Earnings Call Transcript - STN Q2 2025

Operator, Operator

Welcome to Stantec's Second Quarter 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 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 the 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 will turn the call over to Mr. Gord Johnston.

Gordon Allan Johnston, President and CEO

Good morning, and thank you for joining us today. Before I get into our Q2 results, I'm pleased to announce that on July 31, we closed the acquisition of Page. In early April, we announced the acquisition and in the interim period, we were working on various regulatory approvals prior to the formal close. Page is a very strong U.S.-based architecture and engineering firm headquartered in Washington, D.C. The acquisition complements our buildings business and helps bolster our services in key growth sectors, including health care, advanced manufacturing, data centers, mission-critical, academic science and technology and civic markets. In addition, I'd also like to highlight that on June 27, we acquired Cosgroves, a 90-person firm, expanding our buildings engineering capabilities in New Zealand. And as we previously announced, we acquired Ryan Hanley back in April, bolstering our offerings in the Irish water sector. I'd like to welcome the 1,500 talented individuals from Page, Cosgroves, and Ryan Hanley to the Stantec team, which has now grown to over 34,000 employees. I'm also pleased to share that Stantec continues to earn recognition through a range of accolades from respected industry and media organizations. We are honored to be ranked the number one architecture firm in health care worldwide by Modern Healthcare's 2025 Construction & Design survey. In addition, Time Magazine ranked us fifth on its 2025 list of Canada's best companies and among the top 50 of the world's 500 most sustainable companies. Now let's focus on our results. Stantec has delivered very strong results in the first half of 2025, delivering organic growth across all of our regions and business operating units. Public infrastructure spending and private investments continue to be key drivers of growth in 2025 with strong demand across the water, transportation, mining, energy transition, and mission-critical sectors. In the second quarter, we delivered net revenue of $1.6 billion, up 6.9% year-over-year, which was primarily driven by 4.8% organic growth. Our Energy & Resources business delivered high single-digit organic growth, and water achieved 12.4% organic growth. With our focus on solid project execution and operational excellence, we grew our adjusted EBITDA by 15% with an enhanced margin of 17.8%. We also delivered adjusted EPS growth of over 21% compared to Q2 2024. Looking at our results in each of our geographies, in the U.S., our Q2 net revenue increased by 5.7%, which was supported by organic growth of 4.4%. From a trend perspective, we saw improvements in U.S. organic growth compared to the first quarter. Client demand for mission-critical, science and technology, and civic all contributed to growth in our buildings business. Growth in environmental services was mainly driven by our energy transition, mining, and industrial infrastructure sectors as well as continued work with scale utility providers. Growth in water was driven by large public sector water supply and wastewater treatment projects, and Energy & Resources growth saw the ramp-up of a major hydropower dam project in the Southwest. In Canada, net revenue grew by 6.2%, underpinned completely by organic growth. The continued momentum on major wastewater projects contributed to over 30% organic growth in water. Consistent progress on major industrial process projects drove double-digit organic growth in Energy & Resources. Solid growth in infrastructure was supported by land development projects in Alberta, and public sector investment in Western Canada drove growth in our buildings business, primarily in our health care and civic markets. Finally, our global business delivered net revenue growth of 10.5% in the second quarter, with 4.3% organic and 3.6% acquisition growth as well as positive foreign exchange impacts. Our industry-leading water business delivered double-digit organic growth across the U.K., Australia, and New Zealand through long-term framework agreements and public sector investment in water infrastructure. The ramp-up of new projects in Chile and Peru drove double-digit organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand for copper. We also achieved double-digit organic growth in our German business due to continued momentum on a major public sector energy transportation project and increased volume on transit and rail projects. Now I'll turn the call over to Vito to review our Q2 financial results in more detail.

