Stantec Inc (STN) 2009 Q1 法說會逐字稿

Welcome to the Stantec 2009 Q1 Earnings Announcement Conference Call. (Operator Instructions). It is now my pleasure to introduce your host, Mr. Tony Franceschini, President and CEO. Please go ahead, sir.

Thank you, Dana. Good afternoon, everyone, and welcome to our 2009 first quarter conference call. Joining me is Dan Lefaivre, our Chief Financial Officer. We have also invited Bob Gomes to join us. He will be available to answer questions at the end of the presentation. As usual, we will comment briefly about our results and the outlook for our markets and then address individual questions.

Before we begin, I would like to make you aware of our Safe Harbor statement. I would like to caution you that our discussion this afternoon will contain 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, which 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 actual results may differ materially from those discussed in these statements. Additional information about assumptions and material factors that were applied could cause actual results to differ materially from those discussed in this conference call can be found in the management's discussion and analysis included in our 2008 financial review.

I would also like to advise you that this conference call is being broadcast live over the internet and will be archived for future reference at Stantec.com under the Investors section. Therefore, we ask any members of the media who are joining us today in a listen-only mode and who wish to quote anyone other than Dan, Bob or me to please request permission to do so from the individual concerned.

This morning, prior to our annual meeting, we released the results of Stantec's operations for the first quarter of 2009. I am pleased to report a good start to 2009. Gross revenue for the quarter increased 38.7% to $404.8 million, from $291.8 million in the first quarter of 2008. Net revenue increased 34.7% to $343.3 million from $254.9 million. Net income increased 22.5% to $20.7 million from $16.9 million. Diluted earnings per share were 21.6% higher at $0.45 versus $0.37. These operating results demonstrate that the vision, focus, diversified business model and operating strategy that we have been following over the past ten years, continue to be sound and allow us to perform and grow in all economic environments.

During the first quarter of 2009, four of our five practice areas, environment, buildings, industrial and transportation contributed to growth and revenue as our revenue mix continued to adjust to current market conditions. Our practice area mix for the quarter was environment, 39%; buildings, 19%; industrial, 17%; urban land, 13% and transportation 12%. This mix continues to result in an overall public private client mix of approximately 50%.

I would now like to address several items that are reflected in our performance numbers during the quarter compared to the first quarter of 2008. On the favorable side, we improved our overall gross margins from 55% to 56.4%. Our gross margin percentages increased in four of our five practice areas. In buildings, the gross margin increase from 57% to 58.3%. This was partly a reflection of slightly lower gross margin percentages in Q1 '08, due to increased activity relating to the pursuit of P3 clients, which generally produces lower margins because we perform work for a reduced fee. And partly due to improved projection execution in Q1 '09.

In the industrial practice area, gross margins improved from 48.3 to 53.2%. Again, due to lower than usual margins in Q1 '08 resulting from integration activities and project mix and improved project execution in Q1 '09. Similar comments apply to the improvement in gross margins in transportation from 51.7% to 54.3%. And in environment from 56.4% to 57.4%.

In all four practice areas, the current gross margins are more consistent with performance over the past 12 months. Gross margin decreased in urban land from 58.3% to 56.8%. This is a -- this has been a gradual decrease since Q4 '07 and is due to declining billing rates in a more competitive environment in a declining market. We also want to remind everyone as we have done previously, that fluctuations in the margins reported from quarter to quarter are normal, as they depend on the particular mix of projects and progress during any quarter, as well as our project execution.

On the unfavorable side, compared to Q1 '08, our results for Q1 '09 were impacted by an increase in our administrative and marketing expenses, as a percentage of net revenue from 42% to 43.1%. An increase in our amortization of intangibles of $2.7 million and an increase in interest expense of $1.9 million.

Our administrative and marketing expenses increased during the quarter due to integration activities related to the Jacques Whitford US operations, severance costs related to staff reductions and the systems conversion for the Secor acquisition. The J.W. integration will be completed in several components with the US operations, which accounted for a little over 10% of the business being done first. Due to the nature of this component of the J.W. business, we consolidated offices and reduced staff, which incurred some severance costs and we started the systems integration process.

During Q1, we also undertook the deferred Secor systems conversion and integration as previously announced. Overall, including the J.W. US operations, we had a total staff reduction of about 500. About 50% of this number was in urban land and 25% was due to the J.W. US operations consolidation. The increase in the amortization of intangibles was mainly due to the amortization of the backlog balances of Jacques Whitford, RHL and Secor. Over the next two quarters, we expect these costs to reduce by about 20%, as Secor and RHL intangibles fall off.

