May 12, 2021
WSP Global Inc.
Strong Q1 results; 2021 guidance reiterated
Our view: We expect a positive share price reaction following WSP's Q1 results, which reflected Adjusted EBITDA ahead of RBC/consensus forecasts. The company also reiterated its 2021 full-year outlook.
Initial take – Q1 Net Revenue was modestly below forecasts, and was more than offset by strong cost containment measures, which drove Adjusted EBITDA ahead of Street expectations. Q1 Adjusted EBITDA margin of 14.5% (vs. RBC/consensus of 12.9%/13.1%) was a record for Q1. 2021 outlook was reiterated, and the company is guiding for Q2 organic growth in the "low single-digit" range. Q2 guidance implies that revenue growth will be a bit more H2-weighted relative to our current forecasts; however, the outlook for stronger margins implies that our Adjusted EBITDA forecasts by quarter are likely in the right ballpark. With a strong Q1 print amidst a relatively uncertain backdrop and a clean balance sheet, we believe WSP is well positioned to deliver on its 2021 targets.
Q1 Adjusted EBITDA ahead of expectations – Q1 Net Revenue of $1,667MM (-4% YoY; organic retraction of 4.5% YoY) was modestly below RBC/consensus of $1,746MM/$1,680MM. The 2 less billable days in Q1 represented ~50% of the organic contraction. For context, excluding the impact of the 2 less billable days and M&A contribution, top-line would have been flat YoY. Lower Net Revenue was more than offset by stronger-than-expected margins, driving Adjusted EBITDA of $241MM (including $8MM of government subsidies, which management indicated was directed to employees in the form of additional compensation), ahead of RBC/consensus of $225MM/$220MM. Adjusted EBITDA from the Americas and EMEIA was ahead of RBC forecast, Canada was below, while APAC was largely in line. See inside for additional details.
Backlog at $8,431MM (-0.6% YoY; +0.4% YoY on an organic basis) – In Canada, backlog was +4.6% YoY (+6.8% YoY on an organic basis), reaching record levels for the region. Organic backlog growth in the Americas was +1.0% YoY; however, we believe there has been significant progress with the "soft" backlog which should add to the reported backlog over the coming quarters. In EMEIA, backlog contracted organically by 5.2% YoY (impacted by a major project removed from the backlog after some delays), while APAC organic backlog growth was +2.7% YoY.
Strong FCF and a clean balance sheet – Q1 FCF of $85.3MM reflected strong operating results and good DSO management (68 days for Q1 vs. 77 days for the prior year period), and contributed to a Net Debt/Adjusted EBITDA ratio of 0.2x in Q1/21 (vs. 0.1x in Q4/20). WSP completed the Golder acquisition subsequent to Q1, which means the leverage ratio for Q2/21 will be sequentially higher.