Stantec Inc (STN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Stantec 2009 Q4 year-end 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). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Robert Gomes, President and CEO. Please go ahead, Mr. Gomes.

Thank you, Andrew. Good afternoon, everyone. I would like to welcome you to our 2009 fourth-quarter and annual results conference call. Joining me is Dan Lefaivre, our Chief Financial Officer. Dan will provide a brief summary of our results for the quarter and year 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 that 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 or could cause actual results to differ materially from those we discuss in this conference call in 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 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 either Dan or myself to please request permission to do so from the individual concerned.

This morning, we released the results of Stantec's operations for the year and fourth quarter 2009 and I am pleased to report that, in 2009, we achieved our 56th consecutive year of profitability. In fiscal 2009, and the fourth quarter, we continued to manage our business effectively and to achieve overall growth in earnings, revenue and income in a difficult economic environment.

Dan will now provide a more in-depth review of our year-end and fourth-quarter financial results. Dan?

Thank you, Bob. Good afternoon, everyone. As Bob just indicated, we achieved overall strong results for the year. In comparing our 2009 results with 2008, the following items are noteworthy. Gross revenue increased 12.4% to CAD1.52 billion. Net revenue also increased to CAD1.24. Our gross margin increased to 56.3% in 2009 from 55.7% in 2008, mainly due to an increase in the gross margin for our environment, industrial and transportation practice areas. Net income increased 10.9% to CAD90.9 million in 2009 from CAD82 million in 2008, excluding the impact of the goodwill impairment charges recorded in the third quarter of both years.

Our diluted earnings per share increased 11.2% to CAD1.98 from CAD1.78, again excluding the impact of the third-quarter goodwill impairment charges. We ended 2009 with a strong balance sheet and liquidity due in part to generating strong operational cash flows. Of the CAD300 million credit facility, CAD163.4 million was available at year-end. This financial strength gives us the flexibility to continue to grow organically and through acquisition.

Now looking at the fourth quarter of 2009 compared to the fourth quarter of 2008. Our gross revenue decreased 7.2% to CAD342.8 million. Our net revenue also decreased 7.5% to CAD274.8 million. Our administrative and marketing expenses as a percentage of net revenue decreased to 41.1% in Q4 '09 primarily due to a reduction in our provision for self-insured liabilities and our continued focus on operating efficiently and managing our costs.

Despite the decline in revenue, net income increased 14.5% to CAD22.9 million and diluted earnings per share also increased 13.6% to CAD0.50. Overall, we are very pleased with our 2009 results. This concludes my summary of the 2009 year-end and the fourth-quarter financial results.

Thank you, Dan. I would now like to outline some of the progress we have made toward our strategic objectives in 2009. Firstly, adaptation to challenging economic conditions. Our operating results continued to be strong in 2009 compared to 2008, which demonstrated our ability to adjust our business model to changing market conditions throughout North America. However, continued weakness in the residential market contributed to decreased revenue in our urban land practice area in 2009 compared to 2008. This decrease was offset by an increase in revenue in our environment, industrial and transportation practice areas.

Secondly, continued profitability. Although our business declined internally as we addressed decreased opportunities in some sectors, we achieved overall growth in revenue, income and earnings and celebrated our 56th year of uninterrupted profitability.

Thirdly, growth through acquisition. In January 2009, we completed our largest acquisition to date with the addition of Jacques Whitford, which brought over 1700 employees in 40 offices to our operations and strengthened our capabilities in environmental assessment, documentation and permitting, environmental site management and remediation and geotechnical engineering.

In November 2009, we acquired Granary Associates, 100-person firm with offices in Philadelphia and New York. The addition of this firm strengthened our expertise in product management, planning, architecture and interior design, especially in the healthcare industry.

I would now like to highlight some of our project awards during the year, which reflect the increasing depth of our services and our ability to work on more complex projects for our clients. For example, as we have announced previously, we obtained a global multi-year preferred supplier contract to provide environmental assessment and remediation services to Chevron, to sites throughout North America, South America, the Asia-Pacific region and the Middle East. In addition to assessing environmental, social and health impacts and providing environmental remediation solutions, we will complete operational excellence compliance audits at these sites.

