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Stantec Inc. (NYSE:STN)

Q2 2010 Earnings Call

August 5, 2010; 04:00 pm ET

Management

Robert Gomes - President & Chief Executive Officer

Dan Lefaivre - Chief Financial Officer

Analysts

Chris Blake - Stonecap Securities

Sara O'Brien - RBC Capital Markets

Pierre Lacroix - Desjardins Securities

Ben Cherniavsky - Raymond James

Benoit Caron - The National Bank

Maxim Sytchev - Northland Capital Partners

Carolyn Dennis - Dundee Securities

Presentation

Operator

Welcome to Stantec Consulting’s second quarter 2010 earnings results conference call. (Operator Instructions) As a reminder, today’s conference is being recorded. It will be available for replay on the investor section of www.stantec.com.

It is now my pleasure to introduce your host Mr. Robert Gomes, the President and Chief Executive Officer. Please go ahead Mr. Gomes.

Robert Gomes

Thank you, Andrew. Good afternoon everyone, and welcome to our 2010 second quarter conference call. Joining me is Dan Lefaivre, our Chief Financial Officer. Dan will provide a brief summary of our results for the quarter, and I will follow with an outline of our market outlook. We will then address individual questions.

Before we begin, I would like to make you aware of our Safe Harbor statement and to caution you that we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in the United States and applicable securities legislation in Canada.

By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties to give rise to the possibility that our estimates, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct, and that our actual results may differ materially from those discussed in these statements.

You will find more information about the assumptions and material factors that were applied, that could cause actual results to differ materially from those we discuss in this conference call and the management’s discussion and analysis included in our 2009 financial review.

I would also like to advise you that this conference call is being broadcast live over the internet, and it will be archived for future reference at www.stantec.com under the Investors Section.

Therefore, we ask any members of the media that are joining us today in a listen-only mode and who wish to quote anyone other than Dan or me to please request permission to do so from the individual concerned.

This morning, we released the results of Stantec’s operations for the second quarter of 2010. I’m pleased to report that we are on target with our expectations for 2010. We achieved growth in net revenue on a sequential basis and response to the increased activity in some of our markets. We were able to increase our overall employee numbers while continuing to manage our business effectively.

Dan, will now provide a review of our second quarter financial results. Dan.

Dan Lefaivre

Thank you, Bob, and good afternoon everyone. As Bob just indicated, in the second quarter of 2010, we once again achieved solid results. Our gross revenue in the second quarter was consistent with that achieved in Q1 ’10. Compared to Q2 ’09, our gross revenue was $371.1 million, down $17 million, of this decrease $18.4 million was as a result of the change in foreign exchange during the quarter.

Our net revenue in the second quarter was up 2.4% from Q1 ‘10. Compared to Q2 ’09, our net revenue was $303.8 million, down $14.3 million. Again, this decline reflected an impact, the impact of foreign exchange, as well as staff reductions throughout 2009. Our gross margin as a percentage of net revenue was 55.7% in the second quarter and continued to fall within our target range of 54.5% to 56.5%.

Our administrative and marketing expenses decreased to 41.1% during the quarter from 41.3% in Q2 ‘09, mainly due to achieving increased efficiencies. We also had lower one-time cost related to severances and the downsizing of certain operations. Despite the decline in year-over-year revenue, net income increased 1.8% to $22.7 million in the quarter from Q2 ‘09 and diluted earnings per share in the quarter were $0.49 unchanged from the same time last year.

Our cash flows from operations were strong in the second quarter improving to $24.5 million. As part of our long-term financing strategy, we are currently renegotiating our credit facility to ensure that we have the flexibility and capacity to support our future needs.

During the quarter, we filed our shelf prospectus, which we may use to supplement our debt financing, but only if necessary. We financed all of our announced acquisitions through the combination of cash and debt. During the second quarter, we also renewed our normal course issuer bid with the Toronto Stock Exchange, which will allow us to repurchase up to 5% of our outstanding shares. Pursuant to this [MCIB], we repurchased accounts of over 198,000 shares in the quarter.

