Stantec Inc (STN) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Stantec 2009 Q2 earnings announcement conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions). It is now my pleasure to introduce your host, Mr. Robert Gomes, President and CEO. Please go ahead, Mr. Gomes.

Thank you, Marcus. Good afternoon, everyone. I would like to welcome you to our 2009 second-quarter conference call. My first earnings conference call is President and Chief Executive Officer of Stantec. Joining me is Dan Lefaivre, our Chief Financial Officer. Dan will begin the conference call by briefly discussing 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, 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 our actual results may differ materially from those discussed in these statements.

You'll find more information about the assumptions and material factors that were applied or could cause actual results to differ materially from those we discussed in this conference call and the management's discussion and analysis included in the 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 any one other than Dan or me to please request permission to do so from the individual concerned. Dan will now provide a review of our financial results. Dan?

Thank you, Bob and good afternoon, everyone. This morning, we released the results of Stantec's operations for the second quarter of 2009 and I am pleased to report solid performance. Gross revenue for the quarter increased 13% to C$388.1 million from C$343.3 million in the second quarter of 2008. Net revenue increased 10.1% to C$318.1 million from C$289 million. Net income increased 0.9% to C$22.3 million from C$22.1 million and diluted earnings per share were 2.1% higher at C$0.49 versus C$0.48 for the same period last year. On a year-to-date basis, gross revenue was up 24.8% to C$792.9 million. Net revenue is up 21.6% to C$661.4 million. Net income is up 10.3% to C$43 million and diluted earnings per share are up 10.6% to C$0.94.

A detailed management's discussion and analysis was included with our press release and I would like to summarize a few highlights. Our gross and net revenues for Q2 were lower than in Q1 because of the continuing softness in the market, primarily in our urban land practice area and to a much lesser extent in our buildings and industrial practice areas.

As we reported in our last conference call, the decline in organic revenue resulted from the reduction of staff by approximately 500 people in Q1. In Q2, we further reduced our staff numbers by about 120 as we continued to adjust to market conditions. We expect our staff levels to remain stable for the remainder of the year.

On a positive note, our net income for the second quarter was higher than in Q1, which demonstrates that we are managing our gross margin and projects effectively and controlling our administrative and marketing expenses.

Our administrative and marketing expenses continue to remain within our targeted range of 41% to 43.5% year-to-date despite being impacted by additional one-time costs of approximately C$7 million related to paying employee severances and downsizing certain operations.

When compared to the two quarters ended last year, our cash flow for Q2 '09 was impacted by a C$28 million increase in cash flows used in operating activities and this was related primarily to four factors. Our days of revenue outstanding increased to 88 days, partly due to the general economic conditions and also due to our continued migration and integration of the Secor acquisition. We were required to cover accounts payable and accrued liabilities for the Jacques Whitford acquisition without receiving any cash to offset these payments. And just as mentioned, we used cash to fund the severance of staff and the downsizing of certain operations as we adjusted our business to our available work backlog. Finally, due to the timing of biweekly payroll, we used more cash year-to-date in 2009 versus 2008.

Overall, our performance for the second quarter and year-to-date demonstrates that our diversified business model continues to allow us to adapt to changing and challenging market conditions throughout North America. Bob?

Thank you, Dan. I would also like to note that, during the second quarter, we made progress in integrating Jacques Whitford into our operations. To date, we have completed the integration of JW's human resources and payroll systems and we expect to finish integrating the financial systems by year-end. We have begun to see many synergies occurring as a result of the acquisition. Most notably the award of the preferred supplier contract with Chevron that we announced last week.

The additional resources and specialty expertise JW brought to our contract proposal were attractive to Chevron and enhanced the value of our offering. JW's staff are also now providing geotechnical services to clients in Canada that previously we would have subcontracted to another firm.

I would now like to highlight some of our other new project awards. Our project activity during the quarter reflected our growing presence in many of the markets we serve. For example, our expansion in the environment sector over the past few years has resulted in an increased number of project awards in the water supply and wastewater treatment market. In the second quarter, we awarded a contract to provide services to the city of Windsor, Ontario for the development of a combined sewer overflow treatment system as part of its riverfront pollution control plan. Our responsibilities include predesign, final design, services during construction and post-construction services. This project award was also a direct result of stimulus fundings for infrastructure projects in Canada.

