Stantec : Financial Reporting Document

First Quarter Report

Sustainability: Core to Our Strategy

Sustainability is the foundation of Stantec's identity. It is part of our purpose, promise, and values; key to our brand; embodied in our corporate culture; and directly connected to our corporate strategy.

Stantec is a global leader in sustainable design, architecture, engineering, planning, digital technology, project management, and scientific consulting services. Our technical specialists are at the forefront of innovations that help communities plan for climate change, enhance biodiversity and environmental health, provide social value, develop economic opportunities, and create a sense of place and well-being.

Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS
Business Model	M-2
Q1 2024 Financial Highlights	M-3
Financial Targets	M-6
Outlook	M-6
Financial Performance	M-7
Summary of Quarterly Results	M-12
Statements of Financial Position	M-13
Liquidity and Capital Resources	M-14
Other	M-16
Critical Accounting Estimates, Developments, and Measures	M-17
Definitions of Non-IFRS and Other Financial Measures	M-17
Controls and Procedures	M-20
Risk Factors	M-20
Subsequent Events	M-20
Caution Regarding Forward-Looking Statements	M-21
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Position	F-1
Consolidated Statements of Income	F-2
Consolidated Statements of Comprehensive Income	F-3
Consolidated Statements of Shareholders' Equity	F-4
Consolidated Statements of Cash Flows	F-5
Notes to the Unaudited Interim Condensed Consolidated Financial Statements	F-6

Management's Discussion and Analysis

May 8, 2024

This discussion and analysis of Stantec Inc.'s (Stantec or the Company) operations, financial position, and cash flows for the quarter ended March 31, 2024, dated May 8, 2024, should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and related notes for the quarter ended March 31, 2024, and the Management's Discussion and Analysis (MD&A) and audited consolidated financial statements and related notes included in our 2023 Annual Report filed on February 28, 2024.

Our unaudited interim consolidated financial statements and related notes for the quarter ended March 31, 2024, are prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as issued by the International Accounting Standards Board. We continue to apply the same accounting policies as those used in 2023. Amendments to accounting standards adopted in the quarter and disclosed in note 3 of our unaudited interim consolidated financial statements for the quarter ended March 31, 2024 (incorporated here by reference), did not have a material impact on the Company's consolidated financial statements or accounting policies. All amounts shown in this report are in Canadian dollars unless otherwise indicated.

Additional information regarding our Company, including our Annual Information Form, is available on SEDAR+ at sedarplus.caand on EDGAR at sec.gov. Such additional information is not incorporated here by reference, unless otherwise specified, and should not be deemed to be part of this MD&A. Stantec trades on the TSX and the NYSE under the symbol STN. Visit us at stantec.comor find us on social media.

Non-IFRS Accounting Standards (non-IFRS) and Other Financial Measures

The Company reports its financial results in accordance with IFRS Accounting Standards. However, certain indicators used by the Company to analyze and evaluate its results are non-IFRS or other financial measures and ratios, including: adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), adjusted net income, adjusted earnings per share (EPS), adjusted return on invested capital (ROIC), net debt to adjusted EBITDA, days sales outstanding (DSO), free cash flow, margin (percentage of net revenue), organic growth (retraction), acquisition growth, measures described as on a constant currency basis and the impact of foreign exchange or currency fluctuations, compound annual growth rate (CAGR), net debt, total capital managed, working capital, and current ratio, as well as measures and ratios calculated using these non-IFRS or other financial measures. These measures are categorized as non-IFRS financial measures and ratios, supplementary financial measures, or capital management measures and described in the Definitions of Non-IFRS and Other Financial Measures (Definitions) and Liquidity and Capital Resources sections of this MD&A and, where applicable, reconciliations from the non-IFRS measure to the most directly comparable measure calculated in accordance with IFRS Accounting Standards are provided (see the Q1 2024 Financial Highlights, Financial Performance, Liquidity and Capital Resources, and Definitions sections).

