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Stantec Inc (STN) Q3 2021 Earnings Call Transcript

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STN earnings call for the period ending September 30, 2021.

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Stantec Inc (STN -0.64%)
Q3 2021 Earnings Call
Nov 6, 2021, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Stantec's Third Quarter 2021 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. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today's call is also webcast. Please be advised that if you have dialed in while also viewing the webcast, you should mute your computer as there is a 20-second delay between the call and the webcast.

All information provided during this conference call is subject to the forward-looking statement qualification set out on Slide two, detailed in Stantec management's discussion and analysis and incorporated in full for the purposes of today's call. Dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded.

With that, I'm pleased to turn the call over to Mr. Gord Johnston.

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Theresa Jang -- Executive Vice President And Chief Financial Officer

Good morning, and thank you for joining us. two weeks ago, we announced our agreement to acquire Cardno's North American and Asia Pacific consulting businesses, and the feedback from employees, clients and investors has been overwhelmingly positive. We had a large number of Cardno employees on the webcast the other week. And for those of you who are joining us today, we are really looking forward to welcoming you to Stantec in the weeks ahead. There's a tangible excitement about what we can accomplish together. Cardno's CEO, Susan Reisbord and I speak almost daily as we chart our path forward. And later today, Susan and I will jointly host two virtual all-staff events for Cardno employees, one for the U.S. and one for Asia Pacific.

In the United States, Cardno will increase our headcount by 15% to 10,500 people and will add 1,100 people to our Environmental Services team, increasing our presence in this space by 60%. As the world and our clients respond to climate change and environmental concerns, Stantec's Environmental Services backlog has grown dramatically in the U.S. this year. In fact, it's up over 55% since the start of the year. Expanding our environmental footprint to meet our -- meet client needs is essential. And with Cardno, we're going to double our presence compared to five years ago. In Australia, Cardno will almost double the size of Stantec's presence and provide us with a critical mass and diversity to accelerate our growth.

Year-to-date, Australia has been one of our strongest markets with the recovery from COVID well underway. Cardno's Asia Pacific operations will give us increased exposure to this rapidly growing market. So the timing couldn't be better to bring our two firms together. All told, Cardno will add 2,750 employees to Stantec, bringing our global employee count to more than 25,000 once the acquisition closes. And we expect Cardno to increase our annual net revenues by more than USD350 million in 2022. We expect the transaction to close before the end of this year, and we've already stood up our integration team and have begun the planning process so we can hit the ground running as soon as we achieve close. This week, leaders from around the world are gathering in Glasgow, Scotland to discuss climate change and the commitments required to prevent the worst global warming scenarios.

Stantec remains committed to doing our part to address climate change through our carbon neutrality and net-zero pledges. Last Friday, we announced that we wrapped a sustainability-linked loan structure around our existing credit facility, which incorporates Stantec's emission targets. As part of this new structure, we are very proud to be the first organization globally to incorporate the Bloomberg Gender-Equality Index score as a metric. We are also the first in Canada to commit to directing proceeds from our sustainability-linked loan back into our communities to further climate auction and social equity. Aligning our corporate financing strategy with our ESG performance demonstrates our commitment to live by our core value of doing what's right. And yesterday, His Royal Highness The Prince of Wales announced that Stantec was one of only 45 companies in the world awarded the Terra Carta Seal for driving innovation and momentum toward a genuinely sustainable market.

This is yet another accolade for Stantec's sustainability performance. And of note, we were the only engineering and design firm selected in the world. Beyond our commitment to ESG within our operations, we recognize that we make our greatest impact helping our clients respond to climate change. Our Climate Solutions offering is an integrated platform of more than 40 services and disciplines, spanning all of Stantec's business operating units that help clients and communities mitigate greenhouse gas emissions and adapt to our changing climate. Now turning to our Q3 results. As demonstrated by our record quarterly earnings, our business continues to perform extremely well. Organic net revenue growth for the quarter was 1.4% or 3.3%, excluding the impact of the descoped Trans Mountain Expansion Project.

