WSP Global Inc. (WSP) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the WSP Global, Inc. Second Quarter 2026 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your first speaker Quentin Weber, Head of Investor Relations. Please go ahead.

Good day, and thank you for joining our call. Today, we will discuss our Q2 2026 results and performance, followed by a Q&A session. Alexandre L'Heureux, our President and CEO; and Alain Michaud, our CFO, are joining us this morning. Please note that this call is also accessible via webcast on our website. During the call, we may make forward-looking statements. Actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements. Relevant factors that could cause actual results to differ materially from those in the forward-looking statements are listed in the MD&A for the quarter ended June 26, 2026, and the financial year ended December 31, 2025, which can be found on SEDAR+ and on our website. In addition, during the call, we may refer to specific non-IFRS financial measures. These measures are defined in the MD&A for the quarter ended June 26, 2026. Our MD&A includes reconciliations of non-IFRS financial measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures and other financial measures provide useful information to investors regarding the corporation's financial condition and results of operation as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS and may differ from similarly named measures reported by other issuers and accordingly, may not be comparable. These measures should not be considered as a substitute for the related financial information prepared by IFRS. With that, I will now turn the call over to Alexander.

Thank you, Quentin, and thank you all for joining us this morning. Today, I'm very excited that this was an excellent quarter for WSP. WSP exited the second quarter with stronger momentum than when it entered the year. Organic growth accelerated, our backlog reached a record level, margin expanded by 90 basis points and TRC is performing as expected. Together, these leading indicators increased our confidence in the outlook for the balance of 2026 and beyond. Let me recap a few highlights from the quarter. First, organic net revenue growth of 5% brought us to the high-end of our quarterly outlook range with every reportable segment contributing. We added roughly $800 million of net revenues year-over-year, a 23% increase, largely reflecting the contribution of our recent highly strategic acquisitions. Second, backlog reached a new record of $20.1 billion at quarter-end with organic growth of 5.7% over the last 12 months. Beyond the absolute number, what matters most is that organic backlog growth accelerated to its strongest pace since 2022. In a market where investors are increasingly focused on long-term visibility, we believe our backlog sub-backlog and pipeline of opportunities provide a clear indication of future growth potential. Our pipeline tells the same story. WSP is involved in some of the largest and more complex projects globally. For example, our top 20 opportunities alone represent more than $4 billion in potential revenue. Importantly, the strongest areas of demand we see today are directly linked to long-term duration investment teams, including AI-enabled digital infrastructure, power generation and transmission, data centers, critical minerals, defense and nuclear energy. These are complex engineering intensive programs that require multidisciplinary expertise, regulatory capabilities and large-scale project delivery capacity. Third, our adjusted EBITDA margin expanded by 90 basis points year-over-year to 19.1%, reflecting our continued and disciplined focus on margin improvement. Adjusted EBITDA grew by 28.8% year-over-year and exceeded our quarterly outlook range. As we continue our journey on margin expansion, it is becoming increasingly apparent to us that scale creates operational leverage. And fourth, our Power & Energy platform delivered another quarter of double-digit organic growth with global net revenues from our top 40 global power clients, rising 30% year-over-year. TRC's integration remains on plan for completion within the next 6 months. The acquisition is doing exactly what we acquired it to do, strengthen the position in one of the fast-growing and most strategic end markets globally. Let me now provide you with a few comments on our regions. Starting with Canada, which delivered on every measure this quarter. Organic growth reached 5.1% and backlog grew by a robust 14.2% over the last 12 months, an outstanding performance. The pipeline in Canada is exceptionally deep and the momentum is broad-based. In Defense, we hold a position few can match. WSP is the leading direct provider of engineering and environmental services to Defense Construction Canada with hundreds of projects underway nationwide and over 25 active master service agreements. Our pipeline has doubled in the past [indiscernible], positioning us as a strategic partner on major current and upcoming opportunities. In Mining, our recognized global leadership with more than 5,000 professional worldwide, helped us convert several major opportunities. Capital keeps moving toward critical minerals, driven by AI, electrification, grid expansion and energy transition. This high-margin business has averaged double-digit organic growth over 5 years with hard backlog up roughly 25% in the past 12 months. In Power & Energy, we see a significant increase in demand for our Engineering Services. Our energy subsector is well ahead of budget delivering 70% growth year-over-year. We expect market conditions to remain strong for the remainder