In Pinedale, Wyoming, we are designing an ultraviolet light disinfection facility that will function in conjunction with the town's existing chlorination facility to disinfect its water supply and meet US Environmental Protection Agency requirements.

Project awards in our transportation process area underscored our rising position in the commuter rail and public transit market. In California, we are part of a team selected to provide on-call project-management, construction management and staff assistance services to the Southern California Regional Rail Authority in Los Angeles to support new construction in rehabilitation projects for its Metrolink commuter rail system. The work will span five years and include more than a dozen large projects.

During the quarter, we also secured several contracts to design signal systems, including the systems for warning device replacement and improvement projects on trolley lines in Philadelphia, Pennsylvania. These trolley routes, part of the Southeastern Pennsylvania Transportation Authority transit system, are in need of upgrades at several existing locations and new active crossing warning devices at 18 locations.

Project awards in the urban land area during the quarter reflected our continuing focus on the nonresidential segment of the market. In particular, landscape architecture and recreation and community planning for the public sector.

In Nevada, we were selected to design the landscaping and aesthetics for Interstate 15 South in Las Vegas for the Nevada Department of Transportation. Our work will involve designing the graphics for retaining walls and 23 bridge facades spanning 12 traffic lanes, creating public art at major intersections and designing the landscaping for eight miles of highway.

In addition, we were given an assignment to provide design and construction observation services for the development of a new college athletic field complex for the University of Guelph in Ontario, Canada.

We also continue to secure significant projects in the healthcare and higher education sectors -- two areas of focus for our buildings practice. For example, we have been contracted to help the Bermuda Hospitals Board expand and redevelop the aging King Edward VII Memorial Hospital located in Hamilton, Bermuda with responsibility for planning, design and compliance, we are providing a full suite of integrated services, architecture, interior design, mechanical, electrical and structural engineering and sustainability consulting for the expanded hospital, which will open in 2014 and will be delivered through public-private partnership.

We were also awarded a contract at the University of Fraser Valley in British Columbia to provide integrated services in architecture, landscape architecture, interior design and structural, mechanical, electrical and civil engineering for the first phase, the relocation of its Chilliwack campus to a new 35-acre site.

This is only a very small sample of the projects we are working on. Projects like these give us our passion for what we do and motivate our staff to excel. Equally important, they provide diversity and risk mitigation for our Company.

Now I would like to comment briefly about potential market conditions going forward. First of all, the overall outlook for our Company for the remainder of 2009 continues to be stable because of our positioning in various geographic and practice area markets. Our work backlog has increased from year-end to C$1.043 billion in Q2, but is down slightly from Q1. Our current backlog represents 8.3 months of TTM gross revenue.

Looking at our individual practice areas, we expect the following over the balance of the year. Our outlook for our largest practice area, environment, is stable primarily because of three factors. One, the expanded and enhanced capabilities we gained with the addition of Jacques Whitford; two, our environment backlog, which remains strong; and three, our ability to attract larger, long-term projects because of our presence in many locations and our many client relationships.

Our two principal markets are oil and gas, which account for approximately 30% of our revenue in the practice area and water and wastewater, which accounts for about 30%.

Our outlook for our buildings practice area is also stable. We have a top-tier position in the buildings market in Canada where we do about 85% of our business. Because of our leadership and sustainable design and P3 projects, we are well-positioned to benefit from the energy efficiency component of the US stimulus package and the increasing number of P3 projects in Canada. As well, we believe that our expertise in the healthcare and education sectors will mitigate the impacts of the current economic slowdown in this practice area. Our principal building sector is healthcare, which generated approximately 35% of our fee volume in Q2. This is an area that is also increasingly being funded by P3s.

Our second-largest market is education, which generated about 10% of our revenue. We expected that stability and at worst some moderate decline in our industrial practice area for the balance of the year. On one hand, we foresee a negative impact resulting from a forecasted decline in GDP growth and continued fluctuation in commodity prices. On the other hand, we see a positive impact arising from our expertise in positioning in the areas such as clean coal and carbon capture, power transmission and distribution and renewable and sustainable energy. These markets generate a little over 15% of our revenue.

Our outlook for our transportation practice area is stable. Most of the work we do in this practice area is for the public sector. Over the remainder of 2009, we believe that funding from the US and Canadian stimulus packages could prevent the deferral of certain transportation projects and possibly accelerate some previously deferred projects.