This reflected almost 11% organic growth in Global and 8% growth in Canada, excluding Trans Mountain. The U.S. demonstrated significant progress toward growth as the market continues to recover and notified awards begin to move into backlog and revenue. As expected, our Buildings business unit returned to organic growth this quarter on the strength of activity in Canada and Australia. Our Infrastructure business also returned to positive organic growth this quarter on the strength of the transportation markets in our Canadian and Global geographies, and in the housing markets throughout North America. In fact, excluding the impact from Trans Mountain on our Energy & Resources Group, all of our business units achieved organic growth this quarter, all of them. And we continue to achieve growth through acquisition. In addition to our recent Cardno announcement, this week, we deepened our energy transition expertise in the Netherlands with the acquisition of Driven by Values.

This 28-person engineering and consulting firm is a trusted partner for public and private entities, navigating the transition toward sustainable energy generation, sustainable building design, energy infrastructure upgrades and e-mobility. Turning now to our results by key geography. Our U.S. operations performed largely in line with expectations, and we saw positive progress toward organic growth in the quarter. Backlog grew 5% from last quarter in native currency to an all-time high of USD2.1 billion as we began converting the surge in notified awards that we referenced in Q2. Environmental Services performed very well on the strength of both organic and acquisition growth. Thematically, permitting and planning work on power and transmission projects on both coasts dominated major project wins this quarter as utility companies continue to strengthen both the capacity and the resiliency of their grids. As we expected, we're seeing continued strengthening in Buildings.

Our Buildings group has weathered the pandemic much better than the broader building sector and the pace of our contract win in Buildings to-date in 2021 significantly exceeds our wins in each of the previous two years. This momentum is being driven by healthcare, civic and industrial processing. On the Science & Technology front, we recently signed a contract for a major 415,000 square foot pharmaceutical lab in California. Our U.S. Infrastructure, Water and Energy & Resources group all delivered in line with expectations. So we're pleased with the overall results in the quarter, and we continue to see growth in backlog and increasing organic growth as we move into 2022. And anticipation for the U.S. infrastructure stimulus bill only adds to our optimism. Our Canadian business had another excellent quarter, achieving 8% organic net revenue growth, excluding Trans Mountain.

Buildings continues to deliver robust growth on strong volume from major projects as healthcare sector work on the St. Paul's Hospital in Vancouver and other large hospital projects in Saskatchewan and Ontario continues. Beyond healthcare, we're seeing continued strength in civic and mixed-use projects that are focused on revitalizing and repurposing existing commercial properties in Canada and its inner cities. Sustainability is also a key aspect of our recent win with Ontario Power Generation to design their new corporate campus. This mass timber constructed corporate campus will leverage technology and innovation to enhance collaboration and achieve sustainability and net-zero carbon goals. Infrastructure continued to be very strong in Canada, led by double-digit growth in community development, thanks to strong performance in the West and in Ontario.

Transportation spending is also very healthy in Canada with a number of large-scale transit and infrastructure projects like our recent win on the extension of Toronto's Waterfront East LRT transit connection to fulsome. Environmental Services continues to see growth in Canada, where we benefited from work on a light rail transit project in Ontario and started permitting work to support projects like the city of Edmonton's Metro Line Northwest. In addition to this work, Stantec has recently been awarded a groundwater monitoring program to support Shell's carbon capture and storage project in Central Alberta. Beyond strong organic momentum in mining and Power & Dams, energy transition continues to build momentum for our energy and resources team, who are now working with Tidewater renewables to design the first commercial scale renewable diesel and hydrogen facility in Canada. Stantec is also currently working on some of North America's largest solar and wind projects.

Like Canada, Global delivered excellent results in Q3 with a 20% increase in net revenue, driven in equal parts by organic and acquisition growth. Of note, our focus on growing and diversifying in Australia and New Zealand has resulted in solid growth in virtually every sector. In Australia, GDP and employment rates are already above pre-pandemic levels, and this is driving solid growth in our global Buildings practice, particularly in healthcare. And this is reflected in our recent win for mechanical and acoustics engineering services for the new Shellharbour Hospital in New South Wales. This new hospital will provide critical care to a large number of surrounding indigenous communities. Organic growth in water continues to be driven by the robust activities under the AMP7 programs in the United Kingdom and Ireland as well as water frameworks in Australia and New Zealand.