of 2026 and into 2027 with increased investment across the energy market in Canada. And in Nuclear, WSP is Canada's leader in signing and permitting consulting. We are leading our supporting or supporting every impact assessment for proposed new nuclear generation in Canada. Nuclear-related revenue has tripled year-over-year and backlog in this market is at a record. Defense, Mining, Transportation, Power & Energy and Nuclear together make up of one of the most compelling growth profiles in our portfolio in Canada and globally, and we expect that to continue. Turning to the Americas. The depth of our [indiscernible] hard and sub backlog together with a robust opportunity pipeline position us well for accelerated growth in the second half and beyond. For example, our U.S. sub backlog on a net revenue basis reached $10 billion and is approximately 9% versus Q1 2026, pointing to substantial potential for future revenue and a meaningful portion is expected to convert to accessible work by year-end. In addition, approximately 86% of that sub backlog sits in framework agreements, which are preapproved contract vehicles that let task order convert quickly to revenue once client authorized funding. Power & Energy continues to expand rapidly in the U.S., supported by [indiscernible] bid and proposal activity with investor-owned utilities. In this market, net revenues and hard backlog from our top 40 global power clients in the U.S. increased 15% and 20% year-over-year, respectively. Our portfolio of clients now include the top 60 U.S. investor-owned utilities or IOUs covering the vast majority of the U.S. market. TRC continues to deliver, with its hard backlog and sub backlog up 30% and 35% year-over-year, respectively. We have also identified more than 100 collaboration opportunities where WSP and TRC teams are combining expertise, resources and client relationships to better serve clients. One of them resulted in a significant award from a large IOU to support its $78 billion 5-year capital plan with line of sight to more than $10 billion of potential future work. This highlights the scale and the opportunity in Power & Energy where our expanded platform positioned WSP to capture larger longer-duration mandates. Data Centers delivered another period of rapid expansion with revenues up more than 20% year-over-year in the first half of 2026. Our Data Center sales pipeline is approximately 30% higher than a year ago, reflecting deeper client relationships, broader account penetration and rising demand for integrated delivery solutions. Ranked #1 in data center designed by engineering [indiscernible] WSP now support more than 6 sites with more than 1 gigawatt of compute power capacity and is a trusted partner to the 70 clients we serve in this sector, which has doubled in the last year. In Advanced Manufacturing clients are engaging us across the entire project life cycle from early planning through design, delivery and operational readiness drawing on our integrated multidisciplinary capabilities. WSP is supporting over 200 industrial clients and the backlog is up 29% year-over-year. The platform continues to deliver strong momentum with revenue growth of more than 20% year-over-year. Nuclear in the U.S. is scaling just as quickly. We are now supporting 22 new sites across the U.S., spanning site selection, licensing, design and construction support and we recently won a role in the primary design of an industry first gas-to-nuclear SMR project with Blue Energy at the Port of Victoria site in Texas. Few firms can operate across the [indiscernible], the full cycle of nuclear program, and that is precisely where the market is heading. Lastly, on Water, business is up 20% year-over-year and is another fast scaling part of our portfolio. Client demand for water infrastructure shows no signs of slowing with WSP Water pipeline up 61% year-over-year as communities invest in aging infrastructure, PFAS, water quality mandates and climate resilience. In Q2, WSP captured a major program contract with Seattle Public Utilities worth $100 million. Taken together, our hard backlog and soft backlog pipeline of opportunities and newly secured mandates set us up to grow faster in that market. [indiscernible] $7 billion we deployed in Power and Energy in recent years to position our U.S. business strategically is really starting to pay off. Turning to EMEIA. We delivered organic growth in net revenues of 8.1%, and the future is bright as our backlog grew organically by 10.4%. And [indiscernible] interest, the quarter saw another standout performance from our U.K. business, which delivered yet another quarter of double-digit net revenue organic growth. Elevated growth is supported by strategic targeted markets such as Power & Energy, Nuclear, Defense & Security, Aviation and Healthcare. EMEIA is increasingly winning on the breadth of what it can offer and with a healthy organic backlog growth profile, the region has the visibility to sustain this trajectory. Finally, in APAC, the region returned to growth for the first time in 6 quarters right on plan powered by a notable turnaround in Australia. In New Zealand, the Government's National Land Transport Plan has reduced project investment, while this is expected to have some impact on our business, we are taking steps to mitigate its effects. Overall, the efforts we deploy to recalibrate the business in APAC are showing up in the numbers. In summary, this was an exceptional quarter and more importantly, clear evidence that our strategy is working and momentum is accelerating. With that, I will now turn it over to Alain, who will walk you through our financial results.

