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Stantec Inc (NYSE:STN)
Q4 2019 Earnings Call
Feb 27, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Stantec's Fourth Quarter and year End 2019 Earnings Results Conference Call. Leading the call today are Gord Johnston President and Chief Executive Officer; and Theresa Jang Executive Vice President and Chief Financial Officer. Today's call is webcast and Stantec invites those dialing in to view the slide presentation which is available in the Investors section at stantec.com. All information provided during this conference call is subject to the forward-looking statement qualification set out on slide two detailed in Stantec's Management's Discussion and Analysis and incorporated in full for the purpose of today's call.

With that I am pleased to turn the call over to Mr. Gord Johnston.

Gord Johnston -- President and Chief Executive Officer

Good morning and thank you for joining us. I'll begin our call today with an overview of 2019 and our fourth-quarter performance. Theresa will provide details on our results and then I'll review our operations in more detail. 2019 our 65th anniversary was a year of reinvigoration for Stantec. We continued to enhance our competitive position as a Top 10 global design firm. Our vision is to maximize long-term sustainable value for our clients employees and shareholders. In particular we took the following actions in 2019. We strengthened our alignment with shareholders by introducing relative total shareholder return and discontinuing our stock option program. We replaced options with restricted share units which are full value units that better align with shareholder interests and reduce dilution. With a renewed focus on earnings-per-share growth we made tremendous efforts to reshape our organization to be leaner and more efficient achieving the $40 million to $45 million of annualized cost savings we set as our target. And we've clarified our commitment to rigorous and disciplined capital allocation. These steps represent a renewed focus on delivering value and form the basis of our recently launched three-year strategic plan. In 2019 we delivered adjusted diluted earnings of $2.02 per share an 11% increase over 2018. This was driven by our success in delivering solid organic and acquisition net revenue growth exceptional project execution and operational efficiencies.

As a result we achieved an 8.8% return on invested capital. Over the course of 2019 we returned $105 million to shareholders through dividends and share repurchases. And yesterday our board approved a 6.9% increase in our dividend to an annualized $0.62 per share. Moving to the quarter we drove a 7.8% year-over-year increase in net revenue driven in large part by 5.3% organic growth. Each of our regions and businesses generated organic growth in the quarter. In particular our U.S. operations continued to benefit from a strong economy achieving net revenue organic growth of 9.6%. Acquisitions delivered a 2.8% increase in net revenue in the quarter. At the end of the year our contract backlog increased 2% year-over-year to $4.3 billion which is approximately 11 months of work.

I'll now hand the call over to Theresa to review our results in a little more detail.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Thanks Gord. Well as we did throughout 2019 we've presented our results on both a before and after basis for the adoption of IFRS 16 and happy to say that this will be the last time we need to do this. You'll find a reconciliation of our statements in our MD&A the Appendix to the slide presentation and the supplemental information posted on the Investors section of our website. Adjusted net income for the quarter increased 14.9% to $52.3 million and adjusted earnings per share increased 17.5% to $0.47 per share. This was largely due to a 7.8% increase in net revenue improved gross margins and lower admin and marketing expenses driven by our cost reduction initiatives. As Gord outlined earlier Q4 net revenue grew organically by 5.3%. Gross margin for the quarter increased 8.2% to $486.3 million. As a percentage of net revenue gross margin increased 20 basis points to 54%. And this reflects our continued focus on improving project execution and our diverse mix of projects. Admin and marketing costs were $348.5 million representing 38.7% of net revenue. And that includes a 0.4% impact from severances associated with our reshaping initiative. It's noteworthy that on an apples-to-apples basis that is on a pre-IFRS-16 basis and after adjusting both periods for nonrecurring items Q4 admin and marketing costs decreased by 1.3% as a percentage of net revenue compared to the same period last year. And this is the result of our drive for operational efficiencies and a focused reduction on discretionary spending. Adjusted EBITDA increased 69.6% to $142.8 million representing 15.8% of net revenue. Excluding IFRS 16 adjusted EBITDA increased 25.4% compared to Q4 2018.

