WSP Global Inc.
Q2 results ahead of forecasts; 2023 guidance increased across all metrics
TSX: WSP | CAD 178.44 | Outperform | Price Target CAD 199.00
Sentiment: Positive
We expect the better-than-expected Q2 results and the upward 2023 guidance revision to be received well – Q2 Net Revenue of $2,739.1MM (+29.8% YoY) was well ahead of RBC/consensus forecasts of $2,527.2MM/$2,600.8MM. Organic revenue growth of +9.3% was also well ahead of RBC forecast of +6.0% and reflected positive organic growth across all regions (most pronounced growth was in the U.S., Australia, the U.K. and New Zealand). Acquisition growth of +16.9% was driven primarily by the Wood E&I acquisition. Adjusted EBITDA of $461.6MM was also ahead of RBC/consensus of $433.5MM/$444.2MM. Q2 Adjusted EBITDA margin was 16.9% (+16 bps YoY) vs. RBC/consensus of 17.2%/17.1%. By segment, better-than-expected Adjusted EBITDA contribution from all segments, partially offset by modestly higher-than-expected corporate expenses, drove consolidated Adjusted EBITDA ahead of RBC/consensus forecasts. See Exhibits 1-3 below for consolidated as well as segmented results vs. RBC/ consensus forecasts.
2023 guidance revised higher across all metrics – WSP increased 2023 guidance for Net Revenue to $10.7B-$11.0B (+19.5%-22.8% YoY; $10.0B-$10.6B previously, consensus coming into Q2 of $10.7B) and Adjusted EBITDA of $1.90B-$1.93B (+24.2%-26.1% YoY; $1.76B-$1.84B previously, consensus coming into Q2 of $1.86B). Organic Revenue guidance now at +6%-9% (vs. +3%-6% previously). The midpoint of the Net Revenue and Adjusted EBITDA guidance ranges now imply an Adjusted EBITDA margin of ~17.6% (+56 bps YoY; previous guidance implied margin of ~17.5%). We note that given Q1 and Q2 Adjusted EBITDA margins were 15.5% and 16.9%, respectively, the revised guidance implies meaningful margin expansion in H2. We expect this to be among the areas of focus on the 8am ET call tomorrow (see below for more focus areas). Overall, the guidance increase (particularly for 2023 organic growth) is quite meaningful, in our view, and we believe WSP is well on track with Q2 YTD organic growth of +9.0% YoY.
Backlog at a new record $14.3B (+25.0% YoY, +3.9% organically) – Total backlog exiting Q2 was $14.3B and represented ~12 months of revenue. Organic order intake in the quarter was a record $4.0B, which represents the highest level of organic intake recorded in a quarter. Organic backlog growth was most pronounced in the Canada segment (+9.3% YoY driven by significant contract awards in the segment), with a more modest contribution from EMEIA (+1.2% YoY) and Americas (+0.5% YoY, with management commentary pointing to a strong pipeline of opportunities across WSP's U.S. operations). APAC backlog was -2.6% YoY.
Conference call at 8am ET tomorrow (August 9th) – We expect areas of focus to include: 1) additional color on demand trends across the company's markets/regions, including any notable differences between public/private sector clients; 2) the margin profile embedded in the backlog (2023 guidance implies meaningful margin expansion in H2); 3) capital allocation priorities through H2 given good balance sheet position (Net Debt/LTM Adjusted EBITDA 2.0x, or 1.9x pro-forma for recent transactions); and 4) an update on the Wood E&I integration and progress update on the ongoing ERP implementation.