Vito Culmone, Executive Vice President and CFO

Thank you, Gord, and good morning, everyone. Stantec's positive momentum continues as seen with our second quarter results, positioning us to deliver another exceptional year. In Q2, we achieved gross revenue of approximately $2 billion and net revenue of $1.6 billion, an increase of 6.9% compared to Q2 2024. This was primarily driven by 4.8% organic growth. As a percentage of net revenue, our project margins remained in line with our expectations at 54.2%. We achieved a very strong adjusted EBITDA margin of 17.8% in the quarter, a 120 basis point increase compared to last year. The increase in margin primarily reflects lower admin and marketing expenses as a percentage of net revenue due to lower claim provisions and discretionary spending. Our adjusted EPS in the quarter increased over 21% to $1.36. Our Q2 results build on a strong first quarter, and on a year-to-date basis, our adjusted EBITDA margin is 17%, a full 1% ahead of the first half of 2024. In addition, our adjusted EPS is up a very robust 24.9%. With our year-to-date performance and the closure of the Page acquisition, we are very well positioned to increase guidance across various metrics, which Gordon will speak to shortly. Turning to our cash flow, liquidity, and capital resources. Year-to-date operating cash flows are up 100% compared to 2024, from $117 million to $235 million, reflecting continued strong revenue growth, operational performance, and continued strong collection efforts. DSO at the end of the second quarter was 73 days, a decrease of 4 days compared to the first quarter. This is well below our internal target of 80 days or lower. Our net debt to adjusted EBITDA ratio at June 30 was 1.1x, essentially in line with where we closed out the first quarter and remaining well within our internal target range of 1 to 2x. I'd like to take a minute to highlight some recent financing transactions we completed in Q2. I characterize these as being in the normal course of our business and reflecting the significant growth in our operations over the last few years. On June 10, we issued $425 million senior unsecured notes bearing an interest rate of 4.374% per annum for a 7-year term. These notes were assigned an investment-grade credit rating of BBB by DBRS Limited. Also in mid-June, we increased our unsecured revolver credit facility to $1.2 billion, up from $800 million, and we extended the maturity date out to June 30. Both of these financing transactions were well oversubscribed and reflect the credit community's deep understanding and confidence in our sector and company. We appreciate the continued support. As Gord noted, we closed the Page acquisition on July 31, and post closing, our remaining credit capacity is just over $1 billion, and our balance sheet remains very strong. Gord, I'll now hand the call back to you.