Overall, we are pleased with our second quarter results. Our performance in the quarter showed growth on a sequential basis with Q1 ‘10 and we continue to manage our operations effectively. Rob.

Robert Gomes

Thank you, Dan. As we mentioned in our news release this morning, we recently completed four acquisitions. During the second quarter, we acquired TetrES Consultants based in Winnipeg, Manitoba and soon after the quarter end we acquired Industry and Energy Associates or IEA headquartered in Portland, Maine; WilsonMiller, Inc., headquartered in Naples, Florida; and Natural Resources Consulting, Inc., NRC, headquartered in Cottage Grove, Wisconsin.

The addition of these firms enhanced our service offerings in environment, power and transportation sectors. The acquisition of WilsonMiller also established a platform for further growth in Florida.

I’m pleased to announce that tomorrow we will add CommArts, a 25-person firm based in Boulder, Colorado that offers project visioning, branding and conceptual graphic services. Acquiring this firm will allow us to establish a new discipline in our architectural practice area.

I would now like to highlight some of our new project awards. Our project activity during the second quarter demonstrated our continuing ability to secure significant assignments and is still challenging marketplace.

For example, we secured a P3 assignment, with Carillion Secure Solutions team that has been chosen to develop a new Forensic Services and Coroner’s Complex in Toronto, Ontario. We will be responsible for completing the architecture, interior design, building and engineering and sustainable design consulting for the new facility.

We continue to secure large long-term assignments in geotechnical engineering, a key area of our environment practice. During the quarter, as part of a joint venture, we were awarded a five-year multimillion dollar contract to provide geotechnical drilling, sampling and design services for rebuilding the hurricane protection system in New Orleans, for the US Army Corps of Engineers. The contract is a continuation of the reconstruction of levees and flood walls in which we have been involved following hurricane Katrina.

Project awards in the industrial practice area, including a contract to help Laidlaw Berlin, BioPower convert a chemical recovery boiler at former pulp mill in Berlin, New Hampshire into a biomass boiler. Once operational, the Berlin plant will be one of the largest biomass energy facilities in the United States.

Notable in the transportation area was the award of the Stoney Trail Southeast project in Calgary, Alberta, which is another P3 assignment for Stantec. Our role in the project team is to design approximately 11 kilometers of divided highway, four major interchanges, one freeway-to-freeway interchange, 14 bridge structures and retaining walls as well as drainage and lighting.

The Southeast section of Stoney Trail will be opened to traffic in the fall of 2013. And in the Urban Land practice area, we are contracted to renovate the plain surface at the historical Florida Citrus Bowl with in-filled synthetic turf. Host the two college football bowls and other events, the stadium must be ready for a nationally televised college football game in September.

To shorten the project schedule, we developed a way to maintain and reuse most of the existing field base and drainage. As usual, I’ve highlighted only a small sample of projects we are working on, completing many projects for many clients mitigates risk for our company. As always, we like to thank our clients for their continuing trust in our services.

Now, I would like to comment briefly about the potential market conditions for our services going forward. As mentioned in this morning’s news release, increased activity enabled us to increase our staff levels at the end of the second quarter of 2010 to approximately 9700 from 9300 at the start of the year. With the acquisition of IEA, WilsonMiller, NRC and CommArts, our overall staff levels have now increased of more than 10,000.

Our backlog increased by 64 million during the second quarter to just over 1 billion. This improvement reflects the renewed confidence we are seen in some of our markets, which is resulting in new and continuing projects. We believe that we can continue to improve our backlog level by managing our business effectively and focusing on our top clients through our account management program.

Looking at our individual practice areas, we expect the followings for the rest of 2010. We believe that our buildings practice area will be stable for the remainder of the year. Our strategy going forward is to continue to focus on our key capability areas, higher education and healthcare, and to use our success in the Canadian healthcare market to strengthen our position in The United States.