It is my custom during each conference call to outline a few projects that we are working on, to give you some insight into the breadth and scope of our design services. This quarter, I would like to highlight a few projects we're completing in our transportation, buildings and industrial practice areas, as examples of the kind of contracts that continue to be awarded and that are contributing to our growth under the current market conditions.

For example, our transportation group has been awarded a contract to provide construction management support services to the Los Angeles County Metropolitan Transportation Authority for its major capital projects. Contracts that potentially could extend over the next seven years. The capital projects will include a four mile extension of the Metro Orange bus rapid transit line from Woodland Hills into the northern San Fernando Valley, the widening of Interstate 405 to encompass an additional ten miles of a high-occupancy vehicle lane through Sepulveda Pass and the development of a two story Metro Division Bus Maintenance and Operations Facility with a three story parking structure in central Los Angeles.

This work results from the progress we have made in establishing public sector services in the California market following the TKC acquisition in 2005, which gave us a local client presence and base to build from. As we have previously indicated, it takes several years to establish more meaningful cross-selling opportunities, after entering a new geographic area.

In the buildings area, we are completing the architecture and mechanical, electrical and structural design of a microturbine cogeneration plant at the Sheraton New York Hotel and Towers. Powered by natural gas, 30 65-kilowatt microturbines will generate 1.9 megawatts of electricity for use by the facility. Waste heat from the plant will be harvested to produce processed steam, domestic hot water and heating water for the hotel, significantly reducing its carbon footprint.

The project also involved designing an undulating screen wall coated with photoluminescent paint that absorbs energy from daylight and glows at night without electrical lighting. This is just one example of the ongoing enhancement type projects we do on the maintenance and operations side of this sustainable design area.

In the industrial area, we have been contracted to provide a full range of engineering services for the development of a new 150 megawatt wind farm near Pincher Creek, Alberta. Our tasks include the civil, structural and electrical design of the 34.5 kilovolt underground collector system and 240/34.5 kilovolt interconnect substation and the civil design of the access roadways, turbine site and crane pads for the facility. Again, we're successful in securing these types of projects which continue to be in demand because of our experience and expertise in renewable energy projects. It is projects like these that give us our passion for what we do, motivate our staff to excel, help us mitigate risks and provide us with ongoing opportunities during all economic cycles.

Now, I would like to make some general comments and observations about potential market conditions going forward. First of all, the overall outlook for our Company for the remainder of 2009 continues to be stable to moderately positive because of our positioning in various geographic and practice area markets. Looking at our individual practice areas, we expect the following over the balance of 2009. We are positive about our prospects in our largest practice area, environment because of three factors. The expanded and enhanced capabilities we gained with the addition of Jacques Whitford, our backlog which is at historically high levels and our ability to attract larger and longer term projects because of our presence in many locations and our many client relationships.

This practice area is also well-positioned to carry out P3 projects, which are starting to make inroads in this market. Our three principal markets are oil and gas for the front-end permitting and the downstream retail national accounts. This market sector accounts for nearly 30% of our revenues. Water-related business is in the 20% range and wastewater is in the 15% range.

In the building's practice area, we are well-positioned in Canada, where we do 90% of our business and have a top tier position. Also, because of our leadership and sustainable design in P3 projects, we're in a good position to benefit from the energy efficiency component of the US stimulus package and the increasing number of P3 projects in Canada.

Our principal market remains healthcare, which generated a little over 30% of our fee volume in Q1. This is an area that is increasingly being funded by P3s. Our second largest market is education in the 12% to 15% revenue range and then airports at about 10%. We expect a moderate decline in our industrial practice area for the balance of the year because of the decline and continued fluctuation in commodity prices.

Our three principal markets are power, where we're active in transmission and distribution and renewable and sustainable energy including clean coal, ethanol, wind and solar projects. This market generates a little over 20% of the revenue. Mining related work also contributed about 20% of revenue in Q1 and biopharmaceuticals a little over 10%.

In the transportation practice area, our work is principally in the public sector. We expect the implementation of the US stimulus package to stabilize our project workload and possibly accelerate some previously deferred projects. For this reason, we do not expect any impact from stimulus funding until the end of 2009 or early 2010. Our principal sector here is roadways at about 50% of revenue and increasing transit and rail related work.