Gordon Allan Johnston, President and CEO

Thanks, Vito. At the end of the second quarter, our contract backlog stood at $7.9 billion, reflecting approximately 12 months of work. Our backlog underscores the continued strong demand to support our clients' most pressing challenges. Year-over-year, backlog has grown by almost 10%, reflecting robust organic growth of 9% across each of our geographies and most notably, double-digit growth in our Water and Energy & Resources businesses. I'd also note that our U.S. organic backlog is up 9.8% year-over-year. This reflects the positive trend in organic growth and continued strength of our business in the region. Growth within our global operations was driven by new project awards in our Infrastructure and Environmental Services business in Europe and AMP8 project awards in our U.K. Water business. This growth is partially offset by a retraction in our Australian business' buildings operations, as well as high burn rates in our Water business. I'll now highlight a few of the projects that Stantec has recently been awarded. A Stantec joint venture was recently awarded a $150 million single-award contract supporting the U.S. Navy shipyard infrastructure optimization program focusing on the modernization of the Portsmouth Naval Shipyard in Maine. U.S. Navy shipyards were originally designed and built in the 19th and 20th centuries, and this program will support the upgrade of facilities, utilities, dry docks equipment, and information technology infrastructure. In the U.K., our infrastructure team was awarded a 4-year framework with Transport for Greater Manchester, where we will deliver a range of transport, design, engineering, and analysis services as well as program and project management support. Lastly, Stantec's Water and Environmental services teams are collaborating on Google's water replenishment project sourcing in Taiwan. This project is part of Google's global water replenishment initiative. It also highlights Stantec's use of nature-based solutions, which includes a gravel contact oxidation process for sustainable water treatment and watershed restoration. On the strength of our performance year-to-date, the completion of two acquisitions within the second quarter, and with the recent closure of Page, we're increasing our outlook for 2025. We now expect to achieve net revenue growth of 10% to 12%, up from our previous guidance of 7% to 10%. Given our strong diversification across geographies, we continue to expect mid- to high single-digit organic growth across the businesses. In Canada and in global, we continue to expect organic net revenue growth in the mid- to high single digits. We continue to see strong momentum in both these regions with elevated backlog levels in Canada, particularly in Infrastructure and Energy & Resources and through high levels of activity in our global Water business. AMP8 continues to ramp up in the U.K., and other water frameworks in Australia and New Zealand are ramping up as well. In the U.S., we expect organic growth to accelerate in the second half of the year, and we've moderated our outlook slightly to mid-single digits. The U.S. administration has significant shifts in policy, funding priorities, tariffs, and regulatory frameworks, most notably with the recent passage of the One Big Beautiful Bill Act. The ultimate driver of these initiatives is to stimulate investment in the U.S. across all sectors and to strengthen the U.S. economy. In fact, we're already seeing momentum starting to ramp up again. Furthermore, we're also encouraged by our healthy backlog, which positions us for continued positive growth. On the strength of our operations year-to-date, we've also increased and narrowed the range for adjusted EBITDA margin to 17% to 17.4%, up from 16.7% to 17.3%. This reflects solid project execution and continued discipline in cost management. With this, we actually expect to hit our strategic plan target of 17% to 18% a year early with the ability to continue building on this performance. We now expect to deliver 18.5% to 21.5% growth in adjusted EPS compared to 2024, up from 16% to 19%, once again driving earnings well above net revenue growth. Finally, adjusted ROIC is now expected to be greater than 12.5%. As we enter the second half of 2025, we remain firmly on track to deliver another record year. Macro trends of aging infrastructure, data centers, energy security, water and wastewater treatment, health care, and reshoring all continue to drive our business. We will remain focused on delivering strong project execution and operational excellence. While we have already completed three acquisition opportunities, we remain extremely well positioned, both from an integration and a financing standpoint to pursue more. It's an exciting time for our industry and for Stantec, and we'll continue to deliver compounded growth as we drive towards our 2024 to 2026 strategic plan goals. With that, I'll turn the call back to the operator for questions.

Operator, Operator

Our first question is from Krista Friesen with CIBC.

Krista Friesen, Analyst

I was wondering if maybe you can just provide us with a little bit of additional color on what you're hearing from your U.S. customers, specifically in the private sector, as you called out, maybe an elevated level of caution right now.

Gordon Allan Johnston, President and CEO

Yes, great question, Krista. What we're seeing is in the first half of the year, there was a little bit of trepidation to make that final investment decision and to move forward. But as we said in the prepared remarks, we really are looking to see our forecasting our U.S. organic growth to accelerate in the second half of this year. Our U.S. backlog is up 9.8% organically year-over-year, and it's actually particularly strong in water, energy, and data centers, some of those private sector types of work that you're talking about. So in the private sector, interestingly, data centers, mission-critical, and so on, we're currently working on over 100 data center projects. Even from our July results, we saw an increase in our U.S. organic growth to that high single-digit range. We also interestingly saw continued acceleration even on an organic backlog in the July period. So we're actually feeling pretty good about that acceleration in organic growth, both in public and in the private sector in the second half of the year.

Krista Friesen, Analyst

Okay. Great. And then maybe just on the acquisition front, you guys have been busy with a couple of acquisitions recently. How are you feeling on the integration? I appreciate Page was just 2 weeks ago here, but just any update there?