Transportation's double-digit growth was driven by strong performance in Australia and New Zealand. We see continued growth for transportation with several recent wins, including a four-year multi-disciplinary services framework for roads-based transport in Scotland and our decarbonization project with KiwiRail in New Zealand. Our strong results in global Energy & Resources group were driven by mining, where strong commodity prices continue to fuel strong demand. Overall, we're very confident in the continued strength of the Global business. I'll now turn things over to Theresa to review the quarter's financial results in more detail. Thank you, Gord, and good morning, everyone. We delivered record adjusted EPS in the quarter. Adjusted EBITDA was largely comparable to last year but higher on an FX-neutral basis. Within adjusted EBITDA, we expanded gross margin by 200 basis points with stronger project execution and a shift in project mix to higher margin work.

This was offset with higher administrative and marketing expenses due to our increased business development efforts on major programs and bids. As well, share-based compensation expense increased significantly compared to Q3 2020, in part due to our increased share price. The impact of our share-based compensation revaluation was $5 million or 54 basis points as a percentage of net revenue. So after this factor, our adjusted EBITDA margin would have been 17.3%, matching last year's margin. Our 2023 Real Estate Strategy remains on track to deliver $0.10 in adjusted EPS by the end of this year. IFRS 16 has eliminated the visibility of how impactful our Real Estate Strategy would have been to EBITDA. But for reference, we estimate that on a pre-IFRS 16 basis, our real estate optimization would have expanded our EBITDA margin by roughly 40 basis points.

However, the value generated is very clear when you look at the material growth in our net income and EPS, which has been further augmented by our debt and tax management strategies. Collectively, these efforts contributed to record Q3 adjusted net income of $80 million, which is a 15% increase over last year. Adjusted diluted EPS increased 16.1% to a record $0.72 per share. Our balance sheet remains strong. At September 30, net debt to adjusted EBITDA was 0.8 times, below our targeted range. And as previously announced, we intend to fund the Cardno acquisition using a combination of cash on hand and drawings from our credit facilities.

We expect to remain well within our leverage target range on close, and to deliver toward the low end of our target range by the end of 2022. Day sales outstanding was 81 days at quarter end, which is up from Q2, largely due to timing and seasonal factors, but DSO was down by one day compared to the same time last year. Free cash flow year-to-date was $101 million, down from last year was about 1/3 of the reduction due to the effects of foreign exchange and the balance reflecting changes in revenue and working capital. And as I mentioned earlier, our $800 million facility is largely undrawn at the end of September, providing us with sufficient room to fund our acquisition growth aspiration.

And with that, I'll turn the call back to Gord for his closing remarks.

Gord Johnston -- President And Chief Executive Officer

Thanks, Theresa. Stantec delivered another great quarter with record earnings and a return to organic growth, and we're looking to finish the year strong. Looking forward, we remain very optimistic about the United States. In addition to increased infrastructure spending on the horizon, our focus on growing our U.S. federal exposure has resulted in a significant step change in our market share of federal IDIQ programs this quarter. We are now supporting 10 times the total IDIQ framework value that we were a year ago.

We expect both our increased presence at the federal level and future infrastructure stimulus to further bolster our U.S. backlog, which already achieved record levels this quarter. Add to this the strength we are already seeing in our Canadian and Global operations and the positive benefit from Cardno and our other recent acquisitions, and we see strong tailwinds as we enter 2022.

And with that, I'll turn the call back to the operator for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from Frederic Bastien with Raymond James.

Frederic Bastien -- Raymond James -- Analyst

Hi, good morning. Guys, you highlighted an increase in business development costs, which was to be expected with the economy slowly reopening. Just wondering whether those activities are back to pre-pandemic levels or you're still seeing a -- sort of a gradual ramp-up over the next few quarters?

