achieved through 5% organic and 3.9% acquisition growth. And as a percentage of our net revenue, project margins came in at 54.3%, once again, in line with our expectations. On a full year basis, we achieved a very strong adjusted EBITDA margin of 17.9%, a 90 basis point increase year-over-year. This record margin was driven by strong project execution and cost management across our entire business. And finally, our adjusted EPS for the year reached $5.30, an increase of 19.9% when compared to 2024. Turning to our cash flow, liquidity, and capital resources. During 2025, our operating cash flow increased 43.1% compared to 2024, growing from $603 million to $863 million, reflecting continued strong cash flow generation through our revenue growth, operational performance, and strong working capital management. Our free cash flow to net income conversion was 1.3x, above our target of 1.0x. DSO at the end of the fourth quarter was 69 days, a substantive improvement of 8 days compared to Q4 of 2024 due to excellence in working capital management. We finished the year with a net debt to adjusted EBITDA ratio of 1.3x within our internal target range of 1 to 2x. As a result of our continued strong performance, the Board has approved an 8.9% dividend increase; with this, our annualized dividend will increase to $0.98 per share. It's important to note that our strong balance sheet leaves us very well positioned for future acquisition growth in 2026. Now turning to our backlog. At the end of 2025, our contract backlog reached a new all-time high of $8.6 billion, a 9.5% increase year-over-year, representing approximately 13 months of work. Acquisitions completed in 2025 contributed to backlog growth of over 8%, primarily within our Buildings business. Year-over-year organic growth was 3.6%. We achieved organic growth in all of our regions, most notably in Global, which delivered double-digit growth of 14.2%. We also saw strong backlog growth in Water, and the strength in our Buildings business was supported by health care, data centers, and other mission-critical facilities. Let's now turn to our 2026 financial targets, and we expect another strong year. Net revenue growth is expected to be in the range of 8.5% to 11.5% achieved through organic net revenue and acquisition growth, primarily due to the Page acquisition. We anticipate our adjusted EBITDA margin will continue to expand, and that's driven by solid project execution, enhanced strategies in the management of admin and marketing, continued expansion of our high-value centers, and optimization of our digital strategies. As such, we expect to deliver an adjusted EBITDA margin between 17.6% to 18.2%. And we expect to deliver 15% to 18% growth in adjusted EPS compared to 2025. These targets, of course, do not include any assumptions related to additional acquisitions, given the unpredictable nature of the timing and size of such transactions. With that, let me turn the call back to Gord to highlight the business drivers supporting our targets for 2026.