Looking at our full year results we were within our target ranges for all our measures. I'd also like to touch on our days sales outstanding or DSO which is not presented on this slide. We closed out the year with our DSO at 94 days or 79 days including deferred revenue outperforming our target of 98 days and significantly improving upon the first nine months of 2019 when DSO hovered around 103 days. And this is the result of the full court press we made throughout the year to improve our billing and collection efforts. We're pleased that our results have broken through our target but our improved DSO also benefited from the receipt of certain milestone-based payments which as I've spoken of in previous quarters is lumpy in nature. Moving on to liquidity and capital resources in 2019 we saw significant improvement in our operating cash flows from continuing operations which increased 119% to $449.9 million. Excluding the effects of IFRS 16 operating cash flows increased 62.4% to $333.2 million. This is mainly attributed to increased cash receipts from clients partly offset by higher supplier and employee costs related to acquisition growth. For investing activities we used $135.2 million of cash this year or $84.8 million excluding IFRS 16. The decrease relative to 2018 is mainly a result of lower spend on capex. That's leasehold improvements as well as engineering equipment and on software purchases.

We used $286 million for net financing activities or $219.7 million excluding IFRS 16 which is mostly comprised of $80 million used to repay drawings on our revolving credit facility and $105 million returned to shareholders through dividends and share repurchases. With our improved cash from operations we continued to strengthen our balance sheet over the course of the year. Net debt to adjusted EBITDA was 1.1x at the end of the year which is at the lower end of our internal range of 1x to 2x. Our liquidity remains strong. At the end of the year we had $286 million in undrawn capacity on our credit facility. We provided our 2020 guidance in December when we launched our 3-year strategic plan and we have not made any changes to this guidance. I'd like to remind callers today to remember to incorporate the seasonality guidance we've provided wherein we expect 40% of our earnings in the first and last quarters of the year and 60% of our earnings in quarters two and 3.

With that I'll turn the call back over to Gord for highlights from operations.

Gord Johnston -- President and Chief Executive Officer

Thank you Theresa. Our Canadian operations achieved net revenue organic growth of 1.6% in Q4. Organic growth continued in our Environmental Services business and Transportation sector partly offset by revenue retraction in our Power sector and Water business. New mining projects as well as the commencement of the TransMountain expansion project spurred growth in our Energy & Resources business. For the full year Canada's muted economic growth resulted in a 0.1% organic increase in net revenue. Acquisitions drove an additional 1.9% increase in net revenue this year. This quarter our U.S. operations achieved net revenue organic growth of 9.6% with growth across all of our businesses. Our Transportation sector continued to perform well with progress made on our transit and rail projects. Growth in Environmental Services was driven by the renewables hydropower and damn markets. Our U.S. Water business grew as a result of our efforts to expand into California Texas and the Northwest U.S. market. Growth in Energy & Resources was driven by a ramp up of new renewable projects in Power and upstream projects in Oil & Gas. For the year our U.S. operations continued to generate solid growth. Net revenue increased 9.8% in 2019 reflecting 7% organic revenue growth and positive results from the strengthening of the U.S. dollar compared to the Canadian dollar. Our Global operations achieved net revenue growth of 14.5% in the quarter driven by acquisition growth of 16.9% in our Buildings business. We saw a slight retraction in organic growth. Declining commodity prices impacted our Mining projects.

We had a large project wind-down in the Waterpower & Dams and a slowdown in our U.K. Transportation sector. Our Environmental Services business continued to drive growth. Our U.K. Water business saw steady work volume as we advanced major projects associated with the latest asset management program regulatory cycle. The ramp-up of a transmission project in the fall also resulted in growth in our Power sector. Full year net revenue in our global operations increased 32.7% to $654.2 million in 2019 compared to 2018. On an organic basis net revenue grew 4.7% in our global operations in 2019. As I mentioned earlier we launched our three-year strategic plan in December to grow and diversify sustainably for the benefit of all of our stakeholders. Our strategy is illustrated in the figure on the left-hand side of the slide. Our clients are at the center of everything that we do. The four value creators which surround our client-centric model serve to enhance our ability to deliver great solutions to our clients provide fulfilling careers to our employees and drive long-term shareholder value. To measure our success and to drive alignments we've introduced two new financial metrics for the end of 2022. These are a compound annual growth rate for adjusted earnings per share of more than 11% and a return on invested capital of more than 10%. With a focus on solid execution and disciplined capital allocation I'm confident that we'll achieve these targets. Before turning the call over for questions I'd like to address the COVID-19 coronavirus its impact on our operations and our response.