We are also implementing strategic initiatives that will help us take advantage of the recovering commercial and retail markets. We believe that we will see modest growth in our environment practice area in the second half of the year. Because of our expansion in this area in 2009, we are now one of the top 10 global environmental service providers and we anticipate that this will continue to lead to larger long-term projects with national and international scope in 2010.

We also expect modest growth in the remainder of the year in our industrial practice area depending on the speed of the economic recovery in The United States. With the stabilization of commodity pricing, we believe that we will see activity continue in the mining and resource sectors. We are well positioned to take advantage of future opportunities in the industrial market because of our geographic diversity, expertise and good client relationships.

We believe that our transportation practice area will remain stable for the rest of 2010 and we anticipate that our rail and transit groups will be more active in the second half of the year. Short-term extensions from the US Federal Transportation Legislation will help maintain our transportation activity levels. However, we may continue to see delays in many planned projects because of lower tax revenues, state and provincial deficits and the lack of long-term US legislation for transportation funding.

As a result, our transportation practice may need to focus on completing both local smaller projects in The United States for the rest of the year. We believe that our Urban Land practice area will be stable in the second half of 2010 based on the forecast that increase in housing starts in The United States and Canada. Going forward, we expect to continue to diversify our client base in this area and to use and build on our reputation and increase our work with the public sector.

To sum up, we believe that our overall outlook for the rest of 2010 is stable to modest growth. We are still experiencing the impact of increased competition in project delays; however, we continue to see signs that the North American economy is slowly recovering. Looking ahead, we believe that our diversity, client mix and flexibility will help us continue to adapt our business to these improving economic conditions.

This concludes our comments for today. Dan and I are now available to answer any questions you may have. Andrew, the conference call operator, will explain the question procedure. Andrew.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Chris Blake with Stonecap Securities. Please go ahead.

Chris Blake - Stonecap Securities

Good afternoon gentlemen. A quick question for you just on the backlog growing 6% sequentially quarter-over-quarter, I was wondering if you could provide a little more color in the sense of which areas are you seeing the bulk of that increase, are you seeing it right across the board?

Robert Gomes

Well, from a geographical perspective, we are seeing more of our backlog increase in Canada, the US was a bit flatter in the first half of the year than Canada, so most of the backlog is happening in Canada and it just spread out throughout our practice areas.

I would say that it matches, pretty well matches revenue generation typically and that seems to be the case. Certainly from a geographic perspective, we are seeing more of our backlog increase in Canada.

Chris Blake - Stonecap Securities

In which particular practice area, is it more. They hadn’t seen any Urban Land development actually increased, probably the first organic growth in a number of years showing up in that quarter. Are you seeing any particular practice area or discipline that seeing more or less?

Robert Gomes

Mainly in environment and transportation, your right in Urban Land, albeit, it was relatively small compared to the backlog increases in environment and transportation.

Chris Blake - Stonecap Securities

Okay and just lastly on that, how many months of work does the backlog represent currently?

Robert Gomes

For me, it’s about 8.2 months.

Chris Blake - Stonecap Securities

Okay, very good, thanks. Okay, bye.

Robert Gomes

Trailing revenue…

Robert Gomes

8.2 months trailing revenue, correct.

Chris Blake - Stonecap Securities

Okay, thanks. I’ll get back in the queue.

Operator

The next question comes from Sara O'Brien with RBC Capital Markets. Please go ahead.

Sara O'Brien - RBC Capital Markets

Can you talk a little bit about the mix going forward in the back half of the year, you know the confidence in the growth level, and maybe the impact on gross margin and EBITDA just as we -- I think you know, Bob, you made a couple comments about in transportation doing some smaller project work which I imagine is more competitive than lower margin. But in the other practice areas, how do you see the margin kind of trending through the back end of the year?

Dan Lefaivre

You know, our margins are pretty stable. I think we went up like 0.2% from last quarter. Our margins overall trapped pretty much within 1% of where they are. I don’t see a change for that for the second half of the year from what we have experienced in the first half of the year.