Gord Johnston, President and CEO

Thank you. As Vito mentioned, we expect strong net revenue for 2026, primarily driven by improved organic net revenue growth across the business. Each of our geographies is expected to be in the mid- to high single-digit range. Macro trends, including aging infrastructure, defense spending, water security, advanced manufacturing, the growing demand for mission-critical facilities, and energy transition, all continue to create meaningful opportunities for Stantec. Over the past couple of months, we've started to see an increase in activity in the U.S., and we expect this trend to continue throughout the year. We're securing our fair share of wins across all five of our business operating units. Growth in the U.S. will be underpinned by the continued strength of our Buildings business as we continue to capture synergies from the Page acquisition. Our Buildings team continues to see strong activity in data centers. As an example, Stantec was just selected by an artificial intelligence firm to design the initial 300- to 350-megawatt phase of a large data center campus, which has the potential to scale up to 1 gigawatt. In Environmental Services, work is picking up related to the U.S. Navy CLEAN Program, and activity within the U.S. Department of Defense continues to accelerate. In the energy sector, particularly LNG, strong demand is expected to generate meaningful project activity and cross-selling opportunities for both our Environmental Services and Energy & Resources businesses. U.S. Infrastructure remains a significant growth driver for us. With roughly half of IIJA funding still to be allocated, we continue to see strong momentum across our Infrastructure business, including major roads and bridge projects in the Southeast and large transit and rail programs in the West. In Canada, organic growth will be driven by public and private sector spending plans. We continue to see strong growth in our Water business through major wastewater and biosolid treatment facilities. We expect strong growth in Environmental Services and Energy & Resources, with large private investments in energy infrastructure. And we're seeing strong growth coming from enhanced defense spending in both our Buildings and Infrastructure businesses. We're involved in a number of projects in the Arctic, where we bring specialized expertise in extreme climate conditions to support defense work. These include projects like Grays Bay Road, which leads to the proposed deepwater port that will have the ability to handle Navy vessels and large cargo ships. We're also involved in facilities to support the North American Aerospace Defense Command, and we're doing work for the Canadian Department of National Defense to deliver facility upgrades for the Canadian Armed Forces. We also just secured a major design-build contract for Defence Construction Canada's Multi-Mission Aircraft hangar. Finally, in our Global region, organic growth is expected to be driven by continued high levels of activity in our Water business under the ongoing AMP8 program. We're involved in over 20 AMP8 frameworks, and we continue to be an industry leader in U.K. water by a significant margin. Stantec's U.K. water team was recently named as a preferred bidder for the multibillion-pound Scottish water enterprise, which is set to transform Scotland's water and wastewater networks. This program, which can extend out 13 years, is the largest program of investment in Scottish water's history. Combined with other frameworks in Australia and New Zealand, we expect strong growth in our Global Water segment. In addition, we continue to see strong demand in our Global Energy & Resources business and in Transportation, particularly in Germany. Outside of organic growth, M&A remains a fundamental driver for Stantec. However, we will not pursue acquisitions solely for the sake of growth or to meet a certain target. Acquisitions must be value accretive. Stantec has a long and proven track record of successful M&A, with last year's addition of Page marking our 150th completed transaction. We're very well positioned to continue to build on this track record in 2026 and beyond, and we continue to see ample opportunities in the market. As we enter the final year of our 2024 to 2026 strategic plan, we're making meaningful progress towards the plan's targets. The momentum we've built, combined with favorable long-term market trends, position Stantec to drive sustained growth and shareholder value for many years to come. Before concluding today's prepared remarks, I'd like to touch on AI and how we're thinking about it at Stantec. As engineers, architects, and designated professionals, we're trusted advisers. Our clients hire us to use our qualified judgment to solve problems and develop solutions using a variety of tools. AI helps manage scale, consistency, and document-heavy work, so our teams can stay focused on the design intent, risk trade-offs, and client accountability. To do this work, clients are continually asking for faster delivery, fewer surprises, and clearer defensibility. For us, AI enables earlier option evaluation, reduces late-stage conflicts, and improves quality control. The opportunity isn't the technology itself; it's the ability to make better decisions earlier and deliver stronger outcomes across the asset life cycle. From a financial standpoint, AI does not automatically translate to lower fees. In fixed fee work, it improves margins by reducing rework and execution risk. In time and materials work, it increases throughput and delivery confidence, allowing teams to manage more work in parallel. Our pricing remains anchored in value and risk reduction, not simply in hours. Strategically, we take a partner-agnostic approach. Our advantage isn't tied to a single technology; it's our ability to operationalize AI without compromising that trust, governance, or professional standards. We've moved beyond isolated AI pilots, and we're now enabling AI directly into our delivery workflows while maintaining professional accountability. AI also provides multiple revenue opportunities. For example, related to data center development, our teams are already working on five separate hyperscalers to develop approximately 2.5 gigawatts of capacity. Combined, these facilities are worth almost $35 billion. In addition, we're working on well over 100 other mission-critical facilities. This work crosses several of our verticals, given the need for planning, design, energy, cooling, and resilience. We also see opportunities from advanced analytics and predictive advisory services for our clients and for digital and data-enhanced deliverables. Clients trust us to securely manage and govern large volumes of project data, which enables us to provide predictive and structured analytical solutions. These are just a couple of examples of how AI is an opportunity amplifier, enabling new work, new service lines, and deeper client relationships. Clients who are building AI-enabled infrastructure and operations need trusted partners like Stantec who understand both engineering and data. In short, AI strengthens our professional model, enhancing predictability, allowing for better delivery, creating new opportunities, and supporting margin enhancement. And with that, let me turn the call over to the operator for questions.