As well, the proposed extension of SAFETEA-LU, if past, would bring continued funding for transportation projects until the spring of 2011. Our principal transportation market is Roadway, which generates more than half of our revenue and we are becoming increasingly involved in transit and rail-related work.

Because of the continuing depressed economic conditions in the residential and commercial sectors in both the United States and Canada, we expect our outlook for the urban land practice area to range from stable to a moderate decline over the rest of the year.

In the United States, single-family housing starts have declined since the beginning of the year, but are showing signs of stabilization. Single-family housing starts in Canada have decreased since the beginning of the year. In response to these market conditions, we further reduced our urban land staffing levels in Q2 '09. We continue to use urban land staff on public sector and nonresidential-related projects being undertaken in other practice areas.

In conclusion, for the remainder of 2009, we expect to have three or four stable market sectors for our services moderated by one or two weaker sectors. As usual, we believe that our business model will continue to enable us to react positively to whatever market changes occur. This concludes our comments for today. Dan and I are now available to answer any questions you may have. The conference call operator, Marcus, will explain the question procedure.

(Operator Instructions). Anthony Zicha, Scotia Capital.

Hi, good afternoon, gentlemen. Bob, considering organic growth was down in four of the five practice areas in the quarter, what gives us the confidence that the revenues will be stable over the remainder of 2009?

In the first quarter, we had good growth in all the practice -- four of the practice areas. We had some retraction of organic growth in the second quarter, but overall, year-to-date, in those four practice areas, we are stable. The only practice area year-to-date that we have had retraction in organic growth is the urban land practice area.

So our outlook for the four practice areas -- buildings, environment, industrial and transportation -- is still stable for the rest of the year and it is urban land that we have suffered the organic retraction in the first two quarters. We still see the other four practice areas being stable and we do believe that we can make up some of that retraction in the organic growth in the urban land market to the rest of the year, but the other practice areas.

Okay, great. Bob, you mentioned your backlog for the quarter was C$1.04 billion. Am I correct?

That's correct, yes.

Okay and that represents 8.3 months of revenue?

That's correct.

Okay. And could you give us the breakdown in terms of practice areas?

We don't actually disclose our backlog per practice area, so we just show the accumulated number, which represents, what we've said, 8.3 months trailing. That is just a healthy backlog number for us. We range anywhere from eight to 11 months of trailing 12-month backlog for the last 10 years. So 8.3 is at the lower end, but it is still healthy given the circumstances today.

Okay, and last question. With infrastructure funds being held up at various levels of government in the US, are you noticing increased competition on projects in the bidding phase that is driving down margins? Are you seeing signs that the stimulus funds are making it through the project level, any specific practice areas that are being more or less affected? Thanks.

There is some stimulus money starting to flow in very slowly in the US and maybe a little quicker in Canada. We did experience a win of a project in Windsor, Ontario that was a direct result of stimulus money in Canada. In the US, it is not as quick and the projects are relatively small and they are mainly in the transportation area. The project we referenced in our conference call script was a project in Nevada that we are doing some landscape architecture on.

We don't see any erosion of the margins as a result of competition. We always have competition. It is always a situation you have to deal with, but we don't see any clear erosion of that in the first two quarters of '09, just loss of competition, but margins seem to be holding up well.

Okay, great. And with reference to the Canadian operations, is that a fact that the Canadian municipalities have rather done work instead on the second half of the year because they are all waiting for federal funding in the month of May? So would it make sense that the second half of the year would be stronger than the first half?

Well, we have both been saying that the stimulus money was going to take time to flow into the system. And we do expect both in Canada and in the US that the latter part of '09 and especially 2010 will be much stronger from a stimulus program perspective.

Thank you.

(Operator Instructions). Sarah Hughes, Cormark Securities.

Hi, guys. Just had a question for Dan. You indicated the one-time costs in the quarter were around C$7 million, is that correct?

That is correct.

And just from what you can see today --.

I'm sorry, Sarah. That would be year-to-date.

That's year-to-date? Okay. And that is related to severance and integration costs?

Severance and rationalizing certain operations. It is not necessarily related to integration costs, Sarah.

Okay. Were there any extraordinary like large integration costs in this first half that won't repeat into the second?

No more larger than we would have had in prior quarters or as we are integrating our acquisitions. It is fairly -- we did, as you are probably aware, finalize the integration of the Secor acquisition in the first and second quarter of the year. So that one is largely behind us and we're, as Bob indicated, working towards the Jacques Whitford acquisition integration towards the end of this year.