Based on current market trends, we expect further revenue decline in the urban land practice area. Single family housing starts have continued to decline to historically low and unexpected levels of about 70,000 units in Canada and 360,000 units in the United States. This has necessitated further downward adjustments to our staffing levels and a reduced reliance on the residential sector which, in Q1, I'm happy to report, accounted for only 38% of our revenue. Our revenues in this practice area peaked in Q2 '07 and has been on a decline since. Although the revenue decline from Q1 '08 to Q1 '09 is about 22%, this trend is slowing and the decline from Q4 '08 to Q1 '09 is about 13% and within our expected decline range of 10% to 15% for the year.

In conclusion, for the remainder of 2009 we expect, as per our business model, to have three or four stable market sectors moderated by one or two weaker sectors. As usual, we believe our business model will continue to enable us to react positively to whatever market changes occur.

On a final note, since this is my last conference call, I would like to thank all of the analysts and investors who are participating in this call today and those who have participated in the past. It has certainly been a pleasure and a privilege for me to participate and I sincerely appreciate the comments, the feedback and suggestions we receive because we take them seriously and have always tried to improve what we do. I also want to thank all of you for your support. I will step down from my role knowing that we have established a good foundation and a great leadership team for our Company going forward. The Company is in good hands and I wish Bob all the best in the future. This concludes our comments for today. And so, Dan, Bob and I are now available to answer any questions you may have. The conference call operator will explain the question procedure.

Thank you, sir. (Operator Instructions). We'll take our first question today from Sara O'Brien with RBC Capital Markets.

Yes, hi. I'm actually's Elaine Lae speaking on Sara O'Brien's behalf.

Hi, Elaine.

Hi. Congratulations on a great first quarter. I just had a few questions. I realize the environmental practice came in with great acquisition revenue growth. Wondering if this is like the J.W. acquisition that had more organic growth year-over-year or was this just seasonality, having known perhaps J.W. having a bigger portion of revenues in Q1?

There are kind of two parts to that question. On the organic side, it was -- it was a modest increase and that's consistent with this practice area where an increasing amount of the work is the front-end permitting and field work and so forth, which has significant seasonality to it and Q1 is always the smallest quarter. As a matter of fact, as we get into April to November, is really the best time in that area and we actually are hiring staff in that area for the summer and for doing field work. So, the majority -- the overwhelming majority of the growth that you saw in the practice area did come from the Jacques Whitford acquisition, because it was significant. But I think it doesn't necessarily reflect what we believe will happen in the second, third and fourth quarters.

You're saying Q1 is traditionally the strongest quarter for environmental, at least for the J.W. acquisition?

It would be the weakest. Well, because Jacques Whitford has more seasonality in their business than we do. So, we would consider the Q1 environmental to be the weakest quarter. For the year.

And look at the urban land, obviously large declines and you were saying perhaps you're obviously expecting further declines. If you could quantify that and what kind of measures are you prepared to take in terms of cost cutting, maybe further lay layoffs?

We're at the point where the only thing we can consider is some further layoffs and we're at a point where we're almost reluctant now to make any meaningful layoffs because we want to maintain our core capabilities in that area. As I had indicated, it is now just under 40% of our urban land business which is 13% of our total business. So, we're talking about 5% of our total business and we will support it during this -- during the next year because we still are optimistic that in 2010, that this market will rebound. And basically, the competitive landscape has been decimated and when this market turns, we're in an excellent position. So, we've made the decision to maintain our core capabilities there.

So, if the market really tanks by more than sort of 10% to 15% range for the year, we probably would be carrying some extra costs in this area and they would be reflected later on in the year. But at this point, we think we're at a level that we can sustain, not at the normal utilization levels and so forth. It still won't be quite as profitable, smooth-running machine, but it will be acceptable in terms of the overall Company strategy.

You mentioned utilization rates. Are you -- in terms of utilization rates, are you guys able to increase -- are you managing it well and obviously you were also saying urban land particularly, there is a lot of competitive bidding. How is -- I guess the chargeout rates, how competitive is it and how do you think it is going to fare?

They've been going down as we indicated. That's why part of the reason the gross margins are going down. We've had, reduction, more competitive rate tables and things like that for sure, the rates have been reduced. But the tools that we have is to manage utilization and I think our results reflect that we're doing a pretty good job of that. But it is not a perfect environment. We're carrying a few more people than we normally would but that's a conscious decision we've made to continue to stay involved in that market. Thank you.