All right. Thank you, Alex, and hello, everyone. I'm pleased to report this morning on our strong financial results for the quarter, and let's start with growth. For the second quarter, revenues increased by approximately 20% year-over-year, while net revenue increased by approximately 23%. Organic net revenue growth reached 5% with all reportable segments contributing. The U.K. posted double-digit organic growth. EMEIA outperformed expectations, APAC returned to growth a quarter ahead of plan, and the outlook for the U.S. business improved in the quarter. Backlog reached a new record level of $20 billion as of the end of June, up 23% over the last 12 months, representing 11.6 months of revenue with organic growth standing at 5.7% over the same period. Moving on to profitability. Adjusted EBITDA in the quarter grew to $815 million compared to $633 million in the second quarter of '25 representing an increase of 29% and exceeding management's quarterly outlook range of $770 million to $810 million. Adjusted EBITDA margin for the quarter increased 90 basis points, reaching 19.1% compared to 18.2% in the second quarter of '25. The improvement was driven equally by productivity gain and lower rightsizing costs versus the prior years. 19.1% is the best WSP Q2 margin ever recorded. Adjusted net earnings for the quarter reached $389 million or $2.88 per share, up $82 million or $0.53 per share compared to the second quarter of '25. This represents a 23% increase over the prior year. As for our cash position, cash inflows from operating activities were $554 million for the 6-month period ended June 26, 2026 compared to $822 million in the corresponding period of '25. This mainly reflects timing. The prior year period benefited from $195 million of inflow related to the sale of eligible trade receivable under the factoring arrangement and in addition -- A portion of the POWER Engineers incentive awards were paid during the quarter. Adjusted for those two items, cash generation is in line with last year and is expected, historical level of conversion over the balance of '26 consistent with our usual seasonality. Free cash flow was $255 million for the 6-month period ended June 26, 2026, and trailing 12-month free cash flow amounted to $1.4 billion, representing 1.5x net earnings attributable to shareholders. DSO at the end of the quarter stood at 71 days compared to 69 days last year and is in line with our expectation. While the leverage ratio remains slightly above our target range following the recent acquisition of TRC. We generated approximately $1.4 billion of trailing 12-month free cash flow and remain confident in our ability to deliver through earnings growth and cash generation with a return to our target range by year-end. Turning to our 2026 outlook. The financial outlook issued in February 2026 and revised on May 6, 2026, is reiterated except for the increased net revenue and adjusted EBITDA range, which now is -- are expected to range between $16.2 billion and $17 billion for net revenue, and between $3.1 billion and $3.18 billion for EBITDA. In the 2025 to 2027 Global Strategic Action Plan, we set an ambition to reach an adjusted EBITDA margin of 19% to 20% by 2027, and given the progress achieved to-date, we continue to see a path to get to that target range as early as 2026. For Q3 2026, we expect net revenue to range from $4.15 billion to $4.35 billion and adjusted EBITDA to range from $850 million to $890 million. Lastly, our acquisition integration and re-org costs are now expected to range between $285 million and $305 million, mainly due to noncash accounting impact following the disposal of non-core activities, as well as costs related to ongoing M&A and integration activities. I'd like to remind you that our outlook is intended to help analysts and shareholders refine their perspective on our performance and using this information for other purposes may be inappropriate, natural result may differ and such differences may be material. Also, our selected financial outlook does not include any acquisition transaction or disposal that may occur after today. Overall, this quarter's result, organic growth across all segments, a record backlog, expanded margin and increased outlook gives us real confidence for the remainder of '26 and beyond. Our financial position remains healthy and provides solid foundation to support our priorities going forward. On that, back to you, Alex.