We were also chosen to lead a seven-firm team on a five-year US federal government contract to provide three-dimensional laser scanning services to the US General Services Administration, the government body that oversees the construction and management of federal buildings throughout the United States. This nationwide surveying program will cover 1400 buildings and help the government manage its building data more efficiently.

In Boston, we were selected to design the rehabilitation of the West Roxbury tunnel, a rock tunnel that runs beneath the densely populated section of the city with depths up to 220 feet and limited points of access. The project requires carefully planned logistics and it is the largest and most complex linear infrastructure rehabilitation project we have ever secured.

We continue to focus on growing our presence in the healthcare sector and during 2009, we were awarded a contract with the US Department of Veterans Affairs to provide architectural and engineering services for a major new project, the Puget Sound Medical Center in Seattle. The project includes design of a new mental health outpatient and research center, the seismic upgrade of an existing hospital tower and design of a multi-story parking garage.

We were also selected by a P3 client as the successful proponent for a redevelopment project at the Center for Addiction and Mental Health in Toronto, Ontario. Our responsibilities include full integrated design services, architecture, mechanical, electrical, structural and civil engineering, sustainable design consulting and transportation engineering. All of these projects, although awarded in 2009, will impact our revenue in 2010. This is only a very small sample of the projects we are working on. Projects like these provide diversity and mitigate risk for our Company.

Now I would like to comment briefly about potential market conditions going forward. As I have mentioned in previous conference calls, we were required to reduce our staff levels in 2009 in response to market conditions. Our work backlog decreased CAD948 million in Q4 '09 from CAD1 billion in Q4 '08 and we decreased staff levels by approximately 1100 for the year to match the work available.

However, the decline in backlog was lower in the last quarter of 2009 compared to the third quarter. Moving into 2010, we will continue to address this issue by focusing on managing our business effectively and obtaining larger and long-term contracts through an enhanced account management strategy.

Looking at our individual practice areas, we expect the following for 2010. We believe that the outlook for our buildings practice area remains stable for 2010 with moderate growth expected in the second half of the year. Going forward, we will continue to focus on our key areas of competency, in particular healthcare and education. Our priority for growth is the US market where our goal is to leverage our successes in healthcare, especially with the acquisition of Granary in Q4 '09.

In Edmonton, we expect a softening in the West, especially in British Columbia. We expect this decline to be offset by opportunities we may secure in 2010 resulting from our strength in P3 markets and from the establishment of top-tier architecture and buildings engineering practices in Canada.

We believe the outlook for the environment practice area will range from stable to a moderate decline in the first two quarters of 2010, supported by stronger growth in the second half of the year. The expansion of our footprint in this area in 2009 placed us in the top 10 category amongst world environmental service providers, and we expect that our enhanced size, presence and reputation in the environment market will continue to increase our share of larger long-term projects with national and international scope in 2010.

We believe that the outlook for our industrial practice area will remain stable for the first half of 2010 with moderate growth in the second half of the year.

With commodity prices improving in late 2009, we expect increased activity in the mining, power and resource sectors. Because of our capabilities in renewable energy, we will continue to monitor any market opportunities in carbon mitigation and sustainable energy development. We believe that the practice area has sufficient breadth and diversity and the recognized expertise to take advantage of opportunities that arise in the marketplace and is well-positioned to meet its objectives in 2010.

We believe that the outlook for the transportation practice area is to achieve moderate internal growth in 2010. Although the US and Canadian stimulus packages may not create new opportunities during the year, they appear to have prevented the deferral of some projects that have accelerated some previously deferred construction-ready projects in the latter part of 2009, which we believe will continue into 2010.

Overall, we expect our rail and transit groups to experience increased activity in 2010. However, decreasing tax revenues, state and provincial deficits and continued uncertainty in the United States about the replacement of SAFETEA-LU may cause delays in many planned transportation projects going forward. Due to the forecast of stabilization of the residential sectors in the United States and Canada, we believe that the outlook for our urban land practice area in 2010 is stable.