Operator, Operator

Our first question comes from Ian Gillies from Stifel.

Ian Gillies, Analyst

As you think about AI, and I had asked this question on previous conference calls, how do you think this ends up translating into revenue per employee, employee utilization, and the like? Because those have always been pretty key drivers in improving margin and improving the top line.

Gord Johnston, President and CEO

Yes, absolutely. I believe all of this is favorable for us. I've mentioned before that I see AI as the latest tool in a series of technological advancements in the engineering field. Each of these tools has made us more efficient and has increased our net revenue per employee. We're looking back at the transition from calculators to computers to AutoCAD to 3D, and now AI is simply the next tool that will help us generate more revenue per full-time employee.

Ian Gillies, Analyst

Understood. And Gord, you've been pretty vocal about wanting to execute M&A over the last, call it, 18 to 24 months and rightfully so. But with the reset in valuation metrics for public equities, I guess, over the course of your career, and as you followed the M&A market, how long does it typically take for companies to reset their valuation markers because there's probably a bit of a disconnect right now given the rapidity or how rapid it's been and how quickly things have moved over the last few months?

Gord Johnston, President and CEO

Yes, it's interesting because we're having the same conversations. The decline in multiples in the public markets is a relatively new phenomenon for us; it has only been a couple of weeks or a month. Therefore, we haven’t observed many transactions that have closed during this time. There is likely an adjustment in expectations that will take some time to materialize. The question remains whether this is the new normal for us and our competitors, or if it is just a temporary dip. Additionally, we need to consider if this trend will persist for a while. This will influence our outlook on the M&A market.

Ian Gillies, Analyst

A very quick follow-on. So would it be fair to presume that it may take a little longer than we would have thought maybe 6 months ago, just given everything that's happened?

Gord Johnston, President and CEO

Oh, we're very, very active still. Absolutely. And you always have a number of conversations in the works. And these are good firms that we see have good long-term bones and good synergies with Stantec. So certainly, the pricing conversation is ongoing, but that's only one conversation out of multiple to make sure that the fit is there, the synergies are there, and the cultural piece is there. And now we're just talking about the financial piece.

Vito Culmone, CFO

Ultimately, we fundamentally believe in the long-term value creation opportunities for our sector, notwithstanding the recent downturn that you're alluding to. So clearly, valuation is one component, as Gord noted, of any conversation when it comes to targets. But the primary focus, it really is about how these potential acquisitions fit into our strategic portfolio and what it enables us to do for our clients. And so from that perspective, we don't see any timing-related issues.

Operator, Operator

And our next question comes from the line of Sabahat Khan from RBC Capital Markets.

Sabahat Khan, Analyst

Great. Maybe just one on AI, and I promise to switch over to something else after. But I guess, in your sort of use of AI to date, where are you finding in terms of end markets or just these efficiency tools and digital tools, where do you see more application for such tools and capabilities today? And where do you think that sort of evolves over time? Is this something that can sort of make its way across all end markets providing efficiency? Just curious what you're seeing in the early days versus where you see this going?

Gord Johnston, President and CEO

Thank you, Sabahat. We are focusing on several things to improve our internal efficiency, including enhancing our back-office tools. Additionally, we are looking at how our engineers, architects, and professional services teams can use AI tools to increase efficiency and improve our work products. For instance, in our Buildings group, we are currently using a visual AI tool called Stable Diffusion. This allows us to sketch ideas with clients and quickly convert them into drawings. When our engineers and architects work on various projects, we need to choose the right specifications for materials or equipment from our extensive libraries, and AI tools are assisting us in quickly identifying the best options. When we submit large design packages to clients, which involve meeting regulatory requirements for permits and reviews, we are leveraging AI to enhance our quality assurance processes. These AI applications will be implemented across all our regions and business lines. While we are still in the early stages, our design teams are quite enthusiastic about the potential advancements this technology could bring.