These non-IFRS and other financial measures do not have a standardized meaning under IFRS Accounting Standards and, therefore, may not be comparable to similar measures presented by other issuers. Management believes that, in addition to conventional measures prepared in accordance with IFRS Accounting Standards, these non-IFRS and other financial measures and ratios provide useful information to investors to assist them in understanding components of and trends in our financial results. These measures should not be considered in isolation or viewed as a substitute for the related financial information prepared in accordance with IFRS Accounting Standards.

Management's Discussion and Analysis	M-1	Stantec Inc.
March 31, 2024

Business Model

Stantec is a global design and delivery leader in sustainable engineering, architectural planning, and environmental services. As a trusted advisor for our clients and communities, Stantec's multidisciplinary teams address climate change, urbanization, and infrastructure resiliency. Our strategy is guided by our purpose, which is to empower people to rise to the world's greatest challenges. The success of our clients, communities, and people worldwide is our greatest ambition.

The Stantec community unites more than 30,000 employees working in over 450 locations across six continents. We cultivate close client relationships through our geographic and service offering diversification. Please see pages M-1 to M-2 of Stantec's 2023 Annual Report for further details on our business model.

Strategic Acquisitions Completed in 2024 and 2023

Following is a list of acquisitions that contributed to revenue growth in our reportable segments and business operating units:

					BUSINESS OPERATING UNITS
REPORTABLE	Date	Primary	# of	Infrastructure	Water Buildings	Environmental	Energy &
SEGMENTS	Acquired	Location	Employees	Services	Resources
Canada
Morrison Hershfield	February	Markham,	950	●	●	●
Group Inc. (Morrison	2024	Ontario
Hershfield)
United States
Environmental Systems	June 2023	Chicago,	300		●
Design, Inc. (ESD)		Illinois
Morrison Hershfield	February	Atlanta,	200	●	●	●
	2024	Georgia
Global
ZETCON Ingenieure	January	Bochum,	645	●
GmbH (ZETCON)	2024	Germany

Management's Discussion and Analysis
March 31, 2024	M-2	Stantec Inc.

Q1 2024 Financial Highlights

For the quarter ended

March 31,

	2024	2023
(In millions of Canadian dollars, except per share		% of Net		% of Net
amounts and percentages)	$	Revenue	$	Revenue
Gross revenue	1,721.4	125.6%	1,539.2	125.3%
Net revenue	1,370.1	100.0%	1,228.5	100.0%
Direct payroll costs	627.6	45.8%	568.5	46.3%
Project margin	742.5	54.2%	660.0	53.7%
Administrative and marketing expenses	542.9	39.6%	488.3	39.7%
Depreciation of property and equipment	15.8	1.2%	15.5	1.3%
Depreciation of lease assets	31.5	2.3%	30.9	2.5%
Amortization of intangible assets	31.0	2.3%	26.3	2.1%
Net interest expense and other net finance expense	24.2	1.8%	21.6	1.8%
Other	(5.3)	(0.5%)	(6.4)	(0.5%)
Income taxes	23.0	1.7 %	18.9	1.5%
Net income	79.4	5.8%	64.9	5.3%
Basic and diluted earnings per share (EPS)	0.70	n/m	0.59	n/m
Adjusted EBITDA (note)	211.9	15.5%	179.1	14.6%
Adjusted net income (note)	103.0	7.5%	80.9	6.6%
Adjusted diluted EPS (note)	0.90	n/m	0.73	n/m
Dividends declared per common share	0.210	n/m	0.195	n/m

note: Adjusted EBITDA, adjusted net income, and adjusted diluted EPS are non-IFRS measures (discussed in the Definitions section of this MD&A). n/m = not meaningful

Q1 2024 compared to Q1 2023

In the first quarter of 2024, we delivered solid results driven by record net revenue, strong organic and acquisition growth, and operational efficiency gains.