During the year, we expect to continue to diversify our client base, build and leverage our reputation with the public sector and focus on building relationships with larger clients who require more complex services, as well as our multidisciplinary team approach. Going forward, we believe that our enhanced account management strategy will assist us in addressing the issue of internal growth. Our account management program is designed to increase organic growth by building on relationships with existing key clients and selling our services across local markets.

To sum up, we believe that our overall outlook for 2010 is stable with moderate growth beginning in the second half of the year in regions and practice areas where we are a top tier service provider. Although the difficult economic environment of the past year appears to be slowly improving, related pressures such as increased competition, margin compressions and project delays are not expected to subside immediately. However, because of our diversity, client mix and flexibility, we believe that we can continue to adapt our business to changing economic conditions and we will emerge well-positioned as the market improves.

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

(Operator Instructions). Anthony Zicha, Scotia Capital.

Good afternoon, Bob. Across your practice areas, the weakness occurred mainly within the US and Canada or was it mainly in the US, excluding the urban land development? And can you give us an idea of the competitive landscape, is it more concentrated in some specific regions? Thanks.

The decline was really across all practice areas and all regions. I would say we had the heaviest decline in the US West and specifically in the urban land area. But the one thing about this recession is it was fairly widespread and it did affect all our regions and all our practice areas to some extent, but certainly the US West and specifically the urban land was the area hit the most.

Then do you see any signs of pickup in some of the specific regions or practices that may be coming out of the lull?

Certainly, we are seeing slow signs of recovery everywhere. We are hunting for them, but even the residential market, there has been increases in that, albeit small. So I think all of that is indicating that we do believe again that we have hit the bottom in a lot of the areas and there are some areas that are picking up quite well. The mining practice area is getting a lot more opportunities and we are seeing some contracts that are coming forward.

Transportation has remained stable and we are seeing all of the practice areas get more opportunities. Our opportunity pipeline has certainly been increasing in the last two months and we are seeing a reversal in the decline of backlog as well.

Okay, thank you.

Bert Powell, BMO Capital Markets.

Wonder if you can just give us a little sense. I know you guys are continually evaluating acquisitions, but can you just give us a sense of where things are in the market at this point? Are people still waiting for things to improve before they start to look at pricing? Is size the issue?

Can you just give us a sense on the acquisition front because it has been a while since we have had something major and obviously given your headcount these days, you need bigger ones to make the needle move.

Certainly. Acquisitions have been very important to us in the past and certainly will continue to be important to us in the future. We are actually seeing lots of activity in the acquisition market right now, albeit, there is an issue with regard to the valuation gap, mainly because really nobody did well in 2009.

So there was -- just about every company across North America had some retraction in 2009. And then the previous years were very strong. And when you do a valuation, you get a bit of a gap with regards to how quickly are they going to recover.

But we are not saying anything overly significantly. We are seeing a lot of firms that are starting to realize that the way we value companies is you have got to take 2009 into account. Our pipeline is relatively full. Yes, we are looking at all sizes. We are a very diverse company, so in a lot of places in Canada, we are looking at smaller acquisitions.

In the US, we are looking at ranges of acquisitions from hundreds to firms in the 20s to firms in the thousands. So we've got a pretty diverse and wide-ranging acquisition program right now and we actually see lots of opportunities out there.

Based on what has been happening in valuation expectations, is it reasonable to say that it will be the second half of 2010 before guys actually get to the table, or is 2010 just going to be a year where people just wait it out and wait for recovery to look for better valuations?

There may be some that are going to wait for a recovery and feel that they will prove that they can recover quickly and that will increase the valuations of their company in 2011. Then you've got others that were pretty strong through 2009 and didn't have as severe a dip and our outlook in their sector is a little bit more optimistic.

So we may be willing to close that gap, understanding that they are going to recover quicker. So it really depends on how they perform, the sector they are in, how well they weathered the storm, but we see a pretty active 2010. I don't think -- we are not certainly going to sit back and wait until our valuations match what the expectations are. I think that we are going to find some that work for us right away.

Thanks for the color, Bob.

Ben Cherniavsky, Raymond James.

Good afternoon, guys. My questions are more just around the numbers and what we can expect, to the degree you guys want to comment on it going forward. The tax rate, you mentioned, is going up this year due to some changes you are making that will lower it in future years. So as we think about 2011 and going forward, how low will that rate get? What's a normal rate going forward beyond this year? In a range, if you like.