So given your expectation, no large, any other large cuts to the employee base, I would expect one-time costs should moderate in the second half of the year?

That would be our expectation.

Okay, thank you.

Richard Stoneman, Dundee.

Yes, there have been a number of reports that nuclear efforts have died again in Canada and elsewhere. If this nuclear renaissance is dead, will that help or hinder Stantec?

Stantec, Richard, is not really -- we are not a big player in the nuclear business. We do a lot of balance of plant work in that, but that really isn't core to what we do. So in the power business, we are certainly more into the renewable side. So if there is a holdup or a retraction in nuclear power, that actually probably would benefit us because one would think that there would be a shift more to either the conventional power or renewable power projects, which certainly we are a bigger player in.

And Bob, just one short question. When we look at your SG&A, you make the point that a component of that is severance costs. Can you quantify how severance costs have gone over the last three quarters in either dollars or people so we can get a look at what the curve looks like going forward in that item?

Richard, maybe I can answer that. We indicated that we had about 500 staff net reduction in the first quarter, another 120 in the second quarter. So the bulk of the costs kind of flow through in that period of time. I don't have what we did in the fourth quarter or third quarter, but as you know, we have been continuing to adjust to the market conditions for the last couple of years.

So the impact was more severe in the first quarter than the second quarter and where you are tracking now, would you expect it to be continuing to moderate?

Yes, I think we are seeing it dissipating with the reduction of staff in the second quarter. We see even less in the third quarter and actually the reduction of staff in the first quarter really impacts our revenue in the second quarter. So it does have a quarter lag there with regard to the impact. But certainly we see the worst behind us with regards to that and we are seeing our backlog increase and opportunities are strong right now. So we don't see any further reductions in staff being necessary.

Thank you.

(Operator Instructions). John Rogers, D.A. Davidson.

Hi, good afternoon. One point of clarification before my question. Bob, you said backlog was increasing. Are you talking about in the third quarter?

In the third quarter, we see backlog going up just based on the number of opportunities that we see in front of us. There was a small retraction from quarter one to quarter two of backlog, which we expected. With what is happening in the economy, there was a lot of projects that were either put on hold or slow coming out of the gate. With some of the stimulus money now starting to flow in and with the economy somewhat stabilizing, we are seeing the opportunities increasing. So we expect our backlog to increase. And on a year-to-date basis, we are up.

Yes. And then my real question was in terms of the acquisition pipeline, I know you are a little bit above your targeted level in terms of debt levels, but are you seeing a lot of opportunities out there and sort of how are you preparing for that?

Yes, actually our pipeline is still quite full with regards to companies. We are always in discussion with a number of fims, anywhere from 10 to 30 firms and those discussions usually take quite a while. So we are under -- still see a lot of discussions occurring. And actually right now, the M&A activity is pretty active out there. And so we don't see any problems with regards to that. Certainly, we see this as an opportunity to expand the breadth and depth of our services throughout North America. So we are still looking at being active in that area.

Good, thank you.

Ben Cherniavsky, Raymond James.

Hi, guys. I am just curious going back to one of the first questions about the organic growth rate and your suggestion that you think most of your markets are going to be stable in the back half. As I look at it, your buildings in the second quarter, your organic growth rate was down 10%, something similar in industrial. And I think you describe your outlook for each of those as stable in the back half. Can you just elaborate a little more on what kind of inflection point is happening there? How you would see it going from that kind of a decline to more of a flattish environment? And then since everyone else asked more than one question, if I could sneak in another point of clarification on the last question about the acquisitions, if you are still seeing some opportunities there and yet, according to my calculations, you have some room left on your credit capacity, but not a lot. How would you attempt to fund those?

First question regarding organic growth, you are right. We did have some organic growth in buildings and industrial in Q1 and then a retraction in Q2. And in both those areas, I think quarter by quarter there is always ups and downs, but based on the opportunities we see in both those practice areas right now, we don't see an issue with winning our share of the projects and continuing to feed that revenue. So we see the revenue in both those areas, based on the opportunities in our pipeline, as being quite stable for the rest of the year.

And Dan, just as a follow-up to that, is there any difference between the US and Canada? Because some of the leading indicators in the US look awful right now. Do you see more activity in Canada?