Thank you, Alain. To close, we delivered an excellent second quarter. Net revenue grew 23%. Adjusted EBITDA rose nearly 29%, margins expanded by 90 basis points to 19.1%, our best second quarter ever since our IPO, all while delivering 5% organic growth with every segment contributing. What excites us most is not any single number in isolation. It is the direction of travel. Organic growth accelerated, organic backlog growth accelerated, margins expanded, TRC is performing as expected. Bottom line, our confidence increased. Taking together, these results reinforce our belief that WSP is uniquely positioned at the intersection of some of the world's largest investment teams, energy sovereignty, AI infrastructure, critical minerals, defense resilience, water and power and energy sectors. When we look across the portfolio today, we see a business with stronger momentum exiting the second quarter than when it entered the year. Before taking questions, I would like to briefly now address Arcadis. As previously disclosed, we have submitted two friendly nonbinding proposals to Arcadis. As outlined in our 2025-2027 Global Strategic Action Plan, M&A remains an important component of our long-term strategy to deliver shareholder value and continues to be part of the fabric of WSP. Consistent with that strategy, we continue to believe that a combination with Arcadis would be highly strategic, creates substantial value for the stakeholders of both companies and accelerate the growth ambitions of the combined organization. We have approached this dialogue in a constructive and respectful manner for many months and continue to view it as a potential friendly transaction between two great companies. At the same time, we remain disciplined in our approach to capital allocation and acquisitions. Importantly, regardless of the outcome, WSP growth outlook, strategic priorities, financial objectives and capital allocation framework remains unchanged. Our business continues to perform very well as demonstrated by the results we reported today, including accelerated organic growth, record backlog and expanding margins. Beyond that, we do not intend to comment further on Arcadis today so that we can keep our focus on WSP's second quarter results and outlook. With that, we will now open the line for questions.

[Operator Instructions] And the question comes from the line of Frederic Bastien from Raymond James.

Good quarter. I do appreciate the level of granularity you provided around your target markets, quite helpful. First question, I was under the impression that the Americas margins would be down slightly year-over-year as you fold in the TRC business. But instead, we saw pretty impressive gain. Can you elaborate on what drove this? Was it strength in the underlying business, a better-than-expected performance from TRC or both?

It's a bit everything, Fred, to be honest. We've been -- as you know, we've been pushing hard on continued improvement in efficiency, productivity, project performance. And yes, we've made good progress with TRC as well. So it's a bit all of the above, and we're very proud of the margin expansion in the U.S. and Canada also and across the patch.

How do you -- how do we think about sort of the potential for margin improvement in the back half in the Americas specifically?

Well, I mean, the -- as we said right now with the outlook Fred, that we put together, it kind of indicated at midpoint, a 60 basis point improvement versus last year. And as stated before, we even see a path to even deliver a bit better and get into our 2027 target range of 19% to 20%. As it relates to the U.S., we'll continue to push hard, and that will be at 50% of the business. You could imagine that this will be part of the story to support that 60 basis points to 70 basis point improvement over the prior year.

Alex, you started and finished your prepared remarks by saying WSP is in a better place today than it was 6 months ago. Should we interpret that as a broadly based improvement across the organization? Or are there still certain countries or in markets where conditions remain more mixed?

Well, I mentioned that New Zealand is a little bit more mix and it's doing better than a year ago, but it's still a bit more mixed. But with the exception of New Zealand right now in our portfolio. I'm looking at the contribution of all our geographies and all of our sectors and everybody is contributing positively. So -- so what I said, I have strong conviction. I feel very good about where we're at now compared to 6 months ago. And I would say, just going back to the U.S. business, Frederic, 5 years ago, 60 months ago, we had 9,000 people in our U.S. business. Today, we have 28,000 people, 60 months later. Sometimes you need to pause and reflect on what we've accomplished in the last 60 months, the amount of capital that we've deployed in the country. As Alain just indicated, it's 50% of our business. And I think we are now starting to reap the benefits of what we've built over the last few years with the POWER Engineer acquisition, with the TRC acquisition. Obviously, earlier in the decade, we bought Golder, Wood E&I, but we completely transformed our U.S. business in the last 5 years. 5 years ago, 80% of our revenue was generated in Transport & Infrastructure. Today, 35%, 40% of our business is in Power. So we needed we needed a bit of time to digest the transformation. And now I'm looking at the pipeline of opportunities, and I'm looking at the sub backlog, and I'm looking at the collaboration between our sectors, and I'm very excited about the future prospect of WSP in the U.S., but globally for that matter. Then you look at Canada with the backlog growth of 14.2%. I have never seen that in a long, long time. So I'm quite pleased with the results. I think it bodes well for the future.

And the question comes from the line of Sabahat Khan from RBC Capital Markets.

This is Bhavin on the line for Saba. My question was more on the organic growth in the U.S. market this quarter. It was pretty good. And what I wanted to know more was about how has that evolved since last year? And do you have a view on that looking forward into the back half of the year?