And again, we do ask that you limit yourself to one question. If you do have a follow-up, you may press one again, but we ask that you limit yourself. We'll go next to Bert Powell with BMO Capital Markets.

Hi, guys. This is [Leanne Corvago] sitting in for Bert. Congratulations on the good quarter. My question is on the gross profit. The gross profit is up -- was up significantly in industrial and transportation segments. You did comment industrial is up because of the mining and transportation is up on improved execution. So, my question is in industrial. Does your backlog support margins at these levels? And for the transportation, in the past, you have noted that profits on the US transport -- transportation system may be lower due to the nature of the contracts in the US. So, beyond better execution in the quarter, is there any improvement in the mix or is there a chance how these contracts are working? In other words, we're just trying to see, how sustainable these margins are.

I think the margins are -- will be within the guidelines that we provided at the beginning of the year in the 54% to 56% range. We think that that's where we will end up. We're quite comfortable with that range. Sometimes we do overperform and we could end up a little bit better if the mix of projects are there. But in general, if your question was about industrial, we would expect that given that we expect a decline for the balance of the year or modest decline, that that will reflect in probably slightly lower margins. But probably closer to the range that we've had over the last three or four quarters in the 52% to 54% range. So, it could be down to 52% and up to 54% in industrial.

In transportation, we are getting slightly improved margins now in the US. But it is not because we're getting better rates but because we're executing projects better. So, I think, again, those margins are sustainable. If you look at transportation, although we've had some ups and downs, four out of the last six quarters, we've had a gross margin in just over 54%. And then we had those two down where we were down at 52% and 53.5%. So, I think the 54% is closer to what the trend is.

Very good. Thank you.

Thank you.

we'll take our next question from Sarah Hughes with Cormark Securities.

Hi, guys. Just on the G&A, Tony, you mentioned about some severance costs in the quarter. Wondering if you could quantify that for us.

Give or take $1 million dollars.

Ok.

Roughly.

Ok. If I can squeeze one more question in. Just on the building products group, I know you indicated in the MD&A that you saw some competitive pressure. Wondering if it was any one market segment? Hospital versus education or if it was broad-based.

Sorry, in terms of --

You talked about it becoming more competitive on the building side?

Oh, yes, for sure. Well actually, right now, all of the markets are all competitive. I think the -- I think -- it just -- the overall global market is down. Most of the markets that we are providing services in have fewer projects to chase. So, our philosophy has always been that if you're in one of the top three positions in the market place, you're going to be more competitive even if your rates may be going down. So, the way I would answer that is in about 50% of the total revenue that we generate right now is in areas where we believe, we're in that top three, that favorable position, so that we can withstand those changes a little bit better. That's pretty well across all of the practice areas.

Then 25% of our fee revenue is in what we call the developing markets where some of that work, we're top three, but not all of it. The last 25% of our fees are in areas where we're clearly just starting to get into the marketplace, either on a practice area or geography and that's where we're the most vulnerable to impacts because we're not the biggest and the best player in that area. So, I would say about 25% of our fees are at more at-risk, in terms of the competitive pressures on rates and everything else because we're not a top three player.

Okay great, thanks.

We'll take our next question from John Rogers with D.A. Davidson.

Hi, good afternoon. Tony, good luck. Appreciate all of your help.

Thank you.

Just -- first of all, in terms of the organic growth rate in the quarter, little bit negative but based on your comments at the beginning, it sounds as if you expect that to stabilize this year? Maybe improve a little bit? Or am I reading that the wrong way?

You know, John, it all depends on what happens in urban land because it was urban land that brought us to that slightly negative. We actually had positive organic growth in four of the five practice areas, but the decline in urban land was greater than even we had thought just for that quarter, it is sort of in line for the entire year. So, I think to be honest, it really depends on how much worse can the urban land business be beaten up next quarter? If the urban land is at all stable, yes, we fully -- and even if it was in the same level as Q1 because we do expect even some improvements in the other area, particularly environment where say there is a bigger seasonality component. We fully expect that we can do organic growth in that 0% to 5% net.

Ok.

That includes even the impact. But the biggest contributor really, has been urban land because the numbers were pretty bad.

Yes.