I think the range would be closer to the guidance that we provided in the past, Ben, in that 30% to 32% range. I think what we are seeing this year is just, as a result of a bit of restructuring and earnings expected in higher tax jurisdictions.

You said it is going to be in the 30% to 34% range this year.

Yes, for this year, yes.

And then back down to 30% to 32%? Okay.

That is right.

And I know we have talked about this before. Could you just remind me what the associated company income and other income is and why that jumped, and whether or not we should view that as a sustainable level going forward?

The associated income really resulted or came as a result of the Jacques Whitford acquisition where we added about 11 associated companies. So that was the first year of their performance, so I don't know whether that is a trend, but it is a positive sign for us in a difficult year.

And most of these associated companies are companies, [Inuit] companies that we partner with in the North to do work. So they are very opportune companies for us to keep running, and they do have a lot of future opportunities in the North.

And the other thing that happened here in the numbers is you restated some goodwill into intangibles and that was retroactive, right? So you took all the charges or you made all the changes in the fourth and you've provided some comments in your notes about what amortization would be like going forward. But in terms of the depreciation, it looks abnormally low in this particular quarter. That is not a run rate, right, because there were some retroactive adjustments in there?

That is correct.

So your depreciation would be more like the annual level for the year? It is closer to that than CAD3 million or CAD4 million a quarter I should say.

That would be my expectation. It would be more of the annual run rate. That reclassification was as a result of a new standard coming out and so that was a required change. It wasn't as a result of any type of error or anything. It was new standards with respect to how software needs to be reported.

And one more quickly if I may. And this we have also talked about in the past. The gross to net ratio, I understand it is up because of some of the acquired companies like Jacques Whitford who were subbing out more of the work, but do you still -- is it still reasonable to expect that is going to start trending down as you keep more of the work in-house as you get bigger and bring these companies into your model?

Overall, yes. Certainly, that is the goal. As you bring in a company, you look for the opportunities where other practice areas can provide those services instead of a subconsultant. Specifically, the gap increased last year, though, as you said because of Jacques Whitford and also Secor from the year before.

And a lot of this subconsultant work is actually work that we can't do. It is like drillers that will drill test holes for geotechnical analysis or any kind of subsoil analysis. So there is a lot of drillers and subcontractors that do work that simply Stantec can't do. So there will always be probably a little higher gap between gross revenue and net revenue than in the past.

So it is never coming down -- well, not never, but for the foreseeable future, you wouldn't see it back to the midteens level?

No, probably won't recover to that level. We can see it trend down because it is still going to be an ongoing process of doing work that subconsultants can do, but it will probably never get back to the level to previous Secor and Jacques just because of the type of work they do.

Fair enough. Thanks a lot, guys.

Richard Stoneman, Dundee Securities.

Good afternoon, Bob. Bob, the governments in Canada and the US continue to talk about infrastructure spending and ongoing investments in infrastructure spending. From someone -- from the point of view of someone in the field, are you seeing much tangible evidence of money getting into projects that you would be working on from this infrastructure spend?

Well, we have seen work come, but put it this way, we haven't seen an increase in the work come. I think that with all of the talk, one would expect that there would have been increased spending or increased projects, but really we are seeing an awful lot of talk but we haven't seen a lot of increase in projects.

That being said, we also haven't seen a drop-off of projects. But we have talked about this before that it is inevitable that at some point in time, the money has to flow into those infrastructure projects because the gap just continues to get larger.

So there's a lot of discussions out there right now of how the money is going to flow in, and we're looking for probably more of those stimulus type projects to come forward in the next couple months because they are running out of time at this point.

About six months ago, you talked about a drop-off in the work available for McIntyre, given the weak commodity market in the first half of this year. Are you seeing the work available for McIntyre pick up at this point?

Yes, that was McIntosh Engineering.

Sorry, McIntosh.

No problem. That was the mining firm that we acquired a couple of years ago, a year and a half ago. And yes, they had a very sharp decline in 2009 associated with a lot of their copper and nickel projects that were just put on hold.