Project mix seems pretty similar to what we have experienced in the first half. You are right in transportation, but that’s the bulk of our work right now, so I don’t see that changing in the second half.

Sara O'Brien - RBC Capital Markets

Okay and trying to sneak in one, just on your guidance for stable or modest growth, that’s relative dollar wise to Q2 and Q1 that we are talking, it’s not year-over-year?

Dan Lefaivre

We all seem to have a problem with the word stable and market growth. So, stable in our mind would mean that we would have consistent revenue generation in the second half of the year compared to the first half of the year. Growth would mean we have more revenue generation in the second half of the year compared to the first half of the year.

Sara O'Brien - RBC Capital Markets

Okay, perfect. I’ll circle back. Thank you.

Dan Lefaivre

Okay, thanks.

Operator

The next question comes from Pierre Lacroix with Desjardins Securities. Please go ahead.

Pierre Lacroix – Desjardins Securities

Yes, thank you very much, good afternoon. First question is on the acquisition side, I know you have been active in the quarter and the last few weeks, but are you noticing any particular pick up of activity in that sector? We are just looking at the [telecom] technology in the last 24 hours announced to sizeable acquisitions. Can you comment a little bit on that?

Robert Gomes

Well, with the fact that we have done four in the last few weeks, and they have done a couple and Tetra Tech announced one, it certainly seems that it’s getting more active. Certainly we’ve been talking to these firms for a number of months, so it just is a matter that I think finally we are getting enough visibility into their performance this year and getting some confidence on where they are going forward. That’s closed that valuation gap we have referred to in the first quarter’s call.

We are seeing that we are finally concluding some of our discussions, so it is certainly a very active period right now. There are a number of firms that we are still talking to and so that’s good news. I think that all point towards confidence in the future.

Pierre Lacroix - Desjardins Securities

But, do you feel that your competition coming from the big firms is making the situation a little bit tougher to bid on these firms?

Robert Gomes

No, I mean competition is good. I mean, I don’t see it being an issue where prices are getting driven up. I think everyone has pretty much the same metrics that they got to deal with when they acquire a firm.

So, I don’t see that being an issue. I think that depending on the firm’s sizes, certain companies are in certain space, we are in a different space so. Certainly AECOM’s acquisition at Tishman for example is something that Stantec wouldn’t be involved in just due to the sector within.

But, we haven’t seen really a competition driving up prices and we’re not really too worried about what other firms are doing and we’re quite focused on our strategy and seem to have quite a full pipeline of companies that are interested in talking to us.

Pierre Lacroix – Desjardins Securities

One last and I’m going to jump back into queue. Environment in the quarter, you had negative organic growth, it was a little bit lumpy, but you mentioned that there was some timing on contracts completion versus other start-up of contracts. Can you comment a little bit on that front?

Robert Gomes

Yes, that’s a normal thing in business where you’re awarded a project, but you aren’t given the notice to proceed by the client. There were some of those timing issues in the first quarter that seemed to just get lumped together; it wasn’t anything unusual, it just happened, it all happened in the first half.

So, we’ve seen certainly some of those projects get released. Certainly with the way the economy was, a lot of our clients’ CapEx budgets were somewhat under scrutiny and being reviewed and adjusted and that caused some timing issues of getting delays, but certainly we see a lot of that being released now and our backlog in that area certainly has increased in the second quarter.

Pierre Lacroix – Desjardins Securities

Okay, thanks Bob.

Robert Gomes

You’re welcome, Pierre.

Operator

The next question comes from Ben Cherniavsky with Raymond James. Please go ahead.

Ben Cherniavsky – Raymond James

What are the prospects from your perspective on the P3 market in the US? Has that advanced at all in the last six months? I know it’s something you spoke quite a bit about it, your Investor Day in New York at the beginning of the year, and I wouldn’t expect these things to turn overnight, but is there anything that makes you believe these projects might advance at any quicker rate in the near term?

