Stantec : Q2 2020 Earnings Conference Call

Q 2 2 0 2 0

Q2 2020

Earnings Presentation

August 6, 2020

Joint Venture with Snøhetta Temple University - Charles Library

Philadelphia, Pennsylvania, USA

Photo credit: Michael Grimm

1

Q 2 2 0 2 0

2

Cautionary statement

This presentation contains non-IFRS measures and forward-looking statements, including a discussion of our business targets, expectations, and outlook.

We caution readers not to place undue reliance on our forward-looking statements since a number of factors could cause actual future results to differ materially from the targets and expectations expressed.

For a discussion of risk factors and non-IFRS measures, see our Q2 2020 Management's Discussion and Analysis and Financial Statements which are available on SEDAR, EDGAR, and stantec.com.

Q 2 2 0 2 0

3

Agenda

Gord Johnston

Opening Remarks

Q2 Operational Performance

Theresa Jang

Q2 2020 Financial Performance

Gord Johnston

2020 Outlook

Concluding Remarks

Solid Q2 results

Q 2 2 0 2 0

Long-term strategy of delivering value through diversified business model

4

4%

Growth in Q2 Adjusted Diluted EPS

$4.7 B

gross revenue

backlog

United States

Canada

Global

12 Months of work

Q 2 2 0 2 0

5

Solid net revenue generation in Q2

											Q2 Net revenue stable
											year-over-year at:
			UNITED STATES			CANADA	GLOBAL	$951M
	600					Q2 20 Q2 19			2.1% organic retraction
millions)($	500
400
200
	300
	100
	0
Organic growth	2.3%	(6.8)%	(7.4)%
(retraction)
Q2 net			$532M			$261M	$158M
revenue

Q 2 2 0 2 0

6

Business line diversity bolsters Stantec's resiliency

INFRASTRUCTURE

BUILDINGS

WATER

ENVIRONMENTAL

ENERGY &

300

SERVICES

RESOURCES

Q2 20

Q2 19

($ millions)

200

100

0

Organic growth

(1.7)%

(8.7)%

3.4%

(3.7)%

2.0%

(retraction)

Q2 net

$272M

$202M

$201M

$141M

$135M

revenue

Q 2 2 0 2 0

7

United States

2.3% organic growth in Q2

• Driven by:
• • Water, Mining, and Power with the commencement of several large projects and continuation of existing programs
  • New federal Environmental Services projects that more than offset pandemic-related slowdowns
• Partially offset by:
• • A slowdown in Buildings, particularly in the commercial, airports, and hospitality sectors

Martin County, Florida Substation

Lake Mary, Florida

Q2 20

Net revenue	6.0%
growth
Organic net revenue	2.3%
growth
Backlog ($ millions)	$2,781
Gross Margin	52.9%

($ millions)

	Gross & Net Revenue
$800
$600
$400
$200	$532	$502
$0	Q2 20	Q2 19

Gross Revenue				Net Revenue

Q 2 2 0 2 0

8

Canada

6.8% organic retraction in Q2

• Driven by:
• • Slowed economic growth amplified by the COVID-19 pandemic
  • Buildings and Community Development particularly affected
  • Environmental Services impacted by project slowdowns in field work
• Partially offset by organic growth in:
• • Oil & Gas driven by midstream projects
  • Transportation related to several large light-rail transit projects in Edmonton, Montreal, and the greater Toronto area

University of Manitoba Museum Phase II

Winnipeg, MB, Canada

	Q2 20
Net revenue retraction	(6.8)%
Organic net revenue	(6.8)%
retraction
Backlog ($ millions)	$1,163
Gross Margin	48.5%

($ millions)

Gross & Net Revenue

$800

$600

$400
$200	$261	$280
$0	Q2 20	Q2 19

Gross Revenue				Net Revenue

Q 2 2 0 2 0

9

Global

7.4% organic retraction in Q2

• Driven by:
• • Project slowdowns from COVID-19
  • • Most pronounced in Buildings and European Environmental Services
  • Pandemic-relatedmine closures in Latin America
• Partially offset by:
• • New Zealand transportation projects
  • UK Infrastructure strength
  • Water remaining steady in the UK with increased work in Australia

Center Parcs, Longford Forest

County Longford, Ireland

	Q2 20
Net revenue retraction	(7.9)%
Organic net revenue	(7.4)%
retraction
Backlog ($ millions)	$769
Gross Margin	51.7%

($ millions)

Gross & Net Revenue

$800

$600

$400

$200		$171
$0	$158
Q2 20	Q2 19

Gross Revenue				Net Revenue

Q 2 2 0 2 0

Q2 2020 Financial Performance

International Ave Pedestrian Realm

Calgary, Alberta, Canada

10

Q 2 2 0 2 0

11

Q2 2020 results

	Q2 20	Q2 19	Change
(In millions of Canadian dollars,					% Year-
	% of Net		% of Net	over-year
except per share amounts and percentages)	$	Revenue	$	Revenue	change
Net revenue	951.1	100.0	953.6	100.0	(0.3)%
Gross margin
489.7	51.5	517.5	54.3	(5.4)%
Administrative and marketing expenses	344.0	36.2	372.4	39.1	(7.6)%
EBITDA from continuing operations(1)	144.9	15.2	145.9	15.3	(0.7)%
Net income from continuing operations	52.6	5.5	49.3	5.2	6.7%
Diluted earnings per share (EPS) from	0.47	-	0.44	-	6.8%
continuing operations
Adjusted EBITDA from continuing operations(1)	142.5	15.0	145.4	15.2	(2.0)%
Adjusted net income from continuing operations(1)	57.7	6.1	56.1	5.9	2.9%
Adjusted diluted EPS from continuing operations(1)
0.52	-	0.50	-	4.0%

1. EBITDA, adjusted EBTIDA, adjusted net income, and adjusted diluted EPS are non-IFRS measures

(discussed in the Definitions section of Stantec's 2019 Annual Report and Q2 2020 Management's Discussion and Analysis).