Gordon Allan Johnston, President and CEO

Yes. So Ryan Hanley is a smaller firm, a couple of hundred people in Ireland. We've been working with them for years. So that integration is going very well. We actually anticipate, I think, to be completed by the end of this year, the financial integration. Cosgrove, similarly, a 90-person firm, 100-person firm down in New Zealand. That one is continuing. Page is really interesting. 1,400, 1,500 people, but we've worked with them for a long time. Over the last number of months, we've been working on how do we align leadership, starting to look already at the financial transformation. In fact, that's planned for Q4 of this year. We think we're going to be in pretty good shape, really having wrapped up the majority of the integration and the financial work by the end of the year on all three of these.

Operator, Operator

Our next question comes from the line of Sabahat Khan with RBC Capital Markets.

Sabahat Khan, Analyst

I guess just sticking with kind of the outlook commentary. It looks like the margin guidance, the midpoint has been kicked up a little bit. Maybe if you can just get into some of the details around the progress year-to-date on the margin side? And just what are some of the contributors to the margin being pushed up higher for the full year?

Vito Culmone, Executive Vice President and CFO

Sabahat, yes, we're really pleased with our progression year-to-date and what we see for the balance of the year with respect to EBITDA margins. You're absolutely right. We have bumped up the EBITDA margins now from 16.7% to 17.3% to that 17% to 17.4% range. Year-to-date, we're at 17%, which is 100 basis points ahead of where we were a year ago. I don't believe we'll be able to maintain that 100 basis points year-over-year improvement in H2, obviously, because the guidance reflects a moderation to the year-over-year side of things, but we continue to see improvement in it. For us, it always starts with just strong project margins. Of course, we don't take that for granted. Your EBITDA margins always start with that, the right customer, right price, excellent execution. Just a huge shout out to the operations team's continued focus on that. Our project margins in the quarter were 54.2%, which actually is 0.2% lower than prior year, but that really reflects mix. The global business had a higher percentage of our overall business in Q2, and they profile at a lower project margin. In North America, project margins were actually up year-over-year. It starts with strong project margins. You saw that admin and marketing costs, we target that as a lower percentage of overall net revenue. Utilization in the quarter was higher. That always contributes. Just the general nature of our operational scale and leveraging our back offices and growing that at a pace that's lower than our overall revenue growth continues to be a positive contributor, of course. We did call out claims in the quarter for particularly Q2. Claims are always a little bit lumpy, obviously. But in Q2, we did have favorable settlement of two claims in particular relative to the provisions we had. That contributed, I'll call it, 30 to 40 basis points in the quarter. But those are all the drivers. Very, very pleased with it. And it's a continuation of a multiyear story for us. As Gord referred to in his opening remarks, hitting the 17% mark a year earlier than our strapline just is a strong indication of what we believe is to come here in the next several years.

Sabahat Khan, Analyst

Great. And then maybe the second one for Gord. On the water side, it looks like about a 12.5% organic growth this quarter. And the interesting thing there being it's been several years of good strength in the water market. So maybe if you can just help us think through what drove that, the near-term demand drivers. It sounds like AMP8 might still be at the early stages. So assuming some of the other work is driving. So maybe just give us a perspective on what's driving the strong growth there and maybe the opportunities in the data center side if some of those are tied to water as well.

Gordon Allan Johnston, President and CEO

Right. No, great perspective. As we've talked about before, and I think everyone on the call is aware, like we've had strong organic growth in water back to 2019. Every quarter, it just continues to get stronger with our overall water business. You're right, we're still at early days with AMP8 ramping up, although we are already sort of at a level roughly about 50% higher this time of year than we were a year ago. So we're actively hiring people in the U.K., expanding our delivery centers in Pune, India to continue to service that demand. There is just an enormous amount of work that we see in water treatment, wastewater treatment, advanced manufacturing facilities. You mentioned the data centers. But also as we're talking to clients about reshoring some of their facilities, it all starts with water. Our water business continues to strengthen, and our backlog is even up even further. We see continued strength in that water business for the remainder of 2025 and really for the years to come. No slowing down in the water space whatsoever.