In terms of $27 million in reduced fee revenue. But we had $8 million plus in buildings, $2 million in environment, industrious close to $5 million. Transportation, $6 million or $7 million. So, I think that the other areas will make up for it.

Just following up on that then a little bit. Based on your comments for urban land are down negative 10% to 15% -- I mean, you expect that to stabilize. Are you seeing any signs or -- there are a lot of reports of recovery and hope for recovery, but are you seeing any tangible evidence of that? In any of your business?

I'm Italian, sometimes we kind of exaggerate things a little bit. I think that if we wanted to be optimistic and see the positive, we sort of see signs, but I think it is a little early to -- to kind of make a statement that we think we've turned around. But I would agree that it feels more positive now than it did a couple of quarters ago. But I'm not ready to go out on a limb yet. Maybe Bob is, to say that the urban land,p we've seen the bottom and that it is going to turn around. We clearly believe we're just -- we're there because -- at the bottom because there's not that much left to do. I mean we could literally -- only left to layoff the rest of the staff which we really wouldn't do. So, I would say that maybe there is a bit of a positive sign, but just a little early to tell.

Okay. The rest -- the rest of your markets?

The other four markets we feel pretty good. Because of the positioning we have, the types of projects we're getting, we're being -- although the market is more competitive, it has really sharpened our focus on getting projects. We've been getting a number of P3 projects that seems to be a trend, as people start to run out of money. And the actual -- the numbers, if you look over the last year, we've had about 21 different projects that -- on P3 side and depending on how -- if you measure -- that includes environment, it includes healthcare, that includes some water and wastewater and we have an incredible success rate. We're 15 out of 21 so far. And we've identified another 19 prospects for 2009, and these projects tend to be a little bit bigger. So, if we can continue to do these, they tend to offset that sort of steady, bread and butter type work which sometimes is being reduced. But as people move to P3s, companies like us, the more larger stable firms and also us because we've done quite a few, tend to be a little more successful. So, that's why we're optimistic.

Great. Thanks. Good luck, Tony.

Thank you, John.

We'll take our next question from Chris Blake with Blackmont Capital.

Good afternoon, gentlemen.

Good afternoon.

Just wanted to follow up on your previous comments there. I want to get a sense, I know a couple of your competitors are indicating that proposal activity has increased, particularly in central Canada and obviously, you're a little more, quite more geographically dispersed. I was wondering if you can give some color geographically in some of the trends and markets you are seeing based on a relative basis to what's happening here in central Canada with respect to your US and western Canada markets, Canadian markets?

I suspect quite honestly, I think it is not that -- not materially different. There are differences between the regions, but every region is facing similar issues. So, it is definitely -- there's more competition. Perhaps you don't get quite as much just sort of negotiated contracts with one party so that we're putting in more proposals, which obviously also affects, moderately, the SG&A costs. But, we're trying to keep those under control. We're being more selective in terms of the proposals that we do submit because we try to do our internal assessment of what our success rate is going to be. So, I would say that we're operating in a very competitive environment, nothing is easy out there. But because our focus has always been on execution, I think quite honestly, when times are tough, I think it kind of brings to the front firms that, you know are good, stable and have good team of individuals. So, very competitive. But we're holding our own.

Very good. If I can sneak another question in. I know you mentioned that you were selected to provide environmental impact assessments and permitting services for an energy company or two energy companies for that matter. Could you just provide some color on that contract environmental practice area? How much did it contribute in the quarter? And lastly, can I just -- safe to assume that's a clear example of the (indiscernible) opportunities that Jacques brings to the table?

To answer the second part, yes, because that was clearly driven and led by Jacques Whitford staff assisted by Stantec's staff. In terms of the first quarter, very little on that particular side because again, that is a lot of where the fees really start to improve is during the field work, the data collection, doing the baseline studies and so forth. So, we're in the process in that area, actually of hiring close to 100 people to help with the summer and early fall field work. So, the impacts of those you likely -- you won't see until the second and third quarter. So, the first quarter was very minor on that stuff.

Perfect. That's it for me. Thanks.

We'll take our next question from Vahan Ajamian of TD Newcrest.

Hi, Tony, great quarter.

Thank you.

Just wondering on that same theme then, would you be able to quantify the revenues contributed by Jacques Whitford in the quarter?

Roughly we can. I mean it was like -- if you remember, on a gross basis, they were doing about $220 million a year. So, on a gross basis, it is just north of $50 million or so.

That's all environmental?

It would all in the environmental sector, yes.