Gord Johnston -- President And Chief Executive Officer

Yes. Frederic, great question. Those -- the -- those BD costs are not yet back to pre-pandemic levels, where travel is restricted -- not restricted, but it's a lot slower than it was previously. And we see that sort of being the same for the remainder of the year and certainly into the early part of next year. There is some demand now for our people to get out and meet with clients again, for our people to go to a conference or a trade show to be -- to elevate our position there again, but it certainly remains below pre-pandemic levels. And in fact, even as we think into next year, we see that staying the same.

Frederic Bastien -- Raymond James -- Analyst

Okay. Great. I guess maybe a question that's related to that. I mean, you -- we saw organic growth return to positive territory in the U.S., but it was slightly lower than what I was expecting anyway. Just curious as to sort of the ramp-up that you're seeing over the next couple of quarters. I mean, when do you expect this organic growth to really resume in the healthy territory?

Gord Johnston -- President And Chief Executive Officer

Well, in the U.S. in particular, Frederic, or overall?

Frederic Bastien -- Raymond James -- Analyst

No. I mean, there's absolutely nothing wrong with the other regions as you've demonstrated. Just curious about the U.S. specifically.

Gord Johnston -- President And Chief Executive Officer

Yes. So in the U.S., a couple of things of interest. Our overall backlog in the U.S. is up over 10% year-to-date. And specifically, a couple of things that are interesting. I mentioned earlier that our Environmental Services backlog it was -- is up over 55% in the year, again, further supporting the addition of Cardno. And our Energy & Resources backlog, a lot of that in the renewable power space, is up over 40%. Couple that with our -- the IDIQs for the U.S. federal government.

Again, those are not included in backlog because those are task order-driven going forward. That's up over 10 times what it was previously to well over $1 billion. So lots of good opportunities there. And then couple that with the infrastructure stimulus bill on the horizon, and we'll -- my gut says the U.S. will get above the line in Q4. But if it doesn't in Q4, Frederic, we see strong, strong tailwinds as we go into 2022.

Frederic Bastien -- Raymond James -- Analyst

Okay. Good to hear. My last one relates to Trans Mountain. When did it start -- or at least when the descoping happened, I'm just curious when it will start eating into the organic growth in Canada?

Gord Johnston -- President And Chief Executive Officer

Yes. Frederic, I -- nothing will make me happier than in Q1 of next year when we don't have to reference it anymore. So the descoping, the way we change was started in January one of this year. So Q4, so next quarter will be the last time we'll have to reference anything to do with the impact on growth from Trans Mountain.

Frederic Bastien -- Raymond James -- Analyst

Thanks Gord. pass it on.

Operator

Our next question comes from Yuri Lynk with Canaccord Genuity.

Yuri Lynk -- Canaccord Genuity -- Analyst

Good morning. I wanted to follow-up, I guess, on Frederic's question on organic growth. I'll ask it a bit of a different way. I mean, you're still guiding to 1% to 5% organic growth in 2021. I think to get there, you're going to need double-digit organic growth across all three segments. So is my math off or how should we think about organic growth, particularly in the United States in the fourth quarter?

Gord Johnston -- President And Chief Executive Officer

Yes. So in the United States, overall, in the fourth quarter, we are expecting sort of organic growth to be positive. But as we look at overall -- at the business, to your point, what we've seen that -- the year is kind of unfolding as we expected. We've seen a little bit better organic growth each quarter, returning to positive growth here in Q3. It's interesting as you look at some of the segments that we've got.

Waters had positive organic growth for the last 10 quarters, our Environmental Services business returned to organic growth in Q2, Buildings and Infrastructure returned to organic growth this quarter, and certainly, Energy & Resources without Trans Mountain also returned to positive growth this quarter. And so we see that continuing into Q4. Will Q4's organic growth be enough to bring everything above the line for the year? I don't know, I haven't penciled that out. But I think what's really important is that for 2022, we're ideally set up with the backlog and the opportunities that it is really going to be strong going forward.

Yuri Lynk -- Canaccord Genuity -- Analyst

So how should I think about then that 1% to 5% organic growth guidance for 2021?

Gord Johnston -- President And Chief Executive Officer

And certainly, it is a range of -- and we would see -- if we were to get there, it would be near the lower end of that range.