Operator, Operator

Our next question comes from the line of Chris Murray with ATB Capital Markets.

Christopher Allan Murray, Analyst

Gord, maybe turning back to thinking about the U.S. business maybe longer term. It feels like a bit of a blip in the quarter because you're talking about again, like high single-digit type growth in the backlogs and your commentary a little bit about recovery. If I go back a couple of quarters, sort of the discussion has been how long could the U.S. market continue to support what are kind of above-average single-digit organic growth levels. Any thoughts on how you're viewing the next couple of years on what the spending pace looks like and your comfort level on where we're going? With that, is there any particular sectors that you think that you need to add in order to be able to accomplish or achieve some of that?

Gordon Allan Johnston, President and CEO

Yes. Great question. As we look forward in the remainder of this year and the rest of next year, we mentioned already that we're experiencing consistent organic growth in backlog in the U.S. with an increase of 9.8% year-over-year. We've done a lot of talking before in the industry about IIJA, only about 40% of that, less than 40% of that has been spent. So there's a lot of opportunity to continue to come there in the next couple of years to allocate some of those funds before they are not eligible for allocation at the end of 2026. That part feels strong. When you look at the One Big Beautiful Bill, there's additional support for infrastructure and state and local government. Data centers, mission-critical, those continue to grow. Interestingly, we are working on over 100 data center projects right now from 20 megawatts up to 1 gigawatt in size. The addition of Page to our team strengthens our already strong group there. There is a lot of opportunity across whether it's transportation or water, buildings, and energy. We see really, really strong strength going forward. What we've seen in the first couple of quarters of this year, not just us but the industry overall, is just a little bit transitory, and we see good fundamentals going forward. We did lower our organic guidance for the year to 5%, but that's really just a function of mathematics. Like we're sitting at 3.4% year-to-date, and to hit mid- to high single digits requires significant growth in the second half. However, we do expect acceleration of organic growth in the U.S. for the second half of the year and through 2026 and beyond.

Vito Culmone, Executive Vice President and CFO

Gord, I'll just add maybe a couple of things in there. Chris asked whether there was any particular areas of potential gaps for us in the market or areas of focus. We remain incredibly bullish about the U.S. market. Aging infrastructure continues to be a challenge. Macro factors remain extremely buoyant. When you look at this administration's focus, what they are investing in, and the areas of policy enforcement, it speaks to increased focus and support for much of what we're describing.

Christopher Allan Murray, Analyst

One other question I had on margins, this maybe goes back to the Investor Day and talking about the implementation of technology across the platform. I'm listening to some of the comments about SG&A leverage. Can you talk about some of the AI and other technologies you referenced and how they're playing into this margin profile at this point? Are you actually seeing them have any sort of impact or change on revenue per head type metrics or earnings per head metrics at this particular point? Or is it still kind of too early to be able to point to anything definite?

Gordon Allan Johnston, President and CEO

Yes. I think overall in the industry, including Stantec, we're still in the early days in how far we can push this. Interestingly, our entire C-suite went down to Microsoft’s campus in Redmond, spent a day with their technology folks discussing our journeys and areas where we could potentially make use of AI and other digital tools. We've deployed over 10,000 licenses of Copilot throughout the organization. So we're looking at various aspects, such as making our back office more efficient, whether that's HR, accounts payable, and proposal writing. We are still early days with this technology, and I'm not sure you're seeing it too much in that margin expansion yet. However, I believe we will see it play a more significant role in the coming years.

Operator, Operator

Our next question comes from the line of Yuri Lynk with Canaccord Genuity.

Yuri Lynk, Analyst

Just back, Gord, on the acceleration in organic growth in the back half of the year. The comps are kind of interesting in terms of what you're lapping there. Q3 is 5.5% and then a 10% comp in Q4. Should we expect more organic growth and bigger organic growth improvement in Q3 versus Q4?