Shortly after news emerged about this new pathogen we activated our Pandemic Committee and immediately implemented a staged pandemic response plan. As part of our plan all Stantec travel to and through mainland China Hong Kong Macau and South Korea has been prohibited until further notice. In China we have a total of 50 staff between our Environmental Services office in Shanghai and our design and drafting group in Shenzhen. These offices were closed for a period of time at the direction of the local authorities and we're closely watching conditions in the region. In Italy we have 150 staff in Milan with all but seven people currently working from home. Staff are avoiding public transit and public venues. To our knowledge no employees have been infected or are exhibiting symptoms at this time. We've activated self-quarantine protocols for employees who have recently visited an area of active transmission or have been in contact with someone from one of those areas and will remain vigilant in doing everything we can to protect the wellbeing of our employees. This has not had a material negative impact on our financial results.

And with that we'll open up the call to questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Jacob Bout with CIBC.

Jacob Bout -- CIBC -- Analyst

Good morning. When I'm looking at your backlog up 1.9% year-on-year I think down quarter-on-quarter how should we be thinking about that translating to growth in 2020? Slightly slower or...

Gord Johnston -- President and Chief Executive Officer

Yes. We still feel Jacob in the quarter we were selected for a number of significant projects that we haven't fully contracted yet. So those have not showed up in the backlog. So I'm less concerned about the Q3 to Q4 backlog in looking at the general trend over the year which is up 2%. But I think going into Q1 we'll see some additional adds to the backlog that will position us well for 2020.

Jacob Bout -- CIBC -- Analyst

And then the admin and marketing guidance that you've given I think 37% to 39% you're at the top end range for 2019. What are some of the moving parts there to get you into that range or to the lower end of that range?

Theresa Jang -- Executive Vice President and Chief Financial Officer

So a couple of things that we are focused on. Of course we had a lot of activity around our reshaping initiative. We have taken $40 million to $45 million of labor cost out of the system and so that will help to drive down our admin and marketing costs. A couple of things that we've spoken of over the next couple of years that we're going to focus on beginning of course in this year is around efficiency in our occupancy costs and again trying to maintain the lower level of discretionary spend that we achieved in the second half of 2019 as well. So those are some of the things that are going to help us to achieve that target range. There's always movement in our A&M so it depends on where we are in the cycle as well. We'll expect it to be toward or slightly even above the higher end of our range in Q1. That's typically because this is a slower season for us. It's when we do our training and it takes a little bit longer to get out to the field to work in the first quarter in Canada and the U.S. So we will see some fluctuation over the course of the year but we do believe that by the end of the year we'll achieve that range.

Jacob Bout -- CIBC -- Analyst

Maybe my last question here is just on the M&A pipeline. How aggressive what does that pipeline look like? And then how aggressive do you expect to be in the next say six months or over the next few years?

Gord Johnston -- President and Chief Executive Officer

Yes we certainly see great opportunities in the M&A pipeline Jacob. Primarily looking again in the U.K. the Nordics western Europe and down in Australia New Zealand. In fact I'm leaving right following our meetings here today to go down to New Zealand and Australia for some time. It's approaching the one-year anniversary for Wood & Grieve Engineers as well as to meet with staff there but also to chat with other potential firms that might want to join us down there. So it's a busy time for us. I think we'll see 2020 we'll be putting a few more acquisitions up on the board than we did in 2019.

Jacob Bout -- CIBC -- Analyst

Thank you.

Operator

Our next question comes from Mona Nazir with Laurentian Bank.