Sabahat Khan, Analyst

Okay. Great. And then just in terms of the sort of setup into 2026, just looking at your guide, maybe just if you could dig into the U.S. segment a bit more. One of your peers noted a bit more predictability and stability in that market this year. Can you give, from your vantage point, what are you seeing across either the infrastructure side, water side, just kind of your larger end markets in the U.S. market today and sort of where the funding mechanisms are for the year ahead?

Gord Johnston, President and CEO

We've observed increased activity in the U.S. over the past few months, with our U.S. backlog rising about 3% from Q3 to Q4. This uptick in activity is resulting in a growing backlog, which we expect to maintain moving forward. There is significant work happening in the data center sector, particularly for hyperscalers, with five projects valued at around $35 billion. Additionally, we are engaged in various environmental services projects, including the U.S. Navy's CLEAN Program and D&D work. We are encountering numerous opportunities across our sectors in the U.S., especially in energy transition work and grid strengthening initiatives in the South. Overall, we feel optimistic about receiving broad support across the U.S. as we approach 2026.

Operator, Operator

And our next question comes from the line of Frederic Bastien from Raymond James.

Frederic Bastien, Analyst

It feels like an engineering firm's ability to seamlessly embed AI with proprietary data will be a major competitive advantage going forward. And I think those who invest accordingly will obviously be awarded. Do you believe that will benefit larger firms like you over the smaller ones and potentially lead to more consolidation acquisition opportunities?

Gord Johnston, President and CEO

That is exactly our thesis as well, Frederic. As we've discussed in the past, some of the firms that have joined us, particularly those with 1,000 to 2,000 employees, reached a certain level even before AI. They now need to professionalize their IT, cybersecurity, finances, HR, and related areas. They lack the necessary resources, both in skills and finances, to support that; they just want to focus on their work. We are now seeing AI accelerate this need, prompting additional investments in resources, both in terms of personnel and finances, to achieve these goals. I believe that as we move forward, AI and the developments we observe will continue to push more firms in that direction towards consolidation.

Frederic Bastien, Analyst

That's a good answer. In your prepared remarks, you mentioned some positive developments in Canada's defense sector. Could you please elaborate on that and clarify whether the momentum we're hearing about is resulting in actual projects and bids?

Gord Johnston, President and CEO

Yes, it absolutely is. We're seeing a renewed focus from the Canadian federal government related to defense and related to the Arctic, as well as other governments around the world. But we did talk about the Defence Construction Canada's Multi-Mission Aircraft hangar, and I believe that's in Nova Scotia that we're working on. There are facility upgrades for the Armed Forces sort of across the region. A lot of work is coming there. Interestingly, we started working on that Grays Bay Road project a year ago or more. Everyone can see that this is not just a road to nowhere; it's a road to what will be a deepwater port that will hold both Navy vessels, cargo ships, and the like. A lot of this work is coming to fruition, and I think you'll see a lot more coming in the short term.

Vito Culmone, CFO

And Gord, we're particularly well positioned north of the 60th with our capabilities, right?

Gord Johnston, President and CEO

Absolutely. With our capabilities in Yellowknife, in Whitehorse, and a number of other locations out there, as well as a significant presence in Alaska, Stantec is uniquely positioned for this north of 60 work.

Operator, Operator

And our next question comes from the line of Chris Murray from ATB Capital Markets.

Chris Murray, Analyst

Good to hear that you might still have T-square sticking around. I guess the first question is just on margins. And when I look at the guidance, you're sort of either guiding to flat or up margins. I was just wondering if you could talk a little bit about some of the puts and takes around where you think the margin profile evolves over the next little while. It looks like there's some good opportunities in some of the back-office stuff you guys have been doing and certainly some of the AI tools. Just any color you can provide on how to think about evolution over the next year would be great.