Absolutely, Ben. Our buildings area is 80% Canadian, so (multiple speakers). So certainly in that area, it is more of a Canadian market and industrial as well. I think it is about 70% of our business is in Canada. So both those areas are looking more positive in Canada than they are in the States. Since we are getting a lot of noise in the States, there is an awful lot of activity with (inaudible) discussions, especially in wind and renewables. So we are getting some opportunities. Whether they will turn into real projects, we will see, but there is certainly activity in those areas.

Urban land has been a disappointment for us. Every quarter, we talk about finally hitting the bottom with it and that is what really hurt this quarter was a continued retraction in urban land and it was 8% of our work at the end of 2009. Now it is only 3.5%. That is the residential portion of urban land total. So you can see that retraction certainly has dug a bit of a hole for us in that area.

Yes, I can see that for sure.

With regards to acquisitions, like we said, we have still got lots under discussion and from our perspective -- Dan can add to this -- but from my perspective, we always have ways of completing an acquisition. For the right company, we have a number of different methods and tools in our hands to be able to finance something like that. But Dan, maybe you want to just put in a short comment on that.

Sure. I think what we have seen in the first two quarters, we expect to see an improvement in the cash generated from operations in the third quarter, Ben. Again, we have a C$300 million facility and we have got a fair amount of capacity there to fund smaller acquisitions. It wouldn't be a huge acquisition in the short term. But we have also said that, given certain favorable market conditions, we would consider other forms of financing such as additional equity to finance future acquisition growth. We don't feel that we need to issue equity at all to finance ongoing operations. We are comfortable with our liquidity and cash flows on that basis.

Okay, thanks, guys.

Bert Powell, BMO Capital Markets.

Thanks. Just a clarification on the admin marketing. What was the actual cost for severance and one-time costs in the admin marketing expense? And also can you just comment on was there anything in there that would be reflective for claims adjustments, anything in the quarter? I am just trying to get a sense of is this a good kind of indicator of (inaudible) going forward here?

I will talk on that one, Burt. I indicated in the script that we talked about that the one-time costs were about C$7 million on a year-to-date basis. And that is a combination of severance and rationalization of certain operations. So that is kind of the one-time costs.

But what is it in this quarter?

In Q2?

Yes, not the six-month number, what is the three-month number?

It is a little more than half of that. So a little over C$4 million is what I would put to Q2.

And that is all run through the G&A line?

Absolutely.

Okay. So what -- so this -- if I back that out, then that would be quite a stellar performance on G&A.

Without saying that, we think that we are still continuing to manage our operations and be as aggressive as we can on managing our SG&A costs, absolutely.

Okay. So if I go back to your target ranges for G&A as a percentage of sales, is it likely that you will beat that given what you currently see if you are seeing activity levels pick up? You have got -- your staff utilizations should be going up, which means less downtime booked into G&A. Am I not -- am I reading that wrong? You should see a much better performance in that number, especially given now that Jacques is almost done?

Just to clarify, Jacques isn't almost done. We will be seeing Jacques -- the integration of Jacques primarily in the back-office systems towards the end of the year. So you will see some impact from that towards the end of the year. But we would expect that we will continue to maintain our SG&A costs within our targeted range and if we are at the low end of that range, we would be very pleased with that.

Okay. And just one last question, just in terms of the mix, in some of the work you do with the government, the margins are lower than on the industrial side. If you look at what is flowing into the backlog and some view that the stimulus package will be more government-backed, obviously going forward, what do you anticipate that to mean for gross margins in the business?

Our gross margins do vary between practice areas. So in industrial and in transportation, they are at the lower end and on buildings and in environment, they are at the upper end. The stimulus money is really affecting or is going to impact a number of different practice areas. So it impacts not only buildings and environment, but also transportation. Our margins will vary per practice area just because of the competition and the type of work we are in. We don't see the stimulus money then affecting then that gross margin within those practice areas.

Okay, perfect. Thank you very much.

Chris Blake, Blackmont Capital.

Good morning or good afternoon, gentlemen. Just a couple of quick questions for you. Most of mine have been answered. But I was trying to get a sense of -- if you could give us a sense of your utilization rates for the quarter and how they are currently trending right now?

Well, we don't disclose our utilization rates on a quarterly basis, but I can tell you that, for the year, within the range of what we projected and they are actually increasing from quarter one.

Okay. And could you provide us with any employee count at the end of the quarter?

9640 is on my dashboard. So we do have an enterprise system that shows me every employee every day. So that is a number that was there this morning -- 9640.