And yes, we have certainly seen a dramatic turnaround of that even in the last two months, a lot of clients bringing their projects forward. We are in the process right now of hopefully getting started working on some of those, so we are now actively hiring in the mining practice area, which is great to see.

And your severance costs last year were charged against admin. They were running at about CAD10 million. Would you expect to have charges like that again this year?

Not as severe as last year, certainly. As you downsize as we did last year, 1100 staff, you go through the lease exit liabilities, you reduce space, you reduce staff. So you take those one-time costs, and it was CAD12 million at the end of last year that we took. So those are extra one-time costs that we suffered through in 2009. We don't see the same type of costs going into 2010.

Thanks, I will get back into queue.

Sara O'Brien, RBC Capital Markets.

You talk, I guess in one of your press releases, about looking for compounded annual growth of 15% a year. Do you think -- I mean can you reach that in 2010, or is that sort of more on an overall look at a three-to-five-year term?

Certainly it is a longer term than a year. In any given year, it could be up or it could be down from that percentage. So it is over a period of five to 10 years that we are looking at that 15% to 20% growth rate.

So it sounds like for 2010, you are not optimistic you would reach that kind of level?

You are always optimistic. We are looking at organic growth in the 2% to 3% range, and we certainly have lots of acquisitions in the pipeline. You are not going to do acquisitions unless it makes sense, so it is hard to project on that, but there is certainly lots of opportunities.

Let's assume if we just look on an organic basis, is there opportunity to grow the bottom line beyond 2% to 3% on your topline organic growth? I'm guessing the negative FX translation is going to eliminate that. So how confident are you that you could see your EBITDA pick up based on either a gross margin improvement or more controlled SG&A?

We operate pretty efficiently right now. Our gross margin was over 56% last year. Our G&A costs were at the low end of the range. So I don't see an awful lot of efficiency we can squeeze out. And you've got to be careful that you are trying to squeeze more efficiency out, because a lot of that money spent is in marketing business development and in systems. So you've still got to continue to invest in that.

So we don't see any further efficiencies we can squeeze. We are running pretty efficient right now, and we see continuing out to invest in marketing and systems going forward.

Maybe just on that point, you commented on focusing on, I guess, national accounts and longer-term larger-type projects. How difficult is it to get into these accounts? I know you got the Chevron deal, but do you have a pipeline of other such deals and how long would you expect it to take to get some of those into your backlog?

Some of those are immediate. Depending on the type of client it is and the type of service that they need, some of them you can leverage that relationship very quickly by giving them a service that they require in an area that you can do it. In some clients, it is going to take longer because you're going to have to actually displace an existing consultant they have. So those cases, it is going to take longer.

But it is not only in national accounts that we are working on. It's also local and regional ones. As you grow in the way we have in the last three years, we have got lots of services within local areas that we can start leveraging the expertise we have and the wide range of services we have to clients that people across basically the hallway didn't realize the other person had. So we are seeing lots of opportunities in local and regional level as well in accountant management, not only in the national level.

In terms of getting your staff on board with this cross-selling opportunity, has it been difficult or it is fully in place right now, or is this something that is to come over the next year?

No, it is in place now. We started the program, and really it is a program we have only enhanced because we have been doing this for a number of years. Now the focus is on revenue generation. So it is just a little bit more top-of-mind and front and center with everybody. It is a program that it works well, and we have had -- the national account probably is the one that is a little bit newer for us.

Okay, great. Thanks a lot.

(Operator Instructions) Paul Lechem, CIBC.

Good afternoon. I was just wondering, maybe if you can just clarify a couple of points about the revenue guidance that you are giving for 2010. The first thing is you are suggesting that the first half of the year I think is stable, but are you talking about stable versus the back half of '09 or versus the front half of '09?

Back half of '09.

Back half. And you think that the business overall can be -- the revenues can be up 2% to 3% for the entire year versus last year.

Yes.

That seems to suggest, though, that given the revenues are kind of dropping off through the year that there should be a pretty steep ramp through the back half of the year. Is that where you are seeing things playing out right now?