Vito Culmone, CFO

Yes. Chris, maybe I'll take that one. First off, we're incredibly pleased with the progress to date. When you look at our 90 basis point improvement year-to-date, that's basically come 50% or half of it from, I'll say, the business itself, operations, whether that's project margin improvement across certain sectors or utilization improvement. The balance is more back-office and driving efficiency and just operational scale. As we move forward, it's really more of the same. I don't think there's going to be any magic bullets that contribute to it; it’s really just continuing to lean in our continued use of our global delivery centers, the excitement around what's happening there, and the capabilities of our folks offshore, which are just incredible, both from a professional service perspective and from a back-office perspective. We see significant continued momentum there. We definitely don't expect to be flat. Clearly, the low end of our range is 17.6%, which is where we landed the year, but we continue to see continued improvement. So just really more of the same. Labor, at the end of the day, is the biggest component of it, driven either by efficiency and/or utilization and then just a continued focus on discretionary spend, I would say. But it all starts with, of course, really continued excellence in project management and project execution. That's where the fundamental point is, and just a shout-out to our team of 34,000-plus across our organization who day in, day out, do well by our customers, our clients, and obviously, the bottom line. So I really appreciate it.

Chris Murray, Analyst

Okay. Great. And then I know there's been a lot of focus on AI and infrastructure. But one of the other areas that we're seeing more evolution is resources. I know historically, that's been something that you guys have had a lot of exposure to. Just wondering if you're seeing any, call it, green shoots or new developments in the resource business, be that either new pipelines or pre-feasibility work or around other resource work that might drag in maybe the Water business or something like that?

Gord Johnston, President and CEO

Yes. So a couple of things there. We think it is in our MD&A, isn't it, Vito, that we did pick up environmental work and permitting work related to a 125-mile-long natural gas pipeline in Tennessee. We are seeing those projects absolutely coming to bear. In addition to that, from a resources perspective, we had an incredibly strong performance this year in South America, particularly in our Chile and Peru operations, where a lot of work is coming back from the copper mining perspective. I went down and visited our offices in both locations and the amount of investment in either mine expansions or new mines coming down there is truly phenomenal. Copper prices are still pretty robust and certainly required if we want to continue with this energy transition, to support grid hardening, and grid strengthening. Yes, we're seeing that electrical piece continues to grow for us, which is in our Energy & Resources business. We're seeing the resources required to support that. The copper mining and such continues to grow. We also mentioned the 125-mile-long natural gas pipeline in Tennessee. So we are seeing more work in most of these phases in our Energy & Resources business.

Vito Culmone, CFO

And you would have seen that through our 2025 results, Chris, the early shoots of it. We had a very strong year on organic growth, high single digits in Energy & Resources, and we continue to expect that momentum organically to continue into 2026.

Operator, Operator

And our next question comes from the line of Michael Tupholme from TD Cowen.

Michael Tupholme, Analyst

I just wanted to go over the organic growth outlook from a BOU perspective. I know overall, mid- to high single digits is the guidance. In 2025, you saw quite a bit of variance in terms of organic growth across the different BOUs. How do you see that looking in 2026? Do you see sort of more consistent performance? Or should we still expect some of these higher growth areas to really be the drivers?

Vito Culmone, CFO

Yes. I'll begin by saying that we anticipate organic growth across all of our business operating units next year, which is a positive start. Water now constitutes 22% of our overall business, and we've experienced strong performance in this area with four years of continual double-digit growth. We expect this trend to continue. Infrastructure may experience a slight dip in 2025, landing in the low single digits, but I believe this is a temporary decline from our typical mid-single-digit range, and we expect a rebound. Buildings are projected to achieve 4.4% organic growth in 2025, bolstered by the Page acquisition and the contributions from our team. Overall, we are coming off some impressive years and are optimistic about the future across all segments. Gord, do you have any additional thoughts to share?

Gord Johnston, President and CEO

No, I completely agree.

Vito Culmone, CFO

Yes. Yes. I think Water will continue to lead the way, perhaps, but strength across the board.

Michael Tupholme, Analyst

I appreciate that. And sorry, not to belabor the point, but just Environmental Services, I guess, that was probably the weakest last year, and in the fourth quarter was kind of flattish. How do you think about that one for 2026?