Mona Nazir -- Laurentian Bank -- Analyst

Pointing and thank you for taking my question. Morning. So firstly just on the organic growth you had significant double-digit growth in both the Environmental and the U.S. division. I'm just wondering if you could speak a little bit about the specific items that were driving such. And I know that we're early into 2020 but how is it trending thus far?

Gord Johnston -- President and Chief Executive Officer

You're right. Our Environmental Services business has been very strong putting up double-digit growth really Q2 Q3 and Q4 of this year. And that's pretty broad based both U.S. and in Canada. And we're seeing good continued backlog for that group. So I think that it will continue strong into 2020 our Environmental group. Will it be double digits each quarter? That's hard to predict but certainly we see good opportunities there. The U.S. operations as you say were very strong for us throughout 2019. And our backlog there continued to grow from the end of 2018 to 2019 the backlog in the U.S. So we're optimistic about continued organic growth in the United States in 2020.

Mona Nazir -- Laurentian Bank -- Analyst

And just to confirm it was really just broad-based growth across both the U.S. and the Environmental Services?

Gord Johnston -- President and Chief Executive Officer

Yes. And in particular Environmental Services pretty broad-based across all of our sectors in both the U.S. and Canada.

Mona Nazir -- Laurentian Bank -- Analyst

And secondly just turning to utilization which I believe you spoke about with Q2 results and that kind of commenced some of the rightsizing initiatives I'm just wondering; how is utilization trending currently in the different verticals or geographies.

Theresa Jang -- Executive Vice President and Chief Financial Officer

So I think what we're seeing in utilization Mona is that we're seeing improvement as you noted because of the reshaping initiatives that we did last year. But the other dynamic we're seeing now is because of growth in referencing and the growth in our backlog we've won a number of significant projects and so with that comes hiring of staff. And until those projects really kind of hit their stride we tend to see a little bit higher indirect labor costs and slightly lower utilization again as people are being onboarded and waiting for those projects to really hit their stride. So it's a bit of a mix that way. But again we do expect over the course of the year that that will even its way out.

Mona Nazir -- Laurentian Bank -- Analyst

And just lastly for me I know that you just spoke about the M&A pipeline. But has the current environment opened up additional targets for you at all? And I know that there have been peers in the U.S. that have had some company-specific challenges and they have construction exposure currently. Is that something that you would potentially shy away from post-MWH? Or that remains open?

Gord Johnston -- President and Chief Executive Officer

Through our construction experience with MWH I think really our conclusion is that construction isn't we don't see that being a core part of our business going forward. So as we look at acquisition targets that have a construction component to it or a turnkey component to it those are considerably less attractive for us. And in fact we would typically withdraw from that process.

Mona Nazir -- Laurentian Bank -- Analyst

Okay, perfect. Thank you.

Operator

Our next question comes from Benoit Poirier with Desjardins Capital Markets.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Yeah. Good morning, Gordon.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Good morning.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

First question on the DSO. Could you talk a little bit about what drove the strong improvement in DSO in the quarter and whether the target of 90 days is still the same or you could even do better going forward?

Theresa Jang -- Executive Vice President and Chief Financial Officer

Sure. So we were very pleased that our DSOs came in as well as it did at the end of the year. And it's really a reflection of the effort that has been throughout the course of the year. You've heard me talk every quarter about the stepped-up effort the increased focus the discussions all through the organization about tightening our DSO. And as we saw improvement in various places over the course of the year it finally felt like at the end of the year it all kind of came together. And so we did see broad improvements both in reference to the invoicing number of days as well as in the receivables piece. So that was really important. But I do want to note as well that I've talked about milestone big payments. They are a number of larger payments that we don't necessarily always have control over the timing of those receipts. But we did benefit from collecting on some of those at the end of the year as well. So that was helpful. So it is going to be somewhat lumpy. But I would say certainly we're not going to let up on our focus now that we have driven our DSO down to the level that we achieved at the end of the year. We've chosen not to change the guidance at this point but I would tell you that internally everyone is going to do their best to keep it where it is now.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

That's great color. And from an M&A standpoint could you maybe provide some colors on the key factor that were preventing you to strike some M&A deals since 2019 whether it's more valuation cultural fit or are there any changes in the M&A criteria Theresa?