• Net revenue increased 11.5% or $141.6 million to $1.4 billion, primarily driven by 6.6% organic and 5.5% acquisition net revenue growth. We achieved organic growth in all of our regional and business operating units with the exception of Energy & Resources. Double-digit organic growth was achieved in the United States and in our Water business.
• Project margin increased 12.5% or $82.5 million to $742.5 million. As a percentage of net revenue, project margin increased by 50 basis points to 54.2% due to strong project execution.
• Adjusted EBITDA increased 18.3% or $32.8 million, to $211.9 million. Adjusted EBITDA margin increased by 90 basis points over Q1 2023 to 15.5%, driven by strong net revenue growth, enhanced project margins, and disciplined cost management. The strengthening of our share price in Q1 2024 resulted in a 40 basis point headwind to our Adjusted EBITDA margin due to the revaluation of our long-term incentive program (LTIP) compared to the 60 basis point headwind for Q1 2023.
• Net income increased 22.3%, or $14.5 million, to $79.4 million, and diluted EPS increased 18.6%, or $0.11, to $0.70, mainly due to strong net revenue growth, solid project margins, and consistent administrative and marketing expenses as a percentage of net revenue.

Management's Discussion and Analysis
March 31, 2024	M-3	Stantec Inc.

• Adjusted net income grew 27.3%, or $22.1 million, to $103.0 million, achieving 7.5% of net revenue-an increase of 90 basis points, and adjusted diluted EPS increased 23.3% to $0.90. Q1 2024 LTIP revaluation reduced adjusted EPS by $0.04, $0.01 less than the impact in Q1 2023.
• Contract backlog increased to $7.0 billion at March 31, 2024, a record high reflecting 7.1% acquisition growth and 3.1% organic growth from December 31, 2023. Organic backlog growth was achieved in Canada and US, while Global retracted by less than 1%. We achieved double-digit organic backlog growth in our Environmental Services business. Contract backlog represents 13 months of work.
• Operating cash flows increased $20.2 million, with cash inflows of $56.9 million, reflecting revenue growth and solid operational performance.
• DSO was 79 days, remaining below our target of 80 days.
• Net debt to adjusted EBITDA (on a trailing twelve-month basis) at March 31, 2024 was 1.5x, reflecting the funding of recent acquisitions, and remaining within our internal target range of 1.0x to 2.0x.
• Consistent with our growth strategy, we completed the following acquisitions:
• • On January 8, 2024, we acquired ZETCON Engineering, a 645-person engineering firm headquartered in Bochum, Germany. ZETCON provides a strong platform in infrastructure planning, inspection, project management, and construction management.
  • On February 9, 2024, we acquired Morrison Hershfield, a 1,150-person engineering and management firm headquartered in Markham, Canada. The firm has a highly respected industry reputation in transportation, buildings, and environmental services.
  • On April 30, 2024, we completed the acquisition of Hydrock Holdings Limited (Hydrock), a 950-person integrated engineering design firm headquartered in Bristol, England. Hydrock holds a nationwide presence with 22 locations in the UK and industry-renowned experience, bolstering our offering to the energy, buildings, and infrastructure markets.
• On May 8, 2024, our Board of Directors declared a dividend of $0.21 per share, payable on July 15, 2024, to shareholders of record on June 28, 2024.

Management's Discussion and Analysis
March 31, 2024	M-4	Stantec Inc.