How has their backlog changed over the quarter, end of Q1 to when you would have acquired it? Didn't catch the consolidated backlog figure either.

Well, the -- their backlog, is -- just to make a comment. We're including their backlog in the numbers that we have. Because they're not fully converted, we may not have -- look at our total backlog, maybe 20% of it is accounted for by Jacques Whitford. And their numbers may not be 100% consistent with the way that we track backlog. We're looking at it. But if you look at the first quarter, we were at $1.11 million in total. And we don't break out the backlog by the individual practice areas. But what I can tell you is that the environmental component is greater than their revenue contribution. So, we do have a higher backlog percentage in the environmental area than the other three areas.

That's very helpful. If I could just sneak in one last quick one. Regarding the marketing general and admin expenses, is the Q1 level then about 148 reasonable run rate going forward, assuming there's no future acquisitions?

If there's no future acquisitions, yes.

Okay. Thank you very much.

we'll take our next question from Richard Stoneman with Dundee Securities.

Hey, Richard.

Hi, Tony. Last call. It is not a bar. Anyway, just a quick question --

I was waiting for the house lights to go on.

Anyway, the quick question and I may have missed it in the preamble. But on the mining side, I know it is a small part of your business, but I just wanted to get a feel for how much business was there. Is it declining or is it holding its own? You made an acquisition about 12 months ago and just curious as to how it was doing.

Well, it is doing okay. Right about the time that we did complete that acquisition, the number of projects and so forth started to decline and the industry as a whole declined. But so, for us, we got maybe just a little less revenue than we were expecting when we actually did the acquisition. But actually, overall, they're not doing -- they're not doing too bad because as I indicated in the breakdown, they were about 20% of the industrial business. That sort of gives you a size, so you know industrial was about 17%, so it is 3.5% or so of our total business. And we clearly see that as a bit of a decline for the rest of the year. I think not exactly what we thought it was going to be last fall but it is still a good contributor. We've been successful in moving some of the work from the nickel which is down to potash. We did get our first significant work in the potash area. And doing a little bit in diamond. So, I think, it is not as well as we expected, but it's got potential.

Thanks a lot, Tony. Best of luck.

Thank you.

We'll take our next question from Paul Lechem with CIBC.

Thank you. Tony, all of the best in the future.

Thank you.

Just on the Jacques acquisition in the US, you mentioned there were some layoffs there.

Yes.

As you integrated that. What were those layoffs related to? Is it overlap or is it -- why the layoff and do you expect to have a similar level of layoffs when you start to integrate, fully integrate the Canadian operations?

Good question. The layoffs were primarily due to the fact that just like every company, when you look at it, has its strong components and it has its weaker components. And clearly, Jacques has been attempting to expand in the US over the last few years. So, the US operation accounted for just a little over 10% of their total business. And that business, quite honestly, was not that strong and was a little bit like when we talk about our markets, where we're in like the emerging areas, we're just starting and we're much more vulnerable to slow downs in the economy. So, when we looked at it, we thought that there was only certain components of it that were competitive in their marketplaces and essentially, they were carrying, in a way, a number of operations they were trying to get established. And we decided after a review with them, that we would be better off since basically they were losing money, that we thought we would be better off without them and they weren't integral to our long-term plan. So, we chose to -- to make that change.

In Canada, we certainly don't see the same thing. Because, in terms of consolidating offices and so forth, there isn't that much overlap and their operations are much stronger. They're generally in that one or two, occasionally three position in the market place. So, we see the noise on Jacques Whitford in the first quarter, as you've often seen right after we do an acquisition. In this case, it was particularly related to the US. In our minds, Jacques is probably only contributing right now in the first quarter, maybe a third of what we think they can do. And because of the changes in the US, the Canadian operations are quite strong and we don't expect the same thing to happen there.

Thanks. Can you just elaborate when you said they're contributing a third of what they can do.

Well, if you ask me how well -- they didn't -- although I mentioned they contributed on the top line, they weren't a big contributor on the bottom line in the first quarter because of all of these things that we're talking about. And we think that Jacques contribution in the second, third and fourth quarter will be significantly improved. So, I mean, it can only be positive. That's why we're more positive in that marketplace. Because we're just starting to do the things we've done all the difficult things that we have to do, we did it all in the first quarter. Because we've also got this sort of sequential integration of the practice. We don't expect, again, sort of huge impacts in the second and third quarter in systems integration. We expect all of the other projects now to start coming in. We're at a stable staff level. So, we're quite positive on it.