Gord Johnston -- President and Chief Executive Officer

So I'll start Benoit. We're continually talking to M&A targets throughout North America and outside North America. And really just in 2019 the ones that we were talking to we either couldn't come to a conclusion on valuation because we're still being very diligent from a valuation perspective or there was some sort of a cultural issue that had popped up an employee retention issues or so on. So there really was no one reason why these things didn't close for us in 2019 other than all the firms that we were talking to we just didn't get them across the line. So we're going to continue to be aggressive here in the first half of 2020 and through 2020. So I do think we'll I'm hopeful that assuming these projects or these discussions come to fruition that we'll close a few this year.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

And when I look at the international or global segment that's the only segment that posted a negative organic growth. And when I look at the gross margin it was also softer versus a year ago. Would it be fair to say Theresa that the negative organic growth was the main factor to drive lower gross margin? And any color on what drove the negative performance on international?

Gord Johnston -- President and Chief Executive Officer

Sure. I can start on the negative on the revenue side and then Theresa can chime in as appropriate. So couple things happened in Q4 for us there. Certainly in the U.K. we're doing some work on HS2 the highspeed rail HS2. And then we were expecting even additional work to come in Q4 but as you know they did a review of HS2 in Q4 so the additional work didn't come together. We saw a little bit of slowness there. But certainly they came out in mid-February there a couple of weeks ago and recommended proceeding. So we anticipate that that work will ramp up a little bit more for us. In Chile with the civil unrest there we had our offices closed for three full days and then we were working shortened days for another three weeks. So that was a bit of a drag on the operations in Latin America. So just a few things in different locations I think that contributed to the revenue retraction. But we see those things sort of coming around and we're feeling more positive about them coming now into 2020.

Theresa Jang -- Executive Vice President and Chief Financial Officer

I'll just sort of pick up from there. We did see quarter-over-quarter in Global although it was small it was 0.6% organic growth in our global business. But we did have some offsets from the FX that brought the revenue piece down a little. And so the other piece you're asking about from a gross margin perspective so there are a few things that are occurring particularly in the U.K. that are maybe not normal course. And one of those is that we have talked about the implementation of our Oracle systems there. That is taking up a lot of time. It's a pretty big effort. And so that is having some impact on just the utilization of our employees that are very focused right now on getting that system up and running. The other piece of it too is we are of course kind of at the end of the AMP6 cycle and building up for AMP7. And so as we continue to bid for those contracts we're in a bit of that trough season right now. So those are some of the things that would be contributing to the slight reduction we saw in gross margin there.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

So when we look at the cost reduction initiatives you're well under way obviously for the $40 million $45 million that you disclosed earlier. Could you talk about the further efficiencies that you could bring at Stantec over 2020 and maybe give a little update on the ERP implementation on the status?

Theresa Jang -- Executive Vice President and Chief Financial Officer

Yes sure. So we are largely done with the reshaping initiative. There was a big effort in the second half of 2019. And so we're going to maintain our focus on staying lean as an organization. But that $40 million to $45 million as we disclosed we have achieved that. So going forward we will expect to see that reduction in our overall cost structure. So as we move into 2020 again some of the things that we are looking at in terms of our efficiency is again to maintain a lower spend on our discretionary costs. We did a lot of that work again in 2019 so it's maintaining a focus on that throughout this coming year. And as well looking at as I mentioned earlier whether it's our occupancy costs which are our second-largest cost and looking for ways that we can be more efficient in how we use space is another thing that we are looking at. So there's any number of things that we are looking at from a cost structure perspective that will help us to achieve that 37% to 39% range in our admin and marketing costs.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Congratulations for the strong quarter. Thank you.

Operator

[Operator Instructions] Our next question comes from Michael Tupholme with TD Securities.

Michael Tupholme -- TD Securities -- Analyst

Thank you. Good morning. Just wanted to circle back on the organizational reshaping. Theresa you just mentioned that it's largely done now. I just wanted to clarify though. Was that completion of that reshaping those efforts was that completed in the first part of this year such that sort of on a quarterly run rate basis we should see that as a step up in Q1 in terms of the benefits relative to what you saw in Q4? Or were the full run-rate benefits realized in the fourth quarter?