Okay. And then just lastly, just on your proposal activity levels, could you quantify or somehow give us an indication of how much the activity levels are up relative to the previous quarter, what you're seeing right now? Would you say 10%, 15%?

I would say 10% right now based on the number of opportunities. I would say maybe even higher on the actual value of those opportunities. There are some bigger projects now being contemplated, especially in the P3 world. So I would say certainly the activity is up in the 10% to 15% range. That would be a good estimate.

And is that primarily driven more so from government-contracted work or are you seeing an uptick in the private sector as well?

Mostly government. The private sector hasn't been affected as much in Canada as it has in the US, but a lot of the activity you are seeing is coming from government work.

Very good, thanks.

Sara O'Brien, RBC Capital Markets.

Hi, guys. Just wondered if you can clarify again for the outlook. When you talk about stable outlook, I think at the beginning of the year or maybe it was last quarter, you talked about overall annual organic growth of 0% to 5%. Are you still targeting, like call it, a 0% for the full year?

Yes. I mean for the full year, we are still -- that is still our outlook. We have dug a bit of a hole with urban land at the end of the second quarter. So year-to-date, for the four other practice areas, we are at stable and we are projecting those four practice areas to be at least at worst-case scenario stable. So really the issue will be will we be able to pick up some of that loss of organic growth that urban land has created for us at the end of Q2. And we think there's a good possibility of that with the opportunities we see. So stable is still the right word for overall 2009, but urban land continues to be the wild card for us and continues to suck that down. At this point in view, stable is still our outlook and would include urban land. So hopefully we can make up some of the retraction that urban land has created.

Okay, great. And can you just talk about Jacques -- and I think you were cutting out some of the US operation. What kind of revenue gets carved out of that from your initial acquisition pickup? And if you can talk a little bit about the seasonality we should expect going forward.

In regards to the number, Dan may have a better idea. We did rationalize some activities in the US that really wasn't Jacques strong point and we have done that and have completed all that. Dan may have -- so he can add to that comment.

With regards to the seasonality of their work, they do start off slow. So Jacques work does peak in Q3 and it carries forward to a strong Q4. So we are expecting a better performance out of Jacques in the last two quarters than they do in the first two and that is seasonality associated with going to work. So we don't -- I think it was only -- it was a very small amount of work. They only had I think approximately 150 staff in the US. And I think we are down to about half of that now. So that doesn't translate to anything really material, but that is essentially the rationalization we have done with the Jacques operations in the US.

And what we have done in addition to that, Sara, is by integrating them into our operations, we no longer really keep track of them independently. They are part of our business. So we don't have any further real visibility into their operation other than being on part of our systems, we can now see how they are performing.

Okay, great. And maybe if I can just sneak one in on collections, just what you are feeling right now in terms of collections from customers, but also going forward again with more public work coming in, do you expect your days receivable to start extending and impact cash flow?

No, at this point in time, we are at 88 days. That is slightly higher than it was at the end of last year, but we are at 94 days at this time last year and those days outstanding was really affected by some of the integration we did at Secor where there is always a bit of a delay once they get into our system of collecting some. So we see that actually now being rationalized with them now being in our system. They will have an impact in the fall with Jacques being thrown back into it and there is always that little bit of a lag. So there is usually a three or four or five day issue that we suffer as a result of that.

But as a result of the work coming, it is really dependent -- in some municipalities and government agencies, we get paid very well and then others we don't. They just tend to take a lot longer. So I don't think there is a common base there to say that government agencies result in longer days sales outstanding. We expect to still remain in the mid 80s through the rest of the year.

Okay, great. Thank you.

Bill Mackenzie, TD Newcrest.

Thanks. I was wondering if you could comment a little bit more about the sequential change in the backlog versus Q1. And I appreciate you don't disclose the backlog by practice area, but can you just give a little bit more color in terms of where sequentially at least you saw the greatest deterioration in your backlog and what areas are holding up better than others?

Well, generally, the transportation area -- we'll, first off, say urban land has certainly gone down, but transportation has gone up and as well as buildings and environment and industrial, relatively stable. But the one that has gone up would be transportation. The other three are relatively stable and with urban land then decreasing.

And transportation, is it up materially or is it sort of up moderately?