Certainly, that is the way we see it. We think we are at that bottom of the U in December, and we see things ramping up fairly quickly. A lot of these projects, though, even though they ramp up, aren't going to start getting into our revenue until the second and third quarter.

And that is why we are just looking at the first couple of quarters being a little bit flatter, just because it is going to take time for the clients to actually get the projects into our office and working. But certainly we see the opportunities there, and we see the clients actively moving their programs forward.

Fair enough. One last thing, if I may, just on the acquisition front. Just going back in terms of the acquisition environment out there, can you talk to how many acquisitions of size there might be in your universe that you're looking at in North America, and what the level of competition for them and what sort of allows Stantec to stand out from the crowd in terms of being able to finalize on these acquisitions?

That was a long question. So it was what size the companies are we looking at?

Well, how many of any size are there out there that you can actually -- that you see in North America, potential universe of companies?

I think what we talked about was we took the E&R top 500 companies, and we stripped off a lot of the firms that do construction are bigger than us firms that just clearly aren't acquisition target. We then took a look at firms that are in the same type of business as us, and firms that we believe that would be logical targets. And we came up with 120 companies that we feel ranging in size, as I said, from 100 to 1000s that what we see as legitimate targets.

What would attract them to a Stantec rather than to our competitors? Certainly, we look at the diversity we offer them. We offer them a platform in certain areas of the country they might not have.

We offer them just a larger platform to be able to do their work on. So as we said, some of the areas we are focused on is we have a very successful buildings group in Canada right now. It's not very strong in the US, so clearly our focus will be to get buildings and architectural practice areas stronger in the US.

Our industrial practice area, about 75% of our revenue is in Canada. The same thing, we'd like to get more strength in the industrial practice area in the US. So you take your various practice areas and you look at where you want to grow, you look at your various geographic regions.

We'd like to be in Texas in a stronger way. And you just overlap that to the available companies, and like I said, we have come up with 120 that are targets, and certainly you can't chase them all. We prioritize those and are moving then forward.

Great. Thank you very much.

Michael Tupholme, TD Newcrest.

Good afternoon. My question is related to the gross margins. For the quarter, you have attributed the strength in your gross margins in large part to favorable project mix within your environment segment. Just looking forward with your increased target range, is that being driven by again the mix of business you expect to see over the course of 2010, or are there other factors that play there as well?

Well, I think the guidance we are giving for gross margin for next year is between 54.5 and 56.5, and we see ourselves floating through that range corporately. Various practice areas are at the lower end, for example, industrial and transportation, while environment and buildings are at the higher end. But corporately we see -- we don't see our gross margin really adjusting by more than one or two points in any given year, and that would be adjusted by client mix and the sector of the work you do it in.

So we are pretty consistent in our performance on a gross margin basis, and like I said, it varies from practice area and it's being varied from project to project, but overall it is within that 2% range.

So the fact you have tweaked it up a little bit here is really a function of the outlook that you see for 2010, and where the strengths and weaknesses are going to be?

Exactly. We were always at the upper end, so I think we have cranked it up about 0.5%.

Okay. Thank you.

Sarah Helppi, Cormark Securities.

One question on the environment segment. We saw a fairly substantial decline on a dollar basis from Q3. Wondering if you can talk about the seasonality that that might be attributed to versus like an organic decline. I know you inherited some seasonality with the Jacques business, but I thought it was more geared towards the front end of the year.

It does affect the start of the year. It's probably not going to be as pronounced this year as it was because we did have the reduction in Q4. So that is seasonal. The work that both Secor and Jacques does has an awful lot of fieldwork that slows down in the wintertime and picks back up in the springtime.

So I think most of the decline in Q4 was the result of that. We did see some of our comp clients basically track down their spending for the end of the year. We see them, though, continuing their programs in 2010, so we don't see a severe reduction, but certainly these companies do adjust their programs from year to year.

So you would say generally speaking then, your strongest two quarters seasonally would be Q2 and Q3 then in environment?

Absolutely.

Okay, thank you.

Anthony Zicha, Scotia Capital.

Bob, what kind of staff utilization rates do you expect to see in 2010? Would it be improvement or a bit of a decline?