Robert Gomes

No, I don’t like being pessimistic about anything Ben, but I don’t see the P3 market in the US advancing quickly to the same level as it has in Canada.

The P3s in the US still, are what I call an evolution of infancy at this point. The government still haven’t got behind P3s to the way that they need to as they have in Canada.

That being said, the design build market in the US is quite strong, so it just doesn’t have the financing component, operations and maintenance, but certainly it does have the design and build component that a P3 offers. So, we’ve seen some increase in that area and certainly in the environment sector and the water business. We’ve seen a lot of design build opportunities and some design build opportunities in transportation as well.

So, that seems to be an increasing area for project delivery in the States. The P3s, I’ve said it before, the governments in the US have got to get behind them in a different way and to that point I don’t think that they are there yet. So they are taking a long time to evolve and that costs people money, so we’re not very active in that P3 market in the states, yes.

Ben Cherniavsky – Raymond James

Okay, thanks.

Robert Gomes

Welcome, Ben.

Operator

The next question comes from Benoit Caron with the National Bank. Please go ahead.

Benoit Caron - National Bank Financial

Hi, good afternoon gentlemen. Sorry, if I’m asking a question that’s already been answered, I missed the first few minutes of your comments, but I was looking at the organic growth in the Urban Land development, I suppose this is mostly due to the big rebound that we’ve seen in Canadian real estates.

Robert Gomes

Some of it is, some of it is our Canadian market in the land development side, the master plan community side, especially in Western Canada. It has certainly helps some organic growth in our Urban Land group. As well though, we’ve got certainly a portion, 30% of our business is now in the public sector, and landscape architecture survey is also increasing as well.

So, it isn’t only the increase of land development business in Canada, it’s helping that, but certainly both factors are good news to that sector and it’s in the long time coming forth.

Benoit Caron - National Bank Financial

Okay, and then correct me if I’m wrong. The land surveys and stuff like that, it is more like a recurring business for municipalities and states. So, it could be more of a stable angle to the business than what you had before?

Robert Gomes

Yes, I mean it was part of the business we really didn’t pursue before and certainly we have the capability and expertise to pursue it. So, that has been some work that we’ve been doing is now for municipalities and counties doing that type of work. So, yes, that certainly has built a void that the private market left behind.

Benoit Caron - National Bank Financial

Oh that’s good news. Well, thanks for your time Bob, that’s all I had.

Robert Gomes

No problem. Thank you.

Operator

The next question comes from Maxim Sytchev with Northland Capital Partners. Please go ahead.

Maxim Sytchev - Northland Capital Partners

Yes, hi. Good afternoon. Just one question for you, I mean obviously for a company that generates almost $100 million in free cash flow every year, I was wondering can you please remind us where you stand right now in terms of potentially considering a dividend policy here?

Robert Gomes

From our dividend policy, is something that every year at the board we discuss, we look at how our budget for the year, looks at the cash we generate and determine and given our strategic plan, how are we going to invest that in growth.

Every year we come to the conclusion that we can continue to invest that money into companies and growing our base of operations, expanding our services and their geographic presence and certainly going forward at least with the short term, we still feel that that’s our current philosophy, given the state of our evolution in The United States, we still feel that we need to continue to strengthen our operations in the US and we will be using our cash flow to invest in companies to do exactly that, to increase our services and geographic presence.

Maxim Sytchev - Northland Capital Partners

Okay, thank you.

Robert Gomes

You’re welcome.

Operator

The next question comes from Sara O’Brien with RBC Capital Markets. Please go ahead.

Sara O’Brien – RBC Capital Markets

Hi guys. First question, just on backlog, with the pipeline that you have, are you comfortable looking at growth into next year at this point. I mean you don’t book everything at a backlog, but you do have a pipeline available to you. What’s your initial thoughts on S11 and how that plays out from a sales line?

