STANTEC INC

STANTEC INC Annual Report - Your Investor's Guide to 2025 Performance

Considering an investment in Stantec? Let's explore the company's 2025 performance in plain English, giving you a clear picture.

This report covers Stantec's financial year ending December 31, 2025.

Trusting the Numbers: A Solid Foundation

Reliable financial information is crucial for investors. Stantec prepares its financial statements according to IFRS Accounting Standards, the international rules for financial reporting. PricewaterhouseCoopers LLP, an independent firm, thoroughly audited these statements and confirmed they fairly present the company's financial picture.

Management also confirmed that its internal controls over financial reporting – the systems ensuring accurate and reliable financial data – were effective as of December 31, 2025. The auditors agreed with this assessment, indicating strong financial governance.

What Stantec Does and How They Excelled in 2025

Stantec is a global leader in sustainable engineering, architecture, and environmental consulting. Communities rely on their expertise to tackle complex challenges such as aging infrastructure, growing populations, and the shift to clean energy. They provide services across the entire project lifecycle, from initial planning and design to construction support and maintenance.

With approximately 34,000 employees in over 450 locations across six continents, Stantec operates as a truly global player. The company serves three main regions (Canada, the United States, and Global) and five key business areas: Infrastructure, Water, Buildings, Environmental Services, and Energy & Resources. This broad diversification enhances its resilience.

A Record-Breaking Year: Stantec delivered an outstanding performance in 2025. The company reported an all-time high net revenue of $6.5 billion and significantly increased net income to $479.4 million. Notably, Stantec reached its strategic target for Adjusted EBITDA margin of 17.6% a full year ahead of schedule. This strong showing highlights the success of its strategy, which focuses on both organic growth and strategic acquisitions.

Financial Highlights: Growth Across the Board

Stantec demonstrated robust financial growth in 2025:

• Net Revenue: Reached a record $6.5 billion, a healthy 10.7% ($628.2 million) increase from 2024. Organic growth (from existing business) drove 5.0% of this increase, while acquisitions contributed 3.9%. The Water sector was a standout, achieving 10.7% organic growth.
• Profit (Net Income): Soared by 32.6% to $479.4 million in 2025, up from $361.5 million in 2024, indicating improved profitability.
• Adjusted Profit (Adjusted Net Income): Hit a record high of $604.4 million, a 19.8% jump from the previous year, reflecting strong underlying business performance.
• Earnings Per Share (EPS): Basic EPS increased by 32.5% to $4.20 (from $3.17 in 2024), and Adjusted EPS rose by 19.9% to $5.30. Both are all-time highs.
• Adjusted EBITDA: Increased by 16.7% to $1.14 billion, demonstrating strong operational profitability.
• Adjusted EBITDA Margin: Improved to 17.6% (up 0.9% from 16.7% in 2024), achieving its strategic goal ahead of time by effectively managing costs and increasing efficiency.
• Project Margin: Grew by 10.4% to $3.5 billion. While the project margin as a percentage of net revenue slightly dipped to 54.3% (from 54.5% in 2024) due to project mix, it remained within expectations.
• Cost Management: Stantec improved efficiency, with administrative and marketing expenses representing a smaller percentage of net revenue compared to 2024.

Major Achievements and Key Challenges in 2025

Major Achievements:

• Strategic Acquisitions: Stantec continued its growth strategy through acquisitions, adding 1,640 employees and expanding service offerings.
  • April: Acquired Ryan Hanley Limited (Ireland, water sector).
  • June: Acquired Cosgroves Group Limited (New Zealand, specialized engineering services).
  • July: Acquired Page Southerland Page, LLC (USA, diverse architectural and engineering services). These acquisitions performed "better than or in line with expectations," contributing to Stantec's strong results. (Note: Because of their recent timing, Stantec did not fully integrate the internal financial controls of Ryan Hanley, Cosgroves, and Page into its overall assessment for 2025. These acquisitions collectively represented about 2.5% of total assets and 3.0% of total revenue.)
• Real Estate Optimization: Stantec exceeded targets by reducing its office footprint by 11.4% (surpassing the 10% goal), resulting in savings of approximately $0.17 per share (above the $0.10 target).
• Sustainability Leadership: Stantec received significant recognition for its ESG commitment, including an A- rating from CDP for climate action (8th consecutive year), ranking among Time Magazine's World's 500 Most Sustainable Companies, and being listed on the S&P Global Sustainability Yearbook.
• Community Impact: Stantec used savings from its sustainability-linked loans to support Indigenous-run non-profit organizations focused on climate action.

Key Challenges:

• Integration of Acquisitions: While successful, integrating multiple new companies (like ZETCON, Morrison Hershfield, Hydrock in 2024, and Ryan Hanley, Cosgroves, Page in 2025) requires significant effort to harmonize cultures, systems, and operations, which can present complexities.
• Talent Competition: Operating in a highly competitive market for skilled engineers, architects, and consultants means Stantec continuously faces challenges in attracting and retaining top talent.
• Economic Headwinds: Despite strong performance, the company navigated a global environment marked by inflationary pressures and fluctuating interest rates, which can impact project costs and client spending decisions.