That's all. Thanks. Just one quick financial question if I may. On the intangibles. Amortization tangibles. So, you mentioned in your prepared remarks that you expect the level to drop about 20% in the next few quarters.

Yes.

From the Q1 level. But then in the MD&A, it says that for the full year, you expect it to be in the range of $15 million to $16 million.

That's correct.

But the two -- those two calculations don't seem to jive. It was $5.3 million in the quarter. Run rate exiting the year that you're talking about, the $15 million to $16 million?

No. If you add the way we add the numbers, if you get like $5.3 million or so in the first quarter and you're down to just a little over $4 million in the second quarter and a little over $3 million or $3.5 million, you know --

Okay. So, 20% in each of the next few quarters.

Yes.

That's helpful.

So, it is 20% and 20%. When I was saying 20%, it was like maybe 20% in the second quarter and another 20% in the third quarter.

Ok. Sorry, I didn't understand that. Thank you. That's very helpful. All the best, again.

Thank you.

(Operator Instructions). We'll go next to Pierre Lacroix with Desjardins.

Thank you very much. Question for Bob. Since it is your first conference call and would you maybe start with your strategy view on Stantec, what you intend to do as the new CEO, what is your strategy regarding acquisitions going forward, short and long-term?

Hello, Pierre. At our annual general meeting this morning, we did outline really, the vision is going to remain the same for Stantec. Acquisitions has been an important part of our growth, representing probably two thirds of our growth over the last ten years. Most certainly that strategy will continue over the short term and long-term. We certainly feel that organic growth and acquisition growth will be part of our plans for the future and we don't see any of that changing.

Do you expect to take some time as the new CEO to revise the Company? I know that you've been there for some time, but do you intend to kind of adapt some type of a different strategic view over time?

No. Again, I think as we stated this morning, our strategy has been very consistent and very stable for the last ten years. And we see it serving us well for the next ten years. We've consistently and systematically grown and we see our focus in the next five years being in North America and probably primarily in the US and beyond that five-year horizon, looking more into the international market. So no, I don't see, especially in these economic times, we don't see any reason to vary from what has been a very, very successful plan for us. So, it is going to be much of the same, Pierre. Sounds maybe kind of boring, but that's certainly been very successful for us.

No, that's okay. That's okay. Good success. I wish you good luck and good luck, also, for Tony.

Thank you.

Thanks very much, Pierre.

We have a follow-up question from Vahan Ajamian with TD Newcrest.

Hi, just a final question here. Regarding the industrial segment. Guess it seems to have the greatest possibility for a variance of outcomes. Just wondering if you can give a little more color as to which areas are more stable and which areas you're closer to predicting a decline?

You mean within the industrial practice area?

Correct.

Yes, we think the power side is good. The biopharmaceutical is sort of stable. We don't expect -- there are things going on with some of the integration of the large pharmas getting together, but we thought actually, there might be a little bit greater impact from that. That seems to have been stabilized. As we indicated, we clearly see a bit in the mining sector continuing to decline and the manufacturing component, although none of them are sort of the largest. But I would say probably those two are the greatest at-risk for the next several quarters.

I see, okay. Thank you. Good luck, guys.

Thank you.

Thank you.

we'll go next to Bert Powell with BMO Capital Markets.

Just a quick question again, following on the amortization of intangibles. Just now you mention the 20%, 20% decline for the next few quarters. So, that works out to -- works out like $2.7 million, $2.8 million net in Q4 '09. So, is that a good number to use going forward as the run rate? That could work out to like $11 million, $12 million for 2010.

I think we're, again, excluding any additional transactions, that we're comfortable with those numbers for the next couple of quarters. My 20% was for sort of Q2, Q3. Tends to stabilize after that for another quarter or two. So, you're probably, if you're looking from -- there is no -- we have to -- these numbers get adjusted all the time. We're trying to give you an idea that it is going to go down. But I would say 20% and 20% for a couple of quarters and then steady there.

Okay. Thank you very much.

We have no further questions at this time. I'll turn the call back over to our presenters for any additional or closing remarks.

Well, thanks again to everyone for listening in. As I said, we truly appreciate it. And I'm going to miss these calls, but I'm sure there are other things that I'm going to be doing over the next little while. So, thanks to everyone for listening in and we'll sign off now.