Robert Gomes

Yes, we probably would look at backlog, for us is a fairly robust number and it usually is work that we are currently working on and expect to work on in the next year. So ,we probably look at our opportunity pipeline which gives us a better idea of what are our [peers] we are competing against, what leads are we chasing, also looking at our account management strategy and looking at our capital program of our major clients and where they are headed.

So, what’s giving us good confidence for 2011 is the fact that all that’s going up, opportunity pipeline has more opportunities in it every month and our clients are constantly looking at increasing their budgets for what they are spending in their capital programs next year.

So, with the backlog going up, our opportunity pipeline increasing and our clients talking positively gives you some optimism towards 2011 certainly.

Sara O’Brien – RBC Capital Markets

Okay, great. And just wondered how that again, at your Investor Day, you talked about cross-selling initiatives and on this call you have talked about focusing on your core customers or core clients. How is that cross-selling going and is that going to drive some organic growth for you next year or is it still early stages?

Robert Gomes

Well certainly it is till the early stages. Account management isn’t something that happens in a month, it is a strategy of developing a true partnership with your clients and developing a trusted advisor position with them, so it takes awhile to do that with some.

However, in some of our account management strategies, we already have that position and we are seeing growth in those accounts, certainly we are tracking that on a monthly basis and we are happy with our results to date.

Cross-marketing of our services is mainly at a local and regional level and we are seeing some very exciting things there. So, Stantec did a lot of acquisitions in 2008, and in 2009 we did a major one beginning of the year.

We are now starting to see those firms really gel together and see some opportunities. So, we are definitely excited about the organic growth opportunity that’s going to drive for us in the future.

Sara O’Brien – RBC Capital Markets

Okay, perfect. Thank you.

Robert Gomes

Thank you.

Operator

The next question comes from Pierre Lacroix with Desjardins Securities. Please go ahead.

Pierre Lacroix - Desjardins Securities

Yes, just a follow-up on the environmental business, the Gulf Oil spill, you mentioned in your release that you may be involved in doing some work for the recovery there. So, can you give us some perspective on which extent you could be involved?

Robert Gomes

Presently we have almost 30 people down in the gulf in four different locations. They are working long shifts right now, working with the BP staff, mainly in the areas of biology safety and waste evaluation. So, we have some of our botanists and geologists down helping BP assess the situation and assisting in clean-up.

So, at this point in time that’s good news for us, helping them try to advance their clean-up efforts. They now appear to have successfully capped the leak. So, certainly we see some further work coming from them, but BP has taken a very structured approach to what they are doing in the gulf and we are just going to be there to continue helping them, but at this point in time we have 30 people working down there.

Pierre Lacroix - Desjardins Securities

Good and going further in time with all the regulations that will likely come up for offshore drilling, you have expertise right in the modeling for oil spill and all that stuff. So, do you expect to be positively and back in the future do you have any kind of contacts or perspective to share with us?

Robert Gomes

Nothing specific, I think everybody believes and I think it’s going to be true that anytime you have a disaster, it’s usually followed by regulatory weather, you will get increases in regulatory requirements and permitting, Stantec is very well positioned in that area.

We do have some high-class world experts that are involved in doing work in that area, so we certainly feel that this is going to help us provide additional services to the clients we are working with, and in the future as regulations improve, we feel that there is going to be even further work for us.

So, you never like to see a disaster and event like this that has an impact on the environment, but certainly the reaction usually is further an additional regulatory requirement. So, we only see that as additional opportunities for us.

Pierre Lacroix - Desjardins Securities

And Bob, I think they will be looking for local content as well in terms of doing businesses with local firms. How do you position with regard to that regret or that…?

Robert Gomes

You are absolutely correct, it’s one of the things BP has tried to do is use local content and people in the Florida area, that was one of the reasons we saw [WilsonMiller] provided us an opportunity for our platform in Florida where we didn’t have a very strong one before.

So, certainly they have an environmental component of their business that they do and we are looking at opportunities right now by using our staff on the project.

Pierre Lacroix - Desjardins Securities

Excellent, thank you very much.