Gordon Allan Johnston, President and CEO

I think that's exactly right. When you look at the Q4 comp, already up 10%. That's again one of the reasons why we lowered our guidance to that mid-5% type range, just to set reasonable expectations. However, we do see high single-digit organic growth in the U.S. from July, and an increase in organic backlog acceleration as well. We still feel really good about that.

Vito Culmone, Executive Vice President and CFO

Indeed, the U.S. represents half of our business. However, consolidated results still reflect the strength and diversity of our global business, including North America.

Yuri Lynk, Analyst

Just thinking about the U.S. Water business and the financial difficulties of one of your customers there. Wondering if that might have any impact over the next year or so?

Gordon Allan Johnston, President and CEO

Yes. You're referring to Thames Water in the U.K. Yes, they are experiencing financial difficulties. However, we have worked for Thames Water and their predecessor organizations for almost 200 years. The discussions we're having suggest that, even if there were nationalization for some period, the work still needs to be done. We're having no payment issues at this point, so we don't see that as an impact on our business.

Vito Culmone, Executive Vice President and CFO

Not at all.

Operator, Operator

Our next question comes from the line of Michael Tupholme with TD Cowen.

Michael Tupholme, Analyst

Gord, it's clear from your comments that you expect an acceleration in U.S. organic growth, which is great to hear. My question is regarding the factors that have been weighing on growth; have you overcome all of these, or are you seeing strengths elsewhere that offset those headwinds?

Gordon Allan Johnston, President and CEO

Yes. The issues are diminishing a little bit. I wouldn't say they’re completely resolved. Interestingly, we've been hearing from some leaders that several agencies are experiencing delays because of early retirements affecting staffing capacities. But we see that diminishing, and we remain positive about future organic growth acceleration in the U.S.

Vito Culmone, Executive Vice President and CFO

Indeed, there may still be pockets of delays, but it's primarily smoothing out. Very few cancellations, if any; we are mainly addressing delays and pauses.

Michael Tupholme, Analyst

As we look beyond this year, can you comment on your multiyear organic growth guidance of over 7% extending through 2026? How does the current activity make you feel about the period beyond 2026?

Vito Culmone, Executive Vice President and CFO

Yes, we will release an updated 3-year plan post-2026 in due course. There is nothing we see that would fundamentally change our optimistic outlook. Across all markets, including the U.S., macro factors we describe support growth for what we believe will be several years.

Gordon Allan Johnston, President and CEO

When you look at recent funding programs globally, the U.K. released a 10-year infrastructure plan with £725 billion. Ireland, where we just acquired Ryan Hanley, has another £100 billion to £200 billion slated for infrastructure. These programs support a solid multi-year macro outlook.

Operator, Operator

Our next question comes from the line of Maxim Sytchev with NBF.

Maxim Sytchev, Analyst

Can you provide an update on FEMA and whether federal work is being shifted to state and local? Just trying to get your perspective.

Gordon Allan Johnston, President and CEO

Yes. We are seeing disaster preparedness work looking to be shifted to states and local governments. We are engaged in discussions now with various local and state agencies about how we could support them, although it remains in a transition phase.

Maxim Sytchev, Analyst

Can you provide an update on the M&A landscape? What are you seeing from the seller's perspective?

Gordon Allan Johnston, President and CEO

The environment is becoming increasingly active over the last quarter, and I think it will continue in the second half of the year. There are several assets that we've been in talks with for a while that are likely to come to market within the next 6 months to a year. Whenever possible, we're holding proactive meetings with individuals to ensure we are well positioned.

Operator, Operator

Our next question comes from the line of Benoit Poirier with Desjardins.

Benoit Poirier, Analyst

Can you talk about the boost we might expect on free cash flow following the approval of the Big Beautiful Bill? Furthermore, are customers waiting for interest rates to decline, and could lower interest rates accelerate spending?