Reconciliation of Non-IFRS Financial Measures

	For the quarter ended
	March 31,
(In millions of Canadian dollars, except per share amounts)	2024	2023
Net income	79.4	64.9
Add back (deduct):
Income taxes	23.0	18.9
Net interest expense	24.0	20.7
Net impairment (reversal) of lease assets and property and equipment (note 1)	0.5	(2.9)
Depreciation and amortization	78.3	72.7
Unrealized gain on equity securities	(1.9)	(3.9)
Acquisition, integration, and restructuring costs (note 4)	8.6	8.7
Adjusted EBITDA	211.9	179.1
	For the quarter ended
	March 31,
(In millions of Canadian dollars, except per share amounts)	2024	2023
Net income	79.4	64.9
Add back (deduct) after tax:
Net impairment (reversal) of lease assets and property and equipment (note 1)	0.3	(2.2)
Amortization of intangible assets related to acquisitions (note 2)	18.1	14.5
Unrealized gain on equity securities (note 3)	(1.5)	(3.0)
Acquisition, integration, and restructuring costs (note 4)	6.7	6.7
Adjusted net income	103.0	80.9
Weighted average number of shares outstanding - diluted	114,066,995	110,927,669
Adjusted earnings per share - diluted	0.90	0.73

See the Definitions section of this MD&A for our discussion of non-IFRS and other financial measures used and additional reconciliations of non-IFRS financial measures.

note 1: The net impairment (reversal) of lease assets and property and equipment includes onerous contracts associated with the impairment for the quarter ended March 31, 2024 of $0.1 (2023 - $(0.4)). For the quarter ended March 31, 2024, this amount is net of tax of $0.2 (2023 - $(0.7)).

note 2: The add back of intangible amortization relates only to the amortization from intangible assets acquired through acquisitions and excludes the amortization of software purchased by Stantec. For the quarter ended March 31, 2024, this amount is net of tax of $5.3 (2023 - $4.2).

note 3: For the quarter ended March 31, 2024, this amount is net of tax of $(0.4) (2023 - $(0.9)).

note 4: The add back of certain administrative and marketing costs and depreciation primarily related to acquisition and integration expenses associated with our acquisitions and restructuring costs. For the quarter ended March 31, 2024, this amount is net of tax of $1.9 (2023 - $2.0).

Management's Discussion and Analysis
March 31, 2024	M-5	Stantec Inc.

Financial Targets

We provided our annual targets for 2024 on page M-11 in our 2023 Annual Report (incorporated here by reference).

	2024 Annual Range
Targets
Net revenue growth	11% to 15%
Adjusted EBITDA as % of net revenue (note)	16.2% to 17.2%
Adjusted net income as % of net revenue (note)	above 8%
Adjusted diluted EPS growth (note)	12% to 16%
Adjusted ROIC (note)	above 11%

Our targets and guidance assumed the average value for the US dollar to be $1.35, GBP to be $1.70, and AU dollar $0.90. For all other underlying assumptions, see page M-22. These targets do not include the impact of revaluing our share-based compensation, which fluctuates primarily due to share price movements subsequent to December 31, 2023, as further described below.

note: Adjusted EBITDA, adjusted net income, adjusted diluted EPS, and adjusted ROIC are non-IFRS measures discussed in the Definitions section of this MD&A.

Outlook

We reaffirm our guidance provided in the Outlook section of our 2023 Annual Report (incorporated here by reference).

We expect that net revenue will increase between 11% and 15% in 2024. Stantec continues to see high levels of activity in all regions. We reaffirm our expectations for organic net revenue growth in the mid to high single digits, with the US and Global regions in the mid to high single digits, and Canada in the mid-single digits. We expect acquisition net revenue growth, including a partial year contribution from Hydrock, to be in the mid-single digits.

We anticipate adjusted EBITDA margin will be in the range of 16.2% - 17.2%, reflecting continued discipline in the management of administrative and marketing costs to drive operational efficiency. Adjusted EBITDA margin in Q1 and Q4 2024 is expected to be near or below the low end of this range because of the additional effects of regular seasonal factors in the northern hemisphere. We expect to move to the higher end of the range in Q2 and Q3 of 2024, when we typically achieve stronger organic net revenue growth and increased utilization in our operations.

We expect adjusted net income to achieve a margin above 8.0%, adjusted diluted EPS growth to be in the range of 12% - 16%, and adjusted ROIC to be above 11%.