Robert Gomes

Thank you.

Operator

The next question comes from Carolyn Dennis with Dundee Securities. Please go ahead.

Carolyn Dennis - Dundee Securities

Good afternoon. I just have a question, you were adding organically this quarter and I want to know if you can let us know if you are adding in the US or Canada and also if you are continuing to add organically in the Q3 end of its season or not?

Robert Gomes

To your last question, for some of it is seasonal. We do hire a lot of summer staff for a lot of our fieldwork, but some of the organic growth has just been the fact that our business has been picking up.

With regard to approximately where, it sort of falls in our backlog as well. Most of these staff hiring have been in Canada, but some have been in the States as well and in Q3 we were certainly seeing that continue. We are starting to see all areas hire more staffs.

So, at this point in time, that’s good news, as all our areas geographically are hiring people at this point in time.

Caroline Dennis - Dundee Securities

That’s great, thanks so much.

Robert Gomes

You’re welcome.

Operator

The next question comes from Ben Cherniavsky with Raymond James. Please go ahead. Mr. Cherniavsky, your line is open, please go ahead. We’ll move on to the next question, Mr. Cherniavsky if you would like to ask a question please press star 1 again?

The next question comes from Carolyn Dennis with Dundee Securities. Please go ahead.

Carolyn Dennis - Dundee Securities

Hi again. I had another question, another micro question, it was just on the acquisitions, you were touching on briefly on answer previously about the AECOM and Tishman acquisition and I mean do you think they have been taking on a fair bit of rest with the construction at risk management, and I’m wondering what your line is in the sand in terms of taking on that kind of risk.

Robert Gomes

Yes at this point in time, we don’t see ourselves entering that construction market, doing construction management at risk is probably not on our short-term plan. Consulting companies when they get to a certain size certainly always get enticed by clients who want to take on additional risks in the project, but we feel that’s really out of our area of expertise.

To enter that market you really have to do what AECOM did, which is acquire a firm that understands that business as the skill sets and the process to set up to be able to execute that work properly. To try and do that with your existing consulting staff is never a good venture.

So today for Stantec, we still see lots of opportunities for our growth in the fee for service arena and we at this point in time don’t see the need to entering that construction management at risk or agency area.

Carolyn Dennis - Dundee Securities

Okay, that’s great. Thank you so much.

Robert Gomes

You’re welcome.

Operator

The next question comes from Pierre Lacroix with Desjardins Securities. Please go ahead.

Pierre Lacroix - Desjardins Securities

I was looking at the new orders level in the quarter and it came up relatively strong, above $400 million and was there anything special in this quarter or do you expect that $400 million plus level could be sustainable going in the second half of the year.

Robert Gomes

Sorry, Pierre I’m not sure what the $400 million refers to?

Pierre Lacroix - Desjardins Securities

You refer to the level of orders you are having in the backlog with a trend going in the second half, do you see backlog growing again in the third and the fourth quarter?

Dan Lefaivre

Yes, I mean if you’re referring to do we see a continued growth of our backlog, yes we do expect our backlog to continue to grow and that’s sort of going back to the question of both the opportunities we see, more RFP and certainly with more RFPs there is a hope that well close both and add to our backlog. We’re seeing in a lot of our contracts that were awarded to us finally getting noticed to proceed and go ahead, and then we can enter those contracts into our backlog.

So, we do see quarter-over-quarter an increased growth of our backlog throughout 2010.

Pierre Lacroix - Desjardins Securities

Excellent, thank you very much.

Robert Gomes

You’re welcome Pierre.

Operator

There are no further questions. Please continue Mr. Gomes.

Robert Gomes

Okay. If there is no more questions, I’d like to thank all of you for joining us today and both Ben and I look forward to speaking with you again in the near future. Thanks very much.

Operator

Ladies and gentlemen, this concludes the conference call for today. We thank you for your participation. You may now disconnect your line and have a great day.

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Source: Stantec Inc. Q2 2010 Earnings Call Transcript

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