No, no. It is not material at all. They are all very close. So the declines and increases we are talking about are fairly insignificant or more seasonally adjusted. So I don't see that as being a trend at all and like I said, we feel, based on the number of opportunities we have in the pipeline, that that should be increasing for Q3.

So like when I look at the full year, I mean if I heard the response correctly to the last question about the organic outlook for the full year of being --you are still hoping to be flat in total, it seems to me -- you said earlier that you dug yourself a bit of a hole and given the organic growth for the second quarter, I mean it sounds like you are going to need a pretty significant recovery to get to flat organic growth for the full year. And I am just having a hard time understanding where that is going to come from.

Well, it wouldn't really be a significant increase. All we would need is our environment group, which is right now we are seeing to be stable I think is a pretty conservative statement, but we haven't -- the recent awards we have gotten, we expect a lot of synergy with the Secor and Jacques Whitford acquisitions we did last year and this year to being our good potential of gaining back some of that. As well, industrial isn't looking as negative as we first thought at the beginning of the year.

So we are still being conservative I think in saying those are stable, but the hope is that those will be able to pick up some of the negative organic hole that urban land has dug for as a result of Q2. So you are right that it is some to make up. I don't think it requires a significant turnaround. We just need to be a little bit more optimistic maybe in some of our practice areas that are quite strong, which is definitely the environment area is very strong for us right now.

Okay, that's helpful. And in urban land, is that -- I appreciate it is been terribly difficult to sort of forecast this segment, but if you look at the Q2 performance, do you feel that you could hold those revenues on a quarterly basis through the balance of the year?

The big focus in urban land has been trying to shift to the nonprivate work and get some more public sector work and every quarter, we are increasing that. So last quarter, 40% of our business was single-family residential. This quarter, it is 35%. So we continue to push more work towards the public side. The two recent wins were outlined in our conference phone notes being landscape architecture and some planning work for colleges and universities. So we see that as still being able to stabilize the revenues in that practice area.

And we say it every quarter. How much lower can single-family residential go? I mean it is -- now we have seen a turnaround in the US with building starts for the last couple of periods. So we are certainly hoping that we have seen the bottom. We have said that every quarter for the last few quarters, but we also can't see it going much lower. So we think that really is going to stabilize our revenues in that practice area.

Great. Thank you.

Paul Lechem, CIBC.

Thank you, good afternoon. Just wanted to ask quickly about the cash flow outlook for the balance of the year. I think, Dan, you mentioned that there was C$28 million that you called out in terms of usage through the first couple of quarters. But typically you see cash flow pick up through the back half of the year. What is your view of this year?

It would be for the same for this year, Paul. That is our expectation.

Can you quantify that at all?

Well, we expect that we'll be -- we don't have any major payments to make with respect to any major purchases or vendor notes or anything like that. So we do expect that just the cash generated from operations will pick up through the year and we will be able to pay down our debt.

Okay. Should net income plus depreciation be a good proxy for it?

I am not sure I want to fill in your model for you. We have our own predictions on exactly what we think should be occurring and again, we expect that cash flows will pick up from operations through the remainder of the year, more so in Q3 than Q4. Q4 is seasonally a little slower.

Okay. And then just lastly on the P3 market, I think, Bob, you mentioned you are seeing quite a lot of interest in that market. Can you elaborate a little bit more, especially given it kind of died when the financing market fell out? So what are you seeing right now in the P3 sector and how are you -- do you need to put up any capital to contribute to these projects?

No, first off, the P3 market is still very strong in Canada and as I think we have mentioned before, we are very well-positioned in that marketplace. At this point in time, we are chasing 29 P3s in Canada and that is in the buildings and transportation and water and wastewater sectors. So we are well-positioned to get work there. We understand that model project delivery and actually have a very good reputation in that both from the contractor world, as well as from the financing world. So we are well-positioned.

We don't actually and clearly do not put any money upfront on these projects. We do get paid for all our pursuits. So when we actually are involved in a consortium to pursue a P3, Stantec does get paid for our pursuit costs. What we do is put some of our profits at risk, so essentially we're working at a reduced rate, but still have profit on the table and still get paid by the consortium. If successful then we get a success fee from the consortium and carry on with the project. If we are not successful, then we move onto the next one.

Our hit rate right now is in the order of over 50%, so we are very bullish on the P3 market in Canada and actually we see the future of that market expanding to the US as well. It is sometimes referred to as the flavor of the month of financing, but it has got some good roots in BC and Alberta and Ontario in Canada and it is now starting to be considered in the US. So it is a good market for us.