Theresa Jang -- Executive Vice President and Chief Financial Officer

No. I think you'll start to see that full run-rate benefit starting this quarter. The changes that we made in our cost structure really were completed toward the end of 2019. So we should see that over the course of 2020 spread pretty evenly. I guess the one thing that I should mention as it comes to our overall labor cost is as I mentioned earlier that as we are seeing in our cost structure this reduction in costs for the reshaping initiative the business isn't static so as we continue to win work and hire in those regions where we are growing it's not perfectly linear where you'll see a direct drop in costs. As we're bringing people on and getting them ready to go out into the field and to be deployed that utilization ramps up over some period of time. And so we're going to see some of that I think in the first quarter. I think the other thing just as we think about what our cost structure is going to look like for the year and we are confident we'll be within our 37% to 39% range but we do have a couple of things going on as I mentioned that are a little bit unusual this year. This focus on getting our systems implemented in the U.K. that's going to have an impact on our overall indirect labor costs not hugely material but it has an impact. And as I touched on earlier just the efforts now as we're bidding for work on the App7 cycle in the U.K. means pretty heavy marketing activity. And so those are costs that are a little bit higher than we would normally see for our admin and marketing costs. So there's a couple of things like that that just sort of make it slightly different than what you would typically see. But overall again for the year we're confident we'll be in the 37% to 39% range.

Michael Tupholme -- TD Securities -- Analyst

And when you talk about the opportunity to possibly consolidate office locations and achieve better efficiencies in reducing lease costs I know sometimes those types of things can take some time. So is that something you're now working on but the benefits of that is likely more to come either later this year or even into next year as opposed to something that would really benefit you in 2020?

Theresa Jang -- Executive Vice President and Chief Financial Officer

That's right. It does take some time to work through that. And over the next three years that's a focus of ours. So we may see some benefits toward the latter part of this year. And the other thing of course that comes with consolidating office space is the accounting requirements. Potentially it could take what used to be called the lease I think it's like a lease asset impairment or something like that so a nontax charge when you make changes to your occupancy and consolidate offices. And so again we're just sort of mindful of what all that what the impact is. But really from a cash cost perspective that's what our focus is is how do we become more efficient in how we use space and reduce the amount of cash outflow that relates to our occupancy costs.

Michael Tupholme -- TD Securities -- Analyst

And then just on the gross margins if we look at the full year gross margins for 2019 and 2018 both right around the 54% level so that's sort of the middle of your target range. But it you actually on page I think it's M5 of your disclosure document there's a 2017 year shown as well. And the gross margins in that year were quite a bit higher 55.5%. Just wondering if there's an opportunity or what would potentially drive you toward the upper end of that range? Is there an opportunity to see that happen? Or should we really be thinking about the middle of that range based on the way the business is right now?

Gord Johnston -- President and Chief Executive Officer

Looking at the middle of the range is probably most appropriate Michael. But certainly we're trying to find anything that we can do to drive that margin to increase that margin. And so that's looking for more innovative ways of really selling value more so than selling hours and looking for ways to do that. Looking for ways through our new Chief Innovation Officer and the work that he's doing to be able to deliver projects more efficiently. So we are continuing to look for incremental ways to increase the gross margin. But I think in the and those things will take some time. So I think probably modeling in that middle of the range around that 54% is appropriate.

Michael Tupholme -- TD Securities -- Analyst

And then just if I look at Canada on a full year basis the organic growth in Canada was fairly flat. I think you were up in the fourth quarter a little bit. But just wondering if you could talk a bit more about the outlook for Canada from an organic growth perspective in 2020.

Gord Johnston -- President and Chief Executive Officer

Sure. So in Canada as you looked at the year we were a bit flat in Q1 our organic growth dropped in Q2. And at that point we had said that we hoped that with our plan that we could kind of get back up above the line by year end. And we just did just barely snuck our head above the line there at 0.1%. And so as we look at Canada going forward we have some good project work there long-term project work. But we do see the opportunities in Canada to be a bit more muted than we're seeing in a lot of areas in the United States. Certainly a lot of great public transit opportunities and we're very involved in those where they're and those are sort of spread across the company. And we did announce some projects last year the federal labs project and buildings. And so I think there's some good long-term sustainable projects for us there. But we're hoping for a little bit better than flat for Canada for 2020. But it will certainly nowhere approach the growth that we'll see in the United States.