No, if anything, we would see an improvement. And again, our staff utilization is something that we monitor really carefully, and we just don't let that fluctuate very much either, Anthony. That is how you really measure the performance in your company is really your staff utilization.

So I think overall, including corporate staff, it is around 70%. And you won't see it vary more than 1% off of that by any given period. So we see ourselves, if anything, next year increasing it, but again it is always ranging around that range.

Okay, thank you.

Chris Blake, CI Capital Markets.

Good afternoon, gentlemen. I was just going to touch upon the backlog a little more in detail. I was just trying to get a sense of, I think it was down 6% quarter-over-quarter. And I was trying to get a sense of the impact foreign exchange had on the backlog. What the backlog figures would be excluding the FX, as well as the splits between US and Canada and public versus private?

The work backlog quarter-over-quarter, the FX impact was about half. So backlog went down about CAD22 million, so half of that was due to FX in the quarter. But we don't give a split in our backlog between Canada and the US or by practice area, so I don't have that here for you.

Okay. And you are still roughly 50-50 between private clients and public?

Roughly, yes.

Lastly, just quickly, I know you have alluded to you've paid down quite a bit of debt through the year, about CAD150 million. I was wondering what your expectations are going forward with some of your free cash flow.

In the first quarter, similar to prior years, we do end up using more cash in the quarter. So I would expect, excluding any acquisitions that are debt levels will increase. That is primarily due to paying -- three things in the first quarter is the first payment of the Jacques installment note for the acquisition that we did, the payment of employee merit and bonuses in March, as well as tax installments at the beginning of the year. So those three things would drive up our debt a little bit.

Can you remind me again how much the Jacques payment will be in the first quarter?

I think roughly CAD23 million or something like that.

Very good. Thanks, guys.

Ben Cherniavsky, Raymond James.

Just one quick follow-up. Your revenue split in the quarter, US versus Canada, what was that?

Dan's hunting through the book. My guess would be -- I shouldn't guess, right -- is around 60-40 for the quarter, but we're just going to find it now.

We break it out by practice area. I don't think we broke it out in the quarter by country.

Based on where we were tracking, I would say we are probably more heavily weighted to the Canadian side in the fourth quarter. So my rough guess would be 60-40.

Okay, thanks.

Sarah Helppi, Cormark Securities.

One follow-up question. What are you thinking for CapEx for 2010?

We expect, Sarah, that our CapEx is going to be somewhere between CAD27 million and CAD30 million.

Okay, great. Thank you.

Maxim Sytchev, Genuity Capital Markets.

I have a question in relation to, I guess, the pickup in organic growth for the second half. Is it really a function of the fact that your backlog is stabilizing right now, or is it more the fact that you sort of rely on a pickup in economic activity down the road? How exactly do you view that split between the two?

I think both of them impact our view that we are going to have a better growth opportunity in the second half of 2010. Certainly we see the backlog, the decrease has subsided and we are seeing some increase. We are also seeing lots more opportunities in our pipeline with regards to clients raising their budgets for the year.

So all of the signs are indicating that things are going to ramp up. Our view is always that that ramp-up takes longer than everybody believes, so that is why we are still seeing in the first half it's going to be a little slower. But we see that ramp-up picking up and giving us good opportunities in the second half.

Just to go back on organic growth, you still think that you should be able to generate maybe 2%, 3% in terms of growth for the entire year?

That is what we are still saying, yes.

Okay, thanks.

Michael Tupholme, TD Newcrest.

Just wondering if you could provide the headcount levels, both at the end of the year and where they are currently?

I think at the end of the year there were 9300. My dashboard last week was showing just over 9300. So at the end of the year, it was 9300 even, and like I said, it was 9320 or something last week.

You had been seeing declines, I guess, through the fourth quarter. Now actually, things have stabilized.

Yes, and the fourth quarter is always a quarter where the seasonality gets some of our practice areas impact the fourth quarter. So you do have typically a reduction of staff anyways in the fourth quarter. So some of that continued to decline in the fourth quarter with seasonality. And yes, we have seen that subside.

Okay, thanks.

There are no further questions at this time. Please continue.

If there are no further questions, I would like to thank you all for joining us today and I look forward to speaking to you again in the near future. Thanks very much.