Vito Culmone, Executive Vice President and CFO

Yes, with the recent changes regarding tax deductibility on R&D, that's overall a positive factor. These domestic R&D expenses incurred in the U.S. are now 100% deductible in the year incurred. There might still be some complexity due to foreign jurisdiction taxes we need to navigate, but generally neutral or positive from a cash flow perspective for us.

Benoit Poirier, Analyst

Could you provide an update on the global technology center in Pune, including employee count and the potential to exceed the target of 2,000 by the 3-year period?

Vito Culmone, Executive Vice President and CFO

Yes, we're about 1,400 to 1,500 employees right now in Pune, and we're pleased with our progress. We see huge opportunities and a motivated team supporting our operations. I'm optimistic about the growth of the global delivery centers and their role in margin expansion along with high-quality delivery for our customers. While I won't predict if we'll hit the 2,000 target, it's an important part of our strategy.

Operator, Operator

Our next question will come from the line of Devin Dodge with BMO Capital Markets.

Devin Dodge, Analyst

I wanted to start with a question on Page. The purchase price was a bit more than we had expected. Just wondering if you could provide a bit of color on the revenue the business generates and the organic revenue growth it's been having in the last couple of years and how maybe the margins stack up to the Stantec company average?

Vito Culmone, Executive Vice President and CFO

Yes, we disclosed the purchase price as $5.25 million. I'm surprised to hear it was more than you expected. The analyst community reported that it was in that range. The revenue Page brings to the table is about $300 million in net revenue. Their average net revenue generation per employee is high, and we are excited about the strategic value they will add to us.

Gordon Allan Johnston, President and CEO

Yes, they bring in approximately USD 300 million in net revenue. Their margins are impressive, and we are excited about the synergies we are already seeing in client and project perspectives, certainly on track or even a little better than expected.

Devin Dodge, Analyst

I think you mentioned in the past about capping your exposure to the more cyclical end markets at around 15% of revenues. Historically, this exposure has been more focused on oil and gas and mining, but I think you've hinted that data centers could also be part of that cyclical basket. Just wondering if you could provide an update on where you view your cyclical market exposure now and your backlog and bidding activities over the next couple of years.

Gordon Allan Johnston, President and CEO

Yes, our data centers are currently 2% to 3% of net revenue, and they are increasing. However, we are still comfortable remaining below that 15% threshold when you consider mining and oil and gas. I feel that we are still well-positioned in that range.

Operator, Operator

Our next question comes from the line of Jonathan Goldman with Scotiabank.

Jonathan Goldman, Analyst

Is there any risk with the slower growth environment in the U.S., even if it does prove temporary, of pressure on pricing?

Gordon Allan Johnston, President and CEO

We haven't seen any pricing deterioration yet. Even though organic growth was a little slower in the industry in the first half of the year, we haven’t experienced any pricing pressure that translates to project margin pressure. Should this situation persist for a couple of years, we might see it, but for now, we foresee accelerated organic growth moving forward.

Vito Culmone, Executive Vice President and CFO

We see a strong demand market where we're able to select our customers. Many of those have been with us for several decades, so I don't anticipate pricing issues.

Jonathan Goldman, Analyst

You mentioned the M&A environment previously, but have you seen any change in valuations or multiples recently?

Gordon Allan Johnston, President and CEO

The multiples have remained stable as they have for the past little while. Larger firms related to the data centers have slightly higher multiples, but overall, we haven’t seen any significant changes.

Vito Culmone, Executive Vice President and CFO

This stability reflects the continued strength of the overall markets and the macro factors we've been discussing.

Operator, Operator

I'm showing no further questions at this time. I'd like to hand the conference to Gord Johnston for closing remarks.

Gordon Allan Johnston, President and CEO

Great. Well, thank you, operator, and thank you to everyone for joining us this morning. If you have any follow-up questions after the call, please reach out to Jess Nieukerk, our VP of Investor Relations. Thanks again for your time, and I look forward to connecting with many of you soon.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.