Financial Health: Strong and Ready for Growth

Stantec significantly bolstered its financial position in 2025:

• Enhanced Credit Facilities: Stantec increased its main revolving credit facility from $800 million to $1.2 billion (extending to June 2030) and secured additional facilities, providing substantial liquidity and flexibility for growth.
• New Debt Issuance: Stantec raised $425 million through senior unsecured notes due in 2032 with a 4.374% interest rate. The company strategically used these funds to refinance existing debt and for general business purposes.
• Exceptional Cash Flow: Stantec generated a robust $641.5 million in free cash flow, a remarkable 68.8% increase from the previous year, demonstrating strong operational cash generation.
• Prudent Debt Management: Stantec maintained a healthy net debt to adjusted EBITDA ratio of 1.3x, well within its comfortable target range of 1.0x to 2.0x, indicating ample capacity for further strategic investments.
• Capital Allocation: Stantec invested $784 million into strategic acquisitions and returned $102.8 million to shareholders through dividends.
• Dividends: Stantec declared $0.90 per common share in dividends, an increase from $0.84 in 2024.

These actions highlight Stantec's proactive financial management, ensuring it has the resources to execute its growth strategy.

Key Risks for Investors

While Stantec had a strong year, investors should be aware of potential risks:

• Cybersecurity Breaches: As a technology-dependent company, a significant cyberattack could lead to data loss, operational disruption, and reputational damage. Stantec continuously invests in cybersecurity measures to protect its systems and data.
• Competition for Skilled Employees: The demand for highly specialized professionals is intense. Failure to attract and retain top talent could impact project delivery and growth. Stantec mitigates this through competitive compensation, robust talent development programs, and a strong corporate culture.
• Disruptions to Public Spending: Government-funded infrastructure projects generate a significant portion of Stantec's revenue. Cuts or delays in public spending, particularly in key markets, could negatively affect project pipelines. Stantec diversifies its client base and monitors policy changes closely.
• Economic Conditions: Factors like inflation, rising interest rates, currency fluctuations, and trade barriers can increase project costs, reduce client budgets, and impact profitability. Stantec manages these risks through careful project pricing, hedging strategies, and a diversified global presence.
• Integration of Acquisitions: While acquisitions drive growth, integrating newly acquired companies carries risks related to cultural clashes, operational inefficiencies, and failure to realize expected synergies. Stantec has a dedicated integration team and a proven track record in this area.

Stantec actively monitors and manages these and other risks through robust internal controls, diversified operations, and strategic planning.

Competitive Edge and Strategic Positioning

Stantec positions itself as a "global leader" by offering integrated, sustainable engineering, architecture, and environmental consulting solutions. The company differentiates itself through:

• Integrated Expertise: By combining diverse disciplines (e.g., water, infrastructure, buildings), Stantec tackles complex, multi-faceted projects that require a holistic approach, making it a "preferred partner" for clients.
• Sustainability Focus: Stantec's deep commitment to ESG principles and industry-leading sustainability practices resonates with clients seeking environmentally responsible and resilient solutions.
• Global Reach with Local Presence: Its extensive network of over 450 offices worldwide allows Stantec to serve global clients while maintaining local market knowledge and relationships.
• Diversification: Stantec's broad mix of business units and geographic locations provides stability, allowing different sectors or regions to compensate if others face headwinds.

Stantec competes with a range of firms, from large global engineering and consulting companies to specialized local consultancies, but believes its integrated approach and sustainability leadership provide a distinct advantage.

Strategic Direction and Leadership

Stantec is actively pursuing its 2024-2026 Strategic Plan, which focuses on:

1. Organic Growth: Driving growth through existing client relationships, market share expansion, and leveraging integrated service offerings.
2. Strategic Acquisitions: Continuing to acquire specialized firms that enhance capabilities, expand geographic reach, and deepen market presence in key sectors.
3. Operational Excellence: Improving efficiency and profitability through initiatives like real estate optimization and effective cost management.
4. Sustainability Leadership: Further embedding ESG principles into all aspects of its business and client solutions.
5. Talent Development: Attracting, retaining, and developing top talent to support long-term growth.

The company has already achieved key targets from this plan, such as the Adjusted EBITDA margin and real estate optimization, ahead of schedule.

Leadership Changes in 2025: The company made strategic adjustments to its leadership team, appointing new Board members Richard A. Eng and Christopher F. Lopez. It also made key executive appointments, including Susan Reisbord as COO for North America, Paul Alpern as EVP and General Counsel, and Bjorn Morisbak as EVP and Chief Corporate Development Officer. These changes are part of ongoing succession planning to support Stantec's continued growth trajectory.

Future Outlook and Market Opportunities

Stantec remains highly optimistic about its future, driven by powerful global trends expected to sustain high demand for its services:

• Aging Infrastructure: The critical need to upgrade and replace outdated global infrastructure presents a vast and ongoing opportunity.
• Demographic and Population Changes: Urbanization and population shifts require new and expanded infrastructure, from transportation to utilities.
• The Energy Transition: The global shift towards cleaner energy sources (e.g., renewables, hydrogen) creates significant demand for Stantec's expertise in planning, design, and implementation.
• Climate Change and Resilience: Communities increasingly require resilient infrastructure and adaptive strategies to mitigate the impacts of extreme weather and a changing climate.
• Regulatory Changes: Evolving environmental regulations and government-led infrastructure spending initiatives (e.g., in the US and Canada) are expected to create new project opportunities and drive demand for Stantec's specialized consulting services.

Stantec expects to capitalize on these trends through continued strong organic growth, leveraging its integrated expertise and collaborative approach. The company also anticipates ongoing industry consolidation, providing further opportunities for strategic acquisitions. Stantec remains fully committed to achieving the growth targets outlined in its 2024-2026 Strategic Plan, supported by its strong financial position and strategic investments.