WSP Global Inc T.WSP

RBC

[retiredcf]

May 8, 2024

WSP Global Inc.
Q1 results in line with consensus; 2024 guide reiterated

TSX: WSP | CAD 218.72 | Outperform | Price Target CAD 237.00

Sentiment: Neutral

Q1 results details – Q1 Net Revenue of $2,793MM (+4.7% YoY, reflecting +4.6% organic growth, +2.0% growth from M&A, and a -1.6% from the divestiture of Louis Berger Services) was modestly ahead of RBC forecast of $2,720MM and in line with consensus of $2,755MM. Net Revenue growth was largely driven by organic growth of +4.6% YoY (+6.5% normalized for same number of billable days; ahead of RBC forecast of +2.0%), reflecting positive organic growth across all regions (Canadian business delivered the most pronounced YoY growth at +6.9%, while APAC was nearly flat at +0.4%; these metrics are not adjusted for same number of days YoY, which would add ~2 p.p. to the organic growth each region). On the billable days adjustment, we note that headline organic growth in Q4 will reflect a benefit of a higher number of billable days (effectively offsetting the impact in Q1). Adjusted EBITDA of $446.1MM was in line with consensus of $441.0MM. Q1 Adjusted EBITDA margin of 16.0% (+47 bps YoY) was in line with RBC/consensus of 16.0%/16.0%. By segment, better-than-expected Adjusted EBITDA contribution from Americas, Canada, and EMEIA, partially offset by lower-than-expected contribution from the APAC region and higher-than-expected corporate costs, drove consolidated Adjusted EBITDA ahead of RBC forecasts (in line with consensus). See Exhibits 1–3 below for consolidated as well as segmented results vs. RBC/consensus forecasts.

2024 guidance reiterated – WSP's 2024 guidance calls for: 1) Net Revenue of $11.2B–$11.7B (RBC/cons. $11.5B/$11.6B coming into Q1 reporting); 2) +5% to +8% organic growth (RBCe 5.1%); and, 3) Adjusted EBITDA of $2.05B-$2.13B (RBC/consensus $2.08B/ $2.11B). The midpoints of the Net Revenue and Adjusted EBITDA guidance ranges imply an Adjusted EBITDA margin of ~18.3% (+62 bps YoY, ahead of WSP's 2022-2024 target of +30 to +50 bps annually). For context, we note that when WSP provided its 2022-2024 targets, the Adjusted EBITDA guidance range for 2024 was 17.5%-18.5%, which places the ~18.3% margin target reflected in the 2024 guide at the high end of the initial range.

Backlog at $14.2B (+2.9% YoY, +5.4% organically) – Total backlog exiting Q1 was $14.2B and represented ~11.8 months of revenue. Consolidated organic backlog growth was +5.4% YoY and was most pronounced in Americas (+10.3% YoY) and EMEIA (+8.2%), with the partial offsets being organic backlog declines in Canada (-1.1%) and APAC (-4.1% driven by Net Revenue growth in New Zealand ahead of new orders, the timing of large wins in Australia, and continued difficult market conditions in China).

Conference call at 8AM ET tomorrow – We expect areas of focus to include: 1) management's view on the demand backdrop given the dynamic operating environment (i.e., strong support for infrastructure investment, interest rate uncertainty, geopolitical issues, etc.); 2) additional details on the pipeline of opportunities in the U.S. market (which we expect will be a notable growth driver for WSP and the industry this year); 3) the outlook for M&A and details on the pipeline of opportunities (strong start to the year on M&A with 4 transactions announced YTD); and, 4) expected cadence of top-line and margin progression over the coming quarters following a largely in line Q1 print.