Gord Johnston, President and CEO

Yes, we see that with all of these projects progressing, whether in the Canadian North or the significant pipeline initiatives we've discussed, Environmental Services is the first to come into play. We expect stronger organic growth in Environmental Services this year compared to 2025. Additionally, our Energy & Resources sector, which achieved nearly 9% growth last year, is also projected to continue growing, especially in mining in South America, as well as in energy transition and transmission and distribution work. Overall, we anticipate strong performance across all our business operating units.

Michael Tupholme, Analyst

Okay. Perfect. And then maybe just one further question. You talked a little bit about M&A earlier in the call. As it relates to accelerating adoption and use of AI in the industry, is this in any way affecting how you're thinking about M&A, the kinds of targets you would be interested in? Are there certain targets that maybe we traditionally would have been interested in, but that's sort of evolving and changing, and others that maybe now become of greater interest? Just curious as to how this is affecting your thinking on M&A?

Gord Johnston, President and CEO

Yes. In terms of our core business, including our five primary verticals and geographical areas, we believe that AI will enhance our efficiency. The companies we are in discussions with share this view. This doesn’t alter our thinking about acquisitions. Currently, we are not looking to acquire an AI company as many are highly valued with minimal revenue or profit. Instead, we are focused on building our capabilities internally and collaborating with firms as needed. This won’t change our acquisition strategy at this time.

Vito Culmone, CFO

Yes, I would add that certain targets have more developed digital capabilities than others. When we encounter targets that are more advanced or have significant capabilities, it captures our attention a bit more in terms of the value they might bring to us. However, as Gordon mentioned, there is no overall change in our strategy regarding mergers and acquisitions.

Operator, Operator

And our next question comes from the line of Maxim Sytchev from NBCM.

Maxim Sytchev, Analyst

I just wanted to start a bit with a broader question around thoughts on outcome-based pricing as there are some discussions around how much of a cost-plus evolution we could see in the space right now? And I guess how AI and your expertise sort of ties in? Because I presume this is something that actually you would welcome as the penetration of some of these pricing models could evolve. So I'm just curious what are your thoughts at the moment? And are we seeing any evolution from that perspective?

Gord Johnston, President and CEO

Yes, that's a great question. What we've discovered in fixed fee outcome-based pricing in the construction sector is that it largely depends on the client and the specific project type. Most of the significant design-build or P3 projects we undertake are primarily fixed fee or based on deliverables and milestones. The growing use of technology, such as AI and other tools, can enhance our margins. Many building projects and land development projects share similarities. However, when it comes to government clients, particularly at the municipal level globally, there hasn't been a shift toward outcome-based pricing or fixed fee value-based models. They still favor time and materials with an upper limit. We are engaged in discussions through ACEC and other professional associations to explore how we might move towards more certainty in prices. However, this doesn't fall solely on Stantec or any of our competitors; it necessitates a collective industry effort. We are collaborating with industry associations to find ways to progress. The challenge arises from the fact that many government agencies opt for time and materials because of the complexities in project scope. To implement an outcome-based fixed fee, the project scope must be very clearly defined. If the scope is uncertain and changes occur, that complicates the commercial agreements.

Maxim Sytchev, Analyst

Yes. No, that's great color. And maybe just one quick one for Vito, if I may. The margin guidance is certainly stronger than we were modeling. I'm just curious if you don't mind talking about the ability to get to maybe that 18.2% at the high end of the range. What needs to happen from your perspective, Vito, to potentially hit that number?

Vito Culmone, CFO

Yes. I think the higher we are on the revenue range, the more probability that we'll be on the higher end of the EBITDA margin. That's just really operational leverage, I would say. From an initiative perspective, we're really pleased with everything we're doing and how that aligns with our next three-year plan. We expect to have a date out to the community sometime soon, likely more in December or January, about when we're rolling out our three-year plan. I'm very excited about the work and the modeling we're doing about what the next three years will look like from a margin perspective. We'll wait and see where 2026 lands, but I'm highly encouraged by the progress and momentum to date.

Operator, Operator

And our next question comes from the line of Benoit Poirier from Desjardins.