Michael Tupholme -- TD Securities -- Analyst

Okay, thanks for much for the time.

Gord Johnston -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Chris Murray with AltaCorp Capital.

Chris Murray -- AltaCorp Capital -- Analyst

Thanks, folks. Good morning. Thinking about your longer-term goal on return on invested capital can you kind of walk us through how you're thinking about how you get to your 10% target? You're 8.8% for the year so fairly decent. But I mean how much of this is going to be driven by kind of a natural growth rate assuming your hit your kind of 10% net revenue growth number? And how much do you think comes from having to manage the balance sheet? Lot of moving pieces. I'm just trying to think about how you guys are going to be seeing it.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Sure. So Chris it really is a combination of the things that you just mentioned. As we look at what our growth aspirations are if we're able to achieve that if we're able to deploy capital in ways that will create the best returns for us it's those things combined that we believe will drive us to achieve our likely targets. As we continue to look for ways to be more efficient and we've said that we want to see a 50-basis-point improvement in our adjusted EBITDA margin over the course of a few years so again those things collectively we believe will get us to that target.

Chris Murray -- AltaCorp Capital -- Analyst

And then I don't know who wants to take this but just thinking about the acquisition pacing and I think about where you're at right now certainly balance sheet's in great shape. You're at the bottom of your range. Feels like the DSOs should be positive through this year. But Gord thinking about call it low single-digit kind of organic just even to get to hit those sort of numbers that kind of implies you're going to have to pick up the pace on acquisitions this year. How are you feeling about the pipeline at this particular point? I think you alluded to the fact that you've got some discussions maybe coming into view in the next little while. But do you think you're comfortable in being able to hit that number? I mean we're already kind of moving into deep into Q1 at this point.

Gord Johnston -- President and Chief Executive Officer

Yes. As we look at the overall M&A really we see it as being a bit of it's a long-term game for us. We're always talking to firms looking for the right ones to join us. We're being very disciplined on those that we'll bring in the door. So we're hopeful with a number of the firms that we're chatting with right now seems to be great cultural fit great alignment with our vision for the future and theirs. And the valuations seem to be reasonable. And so with that in mind like we said I certainly hope to be able to close a few more here in 2020 than we did in 2019. Of course that was a pretty slow year for us. But you're right. The balance sheet is in good shape but certainly with that being in good shape we want to continue to maintain our discipline. And we will not stray outside the zones where we're comfortable just to do one.

Chris Murray -- AltaCorp Capital -- Analyst

Is there anything that you're finding that's holding up actually closing some of these transactions? Is there something around seller expectations or is this some concern on their part that you're seeing?

Gord Johnston -- President and Chief Executive Officer

No. No. For us though a lot of them have been either more of just about as we got close to the finish line related to valuation or early on in the discussions related to the commitment of the ownership team to stay with us and to transition their clients and their staff over to us. If someone just wants to take the money and run that's really that doesn't help us build our business for the long term. So the cultural fit is important. The valuation is important. And so we just didn't get the right folks in 2019 but we're more hopeful for 2020.

Chris Murray -- AltaCorp Capital -- Analyst

Thank you.

Gord Johnston -- President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Mark Neville with Scotiabank.

Mark Neville -- Scotiabank -- Analyst

Hey, good morning. Maybe just a few follow-up questions maybe just first on the DSO. Theresa it felt like it was sort of just three six months ago where you were sort of softening maybe your language around your ability to get it down. And then we see Q4 there's a big improvement. And I appreciate there's milestone payments but I'm just curious. Was there any sort of internally any major changes made or structural changes in the business or how you're working the accounts that could explain some of this improvement?