Net revenue & organic growth (retraction)

($ millions, %)

2.3%	7.4%	5.3%	4.2%	(2.1)%

$954	$953	$901	$955	$951
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

Adjusted EBITDA and margin

($ millions, %)

15.2%	16.7%	15.8%	14.6%	15.0%

$145	$159	$143	$140	$143
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

Q 2 2 0 2 0

12

Balance sheet strength

Net debt to adjusted EBITDA(1) (TTM)

				2
				1.5
				1
				0.5
				0
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

Days sales outstanding

				95
				90
				85
				80
				75
				70
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

1. Net debt to adjusted EBTIDA and days sales outstanding are non-IFRS measures.

(discussed in the Definitions section of Stantec's 2019 Annual Report and Q2 2020 Management's Discussion and Analysis).

Net debt to adjusted EBITDA(1)

1.0x at June 30, 2020

Target range

1.0 - 2.0x

Days sales outstanding

82 days at June 30, 2020

Target 90 days

Liquidity and capital allocation

(Comparisons to Q2 2019)

• 83% improvement in free cash flow(1)
• >50% decrease in capital expenditures
• >$330 million in undrawn credit capacity

Free cash flow(1)

($ millions)

				$210
$115		$204
$94
			($85)
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

Q 2 2 0 2 0

13

Cash flow from continuing operations

(millions of Canadian dollars)	Q2 20	Q2 19
Inflow (Outflow)
Operating	251.5	162.3
Investing	(11.2)	(18.6)
Financing	(100.4)	(83.0)
Net	139.9	60.7

(1) Free cash (out)flow is defined as operating cash flows less capital expenditures and net payment of lease obligations.

Capital returned to shareholders

($ millions)

Dividends

Share buy backs

$33

$12 $17

$16	$16	$17	$16	$17
Q2 19	Q3 19	Q4 19	Q1 20	Q2 20

Q 2 2 0 2 0

2020 Outlook

Inova Mather Proton Therapy Center

Fairfax, VA, USA

14

	2020 Net revenue outlook
		Geographic	% of Net
		Revenue	Key Drivers
		Region
		(YTD)
			55%	▼ Nominal revenue contraction in Q3 20 relative to Q2 20 is expected across all businesses
			except Water, with a slightly more pronounced decline in Q4 20 due to the seasonal slowdown
				▲ Expect continuing benefit of US/Canadian exchange rate
2 0 2 0		United States
			▼ Q3 20 revenues are expected to be stable relative to Q2 20, while Q4 20 revenues are expected
2			28%
Q			to experience the typical seasonal downturn in activity
				▲ Ramp-up of major transportation and midstream projects
		Canada
				▲ Net revenues are projected to improve modestly from Q2 20 to Q3 20 and stabilize at that level
			17%	in Q4 20
			▲ The strength of the Water business in the UK and Australia and the Transportation sector in
				New Zealand are expected to offset the impact of COVID-19 related project slowdowns
		Global
15			Full-year 2020 net revenue expected to be comparable to 2019

Q 2 2 0 2 0

16

2020 Outlook

Net Revenue and Adjusted Earnings

• Full-year2020 net revenue expected to be comparable to 2019
• Adjusted net income and adjusted diluted EPS comparable to 2019
• 55% of adjusted earnings in Q2 and Q3, and 45% in Q1 and Q4

Leverage

• Net debt to adjusted EBITDA expected to be at the low end of internal range of 1.0x to 2.0x
• No near-term debt maturities
• More than 70% of debt is floating rate

Liquidity & Capital Allocation

• >$330 million available liquidity on committed revolving credit facility ($600 million also available through accordion)
• Non-essentialcapital expenditures on hold
• Dividend re-affirmed
• Share repurchases on opportunistic basis

Continued balance sheet strength and disciplined capital deployment

Q 2 2 0 2 0

17

Continuing to execute our strategy

People

• Our people's health and safety comes first as we begin our phased office remobilization
• Integrity of workforce is being preserved to work through record backlog and to position Stantec for economic recovery

Excellence

• Continued focus on project execution and delivering exceptional work for clients
• Stantec's EBITDA margins bolstered by prudent management of discretionary spending

Innovation

• Innovating client solutions to address the challenges created by COVID-19
• Virtual marketing and business development toolkit developed and launched to enhance sales and client relationship management

Growth

• Focused account management has driven 7.4% organic growth in key accounts year-over-year
• Pace of acquisitions slowed due to travel restrictions

Q 2 2 0 2 0

Q&A

Lyu-Chuan - Shin Sei Green Waterway

Taichung City, Taiwan

18