Thank you. And just on that, of the 29, how many do you think are going to be decided in 2009?

There is only a handful right now that are still going to be in the qualification stage where they would then narrow it down to the three bidders. I think you're talking about the order of six to eight of those. So good majority of them still extend into 2010. So we see that market as being a good market for us for a number of years.

Excellent. Thank you very much.

Pierre Lacroix, Desjardins Securities.

Thank you very much. Good afternoon, gentlemen. Just one question related to foreign exchange in the quarter. The impact was something like C$26 million. Do you expect that kind of impact to edge down somewhat with the volatility that we see right now in the Canadian dollar going stronger? And also could you comment maybe on the impact of the currency on your backlog quarter-over-quarter from the first to the second?

I don't know that we have actually calculated the impact of the FX exchange on our backlog quarter-over-quarter. We have always just reported that on our consolidated in Canadian dollars. In the first part of your question, I kind of missed it. Sorry, it wasn't terribly clear.

The implication of the foreign exchange in the second quarter was relatively significant at C$26 million in terms of the growth on the top line. Going into the third quarter, what do you expect in terms of the foreign exchange given the further move that the Canadian dollar has made in the quarter so far?

Okay. Thank you. Well, it is a bit of -- I guess the question is is the Canadian dollar overbought or oversold relative to the US dollar. I don't know. We don't try to hedge against that exposure when we are dealing with our income statement. We do try to hedge against any exposures on our foreign-denominated assets, but we generally just report this through because you are earning revenues in US dollars. You also have all your expenses and income is also in US dollars, so we do not try to mitigate against that risk. But with respect to the change in the Canadian dollar, I guess your guess is as good as mine.

Okay, thank you very much.

Benoit Caron, National Bank Financial.

Thank you, good afternoon, Dan, Bob. My question was about the foreign exchange rate here. So I guess that has been answered, but I was also looking at the employment situation in the heavy and civil engineering construction segment in the US. We are talking about a decline of about 7% now. It's trending down big-time over the 2007 and 2008 levels. And if what we are seeing in the architectural world is a guide to what is going on in the engineering world, I guess you must have some companies that are actually eager to pick up the phone when you call them if you were to approach them for M&A purposes. Are you seeing some kind of, not to say desperation, but eagerness to be part of the Stantec family going forward, relative to the last couple of years?

As I mentioned before, I certainly see the M&A world as extremely active right now, active from a perspective that there is a lot of people talking out there. So I think you are right. The concern is maybe some of that action is desperation with regards to what is happening to them. But we really, in the companies that we are talking to right now, they are all still very strong operations and we haven't really seen those valuations being affected. So a lot of the companies that may be desperate certainly aren't changing their valuations and usually base their valuations on their past five years, not what is going to happen in the next three years. So that is always the concern. But certainly the activity is out there, but we usually, the firms we talk to are the firms that we are quite confident that have a good future ahead of them or a strong firm. So we are not into desperation sales really.

Yes, okay. And I was looking at the statistics from the US Department of Transportation. I mean they have only spent a fraction of the allocated budget for the year and they have been actually pushed into motion to start deploying the stimulus money a bit faster. And since they get the bulk of the infrastructure-related money, are you seeing any of that? I mean they were talking about accelerating the programs and starting in August and September. Do you feel that is really happening or is it going to be mostly like really just a 2010 story and not really worry about infrastructure money coming from the stimulus plans for 2009?

We have seen very little, very small projects in the US and just a handful of projects in the US. So I think I have said all along that I felt the Canadian program was a little bit more mature and had a little bit more structure to it. We expected the Canadian money to flow better. It has been slow as well, but we're now starting to see some of the Canadian projects pop up that we can actually point to stimulus money. In the US, it is extremely quiet and we have only seen a handful of projects and those projects we would still question whether they are stimulus funded or just projects that they are now comfortable actually going ahead because they expect to get stimulus money. So we still see it as being a 2010 impact for us. We don't expect a huge windfall in Q3, Q4, but certainly it is not going to hurt either. It is going to allow some projects to continue.

All right. Well, thank you very much. That is all I had. Have a good one.

Great. I would like to thank you all for joining us today and I look forward to speaking with you all again in the future. Thank you.

Ladies and gentlemen, this does conclude the conference call for today. We appreciate your participation. You may now disconnect your lines and have a great rest of the day.