Theresa Jang -- Executive Vice President and Chief Financial Officer

Well it is interesting because it did obviously kind of pop at the end of the year. But really the structural changes we've made throughout the course of the year starting this time last year just driving people to be more proactive to identify what's getting in your way. What are the challenges whether it's related to our systems and our ability to invoice and all of those things? So it really has been an effort over the course of the year. And you're right. It was kind of disappointing as we closed each quarter in 2019 and we weren't seeing meaningfully sustained improvements. But as I said it really felt like that as we got to the end of the year that things did sort of work together in our favor. And so I think again as we move into 2020 it's why we're not taking our foot off the gas. We need to continue to focus and to be aggressive in our invoicing and in our collections. And we still have in certain pockets some challenges with our invoicing capabilities just because of the complexity of some of the projects that we work on and the way that we do our billings. And so there are some areas that we will have to still make improvements. So I think the goal is not just to keep it where it is recognizing that there was some uplift from these milestone payments.

Mark Neville -- Scotiabank -- Analyst

Maybe on the workforce reshaping there's been a few questions on that but maybe if I ask it another way. I'm just trying to understand sort of what's worked through the P&L thus far and what's left to sort of roll into 2020 based on what's been done. I don't know whether it's a dollar amount or basis points but help us sort of frame that if that was clear.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Yes. So the goal was to achieve annualized $40 million to $45 million in labor cost reduction. And that is what we expect to see through 2020. And it should be evenly spread through the year because those costs are now taken out of the system. And so that's the expectation. The comments I made earlier were some of the other dynamics that may reflect in increases or ebbs and flows in our admin and marketing costs. But as it pertains to that reshaping initiative that is a permanent reduction in our cost structure that we've made and should be seen evenly over the course of this year.

Mark Neville -- Scotiabank -- Analyst

I guess my question was how much incremental savings in 2020 versus 2019 from that initiative? Again I'm just trying to understand how much we've already seen versus what's left to sort of work its way through the P&L.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Okay. Well I guess when we put out our guidance in the middle of the year we expected that we would have saved maybe $15 million to $20 million for 2019. So I guess you could think of it as being that's about how much we took out. Probably less than half of that $40 million to $45 million we've seen in 2019. Does that help?

Mark Neville -- Scotiabank -- Analyst

Yes. That's exactly it. Thank you. Maybe just one last one just on the buyback notice that you did buy some shares in Jan I think Feb as well. Just curious sort of thoughts around that whether it's opportunistic if you actually have some sort of program in place where you're buying back X amount of shares per day. Just general thoughts on that.

Theresa Jang -- Executive Vice President and Chief Financial Officer

Sure. So we have not set some kind of a target or a cap on whether dollars or numbers of shares to be purchased over the course of the year. It is opportunistically based. But one of the things that we introduced last year coming out of the year was an AFPT program. So that's a program that we kind of set some parameters as we go into blackout and it's locked in over that blackout period. So that's a bit of a new dynamic and so we've been in blackout really since the start of the year as we've completed our year-end reporting. And you don't have an ability to alter your parameters once you go into blackout. And so that's a piece that is a little bit different. So the opportunity to be opportunistic let's say in those blackout periods is restricted by those parameters that you've set. But other than that no. We're just going to continue to as we look at the capital available to us as we look at the different ways that we can be deploying it the share buybacks will factor certainly into how we think about deploying our capital.

Mark Neville -- Scotiabank -- Analyst

Right. Okay. Thank you. Great job and great quarter.

Operator

There are no further questions in the queue at this time. I would now turn the conference back over to Mr. Gord Johnston.

Gord Johnston -- President and Chief Executive Officer

Great. Well thank you for joining the call today. We look forward to speaking with you during our Q1 earnings call certainly if not before then. So thanks very much everyone.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Gord Johnston -- President and Chief Executive Officer

Theresa Jang -- Executive Vice President and Chief Financial Officer

Jacob Bout -- CIBC -- Analyst

Mona Nazir -- Laurentian Bank -- Analyst

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Michael Tupholme -- TD Securities -- Analyst

Chris Murray -- AltaCorp Capital -- Analyst

Mark Neville -- Scotiabank -- Analyst

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