Yes. Well, we're very pleased with the performance in the quarter. I'll start with that. And I think an important point to mention about the U.S. business is if you look at the underlying business in the U.S. and you take TRC as organic contribution, the business is delivering roughly [ 6% ] in the first half. So I think that's a pretty good performance. And so we continue to see accelerating momentum in the U.S. Our recruitment engine is firing on all cylinders. And we've been growing headcount. And you've heard all the backlog growth, pipeline of opportunities in key areas of growth, including Power & Energy that are all pointing in the right direction. So that's beyond any specific quarter, I could tell you that we feel increasingly more comfortable with the U.S. increasing pace. So the leading indicators are all pointing in the right direction.

And the questions come from the line of Benoit Poirier from Desjardin.

Alex, Alain. Congrats on the solid quarter. Maybe first question in terms of APAC. Obviously, it was nice to see that you turn positive in terms of organic growth. What could we expect in the second half in terms of organic growth for APAC in light of your backlog?

Yes. So APAC, obviously, very pleased with the performance, returning to overall growth a quarter in advance. We had call for Q3 for that. And this is largely explained by Australia. That's overperforming on expectation right now. As Alex pointed out on the flip side, there's a bit of softness, if I could say that way, New Zealand by being a much better performance than last year. So all in all, we're still targeting to be in line with our outlook for the region, which was a flat contribution but we'll continue to push obviously. And if Australia continued to deliver like that, maybe we'll have a good surprise. But for the time being, I think similar revenue than last year is still our expectation.

Okay. That's great color. And maybe for Alex, could you provide an update on your M&A pipeline?

Yes. I mean, look, we continue Benoit. I mean, we have a 3-year plan to deliver. We've been enormously active, I would say, in the last 24 months with POWER Engineer with TRC, with Ricardo, all of them are progressing extremely well. But we continue to have informal and formal discussion with smaller-sized firms, midsized firms, and yes, the answer is yes. We have a good pipeline. And I've said it in the past, and I'll say it again, we don't use the market as an excuse. WSP, we've always found ways to be opportunistic and good time and more challenging time. And it's not because our company is now trading at 2 turns below the industry peer that we're not finding and we're not going to find opportunities for us to create shareholder value.

Okay. That's great. And maybe last one for me. Could you provide an update on the number of employees you now have in India?

I could, yes. India is -- it continues to be a fantastic story for us. 6,500 is our overall GCC platform. It's about 8% of our total platform, you remember, Benoit, we -- not so long ago, we were talking about 5%, 6% of the overall platform. So it continues to be a significant lever to grow. So we're very, very proud of progress. Probably 1,000 net new people came in already year-to-date, 20% plus growth, and that doesn't mean we don't hire elsewhere. We have roughly 7,000 open position right now for technical position. So as I said, in the U.S., what's relevant across the patch, our recruitment engine is firing on all cylinders right now.

And the questions come from the line of Maxim Sytchev from NBC Capital Markets.

I was wondering, Alex, if you don't mind providing a bit more of an update on TRC integration and some of the operational priorities that the management team is focusing on for this asset specifically?

Yes. Max, things are progressing extremely well. I think the business is performing as expected, if not exceeding slightly our expectation. So the go pulse for us is [ John ] first to convert TRC [indiscernible] system. Now that we have one global platform. So we are working on that. But what is more important and what I've been spending a fair amount of my time and the team has been spending a lot of time doing is really the client-facing activities is where we have devoted most of our energy right now. And I mentioned it, we have now 100 joint pursuits that we're pursuing, WSP and then TRC. So when we acquire a company, we always start with the client-facing activities. There's nothing like winning work together to have 2 organizations coming together, and that's true for all acquisitions. So we have done that. Salary benefits, harmonization, it's substantially complete. We have a road map. So I think the last milestone will be the conversion. But not really a point to do this midyear. So we're already in August, so might as well waiting at the end of the fiscal year. So that's why we chose to do it Jan 1, Otherwise, we could have done it much quicker, but there's no point in doing that. So it's progressing very well, Max.

And in terms of the opportunities, I guess, thinking about geographies. I presume it would be kind of U.K. where you could combine sort of the -- and leverage both companies' expertise and relationship? Is that how we should be thinking about this?

You mean for TRC or...

Yes, yes. Kind of on a pro forma basis.