Effect of Long-term Incentive Plan

Consistent with guidance previously provided, our targets do not include the impact of revaluing our share-based compensation, which fluctuates primarily due to share price movements subsequent to December 31, 2023. For Q1 2024, the revaluation resulted in a $5.8 million expense (pre-tax), the equivalent of 40 basis points as a percentage of net revenue and $0.04 EPS. If the LTIP metrics existing at Q1 remain constant to the end of the year, the impact of higher share-based compensation expense to the remaining three quarters would be approximately $2.1 million (pre- tax) or $0.01 EPS, and the full year impact would be approximately $7.9 million (pre-tax) or $0.05 EPS.

The above targets do not include any assumptions for additional acquisitions given the unpredictable nature of the size and timing of such acquisitions, or the impact from share price movements subsequent to December 31, 2023 and the relative total shareholder return components on our share-based compensation programs.

Management's Discussion and Analysis
March 31, 2024	M-6	Stantec Inc.

Financial Performance

The following sections outline specific factors that affected the results of our operations in Q1 2024.

Gross and Net Revenue

While providing professional services, we incur certain direct costs for subconsultants, equipment, and other expenditures that are recoverable directly from our clients. Revenue associated with these direct costs is included in gross revenue. Because these direct costs and associated revenue can vary significantly from contract to contract, changes in gross revenue may not be indicative of our revenue trends. Accordingly, we also report net revenue (which is gross revenue less subconsultant and other direct expenses) and analyze results in relation to net revenue rather than gross revenue.

We generate over 75% of our gross revenue in foreign currencies, primarily in US dollars, British pounds (GBP), and Australian (AU) dollars. Fluctuations in these and other currencies had a net $6.7 million negative impact on our net revenue results in Q1 2024 compared to Q1 2023:

• The US dollar averaged $1.35 in Q1 2023 and Q1 2024-remaining consistent with limited impact on gross and net revenue.
• The GBP averaged $1.64 in Q1 2023 and $1.71 in Q1 2024-a 4.3% increase. The strengthening GBP compared to the Canadian dollar had a positive effect on gross and net revenues.
• The AU dollar averaged $0.92 in Q1 2023 and $0.89 in Q1 2024-a 3.3% decrease. The weakening AU dollar compared to the Canadian dollar had a negative effect on gross and net revenues.

Fluctuations in other foreign currencies did not have a material impact on our gross and net revenue.

Revenue earned by acquired companies in the first 12 months following an acquisition is reported as revenue from acquisitions and thereafter as organic revenue.

Gross Revenue by Reportable Segment - Q1 2024

				Change Due	Change Due	Change Due	% of
				to Organic	Organic
(In millions of Canadian dollars,	Q1 2024	Q1 2023	Total	to	to Foreign	Growth	Growth
except percentages)	Change	Acquisitions	Exchange	(Retraction)	(Retraction)
Canada	355.7	344.1	11.6	22.5	n/a	(10.9)	(3.1%)
United States	985.4	844.5	140.9	46.9	(3.1)	97.1	11.5%
Global	380.3	350.6	29.7	24.3	(5.6)	11.0	3.1 %
Total	1,721.4	1,539.2	182.2	93.7	(8.7)	97.2
Percentage Growth (Retraction)			11.8%	6.1%	(0.6%)	6.3%

Net Revenue by Reportable Segment - Q1 2024

				Change Due	Change Due	Change Due	% of
(In millions of Canadian dollars,	Q1 2024	Q1 2023	Total	to	to Foreign	to Organic	Organic
except percentages)	Change	Acquisitions	Exchange	Growth	Growth
Canada	323.7	303.0	20.7	17.8	n/a	2.9	1.0%
United States	733.9	643.2	90.7	28.2	(2.4)	64.9	10.1%
Global	312.5	282.3	30.2	21.5	(4.3)	13.0	4.6%
Total	1,370.1	1,228.5	141.6	67.5	(6.7)	80.8
Percentage Growth (Retraction)			11.5%	5.5%	(0.6%)	6.6%

Management's Discussion and Analysis
March 31, 2024	M-7	Stantec Inc.