Benoit Poirier, Analyst

Yes, congrats for the strong achievement in 2025. If we look at Canada, organic growth came in very solid at 7.7% for the whole year. However, when we look at Q1 2025, you reported a very strong performance at 12.2%. So would it be fair to assume potentially a bit of a softer performance to start the year given the tough comparison, even though the outlook remains very strong?

Vito Culmone, CFO

Yes, that might be appropriate, Benoit. We think about these things not necessarily from a quarter-over-quarter perspective. You're absolutely right. Last year was at 12.2% for Canada in organic growth in Q1. We ended the year at a full year of 7.8%. So I think Q1 might be a little bit softer relative to where we feel the full year will land for Canada. However, as we've noted in our commentary, we feel balanced growth throughout the entire year. That is our single biggest quarter for any region in organic growth, and you've pinpointed something that is a legitimate question. But nothing that I'm overly concerned about or need to signal with related to Q1.

Benoit Poirier, Analyst

Okay. That's great. And obviously, a lot of talk about the M&A process, and the bidding pipeline remains extremely solid. However, given the pullback in share price, I was wondering if you could provide more details. My understanding is there is a strong preference for M&A, but given the strength of your balance sheet, do you see any opportunity to step in terms of buyback in the short to medium term?

Vito Culmone, CFO

Yes, that's interesting. We will be renewing our NCIB. First of all, as it relates to dry powder on the balance sheet, you saw our leverage at 1.3 at the end of the year. That enables us to do sizable M&A on balance sheet. It's specific, obviously, to targets, and we will continue to prioritize our investment grade, which is important to us. There's a lot of room for us to do meaningful acquisitions on our balance sheet. That's a wonderful privilege for us as we sit here, and that's important for us. Short answer, yes. We would be more actively looking at buybacks with respect to where we are valued. First priority continues to be M&A for us, but we do have price ranges that we believe, when we consider the overall perspective of our organization and the value creation opportunities that we'll continue to look at.

Operator, Operator

And our next question comes from the line of Jonathan Goldman from Scotiabank.

Jonathan Goldman, Analyst

Most of them have already been asked, but I guess I just have one high-level question: considering the anniversary of the IIJA this year, how do you see that playing out? Is there a potential for renewal or maybe a reshaping of that infrastructure bill and perhaps some other form of disbursements there?

Gord Johnston, President and CEO

Yes, that’s a great question. A couple of years ago, there was a lot of discussion about a potential IIJA 2.0 and what it might entail. However, we haven't seen as much conversation on that recently. We are noticing more bidding activity as organizations look to secure their funding ahead of the IIJA's current allocation deadline, which I believe is in September of this year. It's important to note that once these funds are allocated, they don't have to be immediately spent. The existing funds from the IIJA will continue to support strong performance, not just for us, but for the entire transportation industry, over the next three to five years. There's some dialogue about renewing the Surface Transportation Act, and I don't foresee any issues with that renewal. Nonetheless, there hasn't been much talk about an IIJA 2.0 at this moment. I am confident that the transportation sector in the U.S. will remain active in the coming years.

Operator, Operator

And our next question comes from the line of Krista Friesen from CIBC.

Krista Friesen, Analyst

Maybe just a follow-up on the M&A topic. You've previously talked about how you expect a handful of larger firms to come to market this year. Is that still what you're seeing in the pipeline? It sounds like that's still something you'd be interested in given your balance sheet capacity at this moment.

Gord Johnston, President and CEO

Absolutely. Yes. Some of the ones we have been talking about, you've likely read that came and went in the latter part of last year. But there still are others that are either in process now or that we understand will be coming to the market here in the next couple of quarters. There is still a good opportunity there, good optionality in terms of geographies and type of work that these firms are engaged in. And absolutely, as you heard, Vito say, the balance sheet is in good shape. We absolutely will continue to look at those, with particular attention paid to the pricing piece.

Operator, Operator

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Gord Johnston, President and CEO

Great. Well, thanks, everyone, for joining us this morning. We feel really good about 2025 and where we're going in 2026. So if you have any follow-up questions, please reach out to Jess Nieukerk, and we'll line things up and take it from there. So thanks again, everyone.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.