Yuri Lynk -- Canaccord Genuity -- Analyst

Okay. So what kind of tax rate should I be thinking about for 2022? And if you could give me that number with Cardno that would be even better.

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. So for 2022, we have not put our guidance out yet, and particularly what it might look like with Cardno. So that work is still underway. I don't expect generally that there will be like a significant increase relative to this year. I think what we've seen this year ought to also hold true for next year. So I don't expect a significant change. But again, we'll have to confirm that at the end of the year -- at the end of February when we actually do roll out our guidance.

Yuri Lynk -- Canaccord Genuity -- Analyst

So that would be that 22% to 23% range?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. I think that's a good working assumption at this stage.

Yuri Lynk -- Canaccord Genuity -- Analyst

Thank you. I turn it over.

Operator

Our next question comes from Jacob Bout with CIBC.

Jacob Bout -- CIBC -- Analyst

Good morning. Yes. I'll start off with the timing of the Cardno closing. I know you expected that this is going to close by year-end. Other than the shareholder vote December 6, what other hurdles, regulatory or otherwise, stand in the way?

Gord Johnston -- President And Chief Executive Officer

The -- there are a few customary approvals that we need to get done in the U.S., but Jacob, I don't think there's anything there that would impede close. The main one really is that their shareholder vote on December 6. So assuming we closed very soon after that, we don't see a -- just like the -- I don't know that we'll see a huge amount of revenue from Cardno coming in, in Q4. Say they come in middle, a little earlier than that in December, and then we go into Christmas. So we just wanted to -- as we were thinking about it, just try to walk that through.

Jacob Bout -- CIBC -- Analyst

Okay. Second question here is just on the award notification conversion. I know there was quite a bit of talk about the last couple of quarters with that $1.2 billion in award notifications. How much of that is converted to backlog? And then -- or are we still waiting for this U.S. infra buildup parts and how quickly would that conversion happen post the infra building costs in your mind?

Gord Johnston -- President And Chief Executive Officer

Yes. So we -- one of the things we mentioned last quarter, some of that sort of soft backlog, half of it was in the U.S., and it has really begun to convert because we already saw 5% growth in backlog in the U.S. in the quarter, again, taking us to an all-time record high in U.S. dollars of little over $2 billion. And none of that is dependent on U.S. stimulus because we haven't factored any of that in yet. So very, very healthy. In fact, record backlog in the U.S., even absent the U.S. stimulus program.

Jacob Bout -- CIBC -- Analyst

Thank you.

Operator

And our next question comes from Michael Tupholme with TD Securities.

Michael Tupholme -- TD Securities -- Analyst

Thank you. Good morning. Can you provide an update on the 2023 Real Estate Strategy? It seems like it's progressing to plan, but any updates there? And then also, what -- to what extent that benefited EPS in the third quarter?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Sure. So generally, the plan is going really well. We've done a lot of work in terms of addressing the lease base that we have and how we will work through that over the next couple of years. So with 2021, we had indicated that we would expect to generate about $0.10 per share for the year, and we are certainly on track for that. And so in Q3, that would have been about $0.025 per share that, that strategy has generated. The remaining $0.25 to $0.30 that we indicated would come beyond the $0.10 is, as I've noted previously, more back-end loaded.

That will come toward the end of 2022, more into 2023. And again, there's just -- it's positioning, identifying where those leases are, understanding where our overall flexible workplace plan is with people reentering the office and the choices they're making around how they want to work. So overall, yes, we're really pleased with how that's going. We think it was a really positive move for us, not just from a P&L perspective, but in terms of engaging our employees, giving them a choice in how they want to do their work and as well from an overall emissions reduction standpoint. So it's just a really positive program for us and is on track.

Michael Tupholme -- TD Securities -- Analyst

Okay. That's great. The margins in the quarter were quite strong. Do you see the margin strength you saw this quarter as being sustainable? And you talked about mix benefiting the gross margin. Is the current mix something that you see as representative of what we should expect going forward?

Theresa Jang -- Executive Vice President And Chief Financial Officer

I certainly think that the -- from a gross margin perspective, it's continued to strengthen over the course of this year. And we are being really focused and diligent in our review of projects and the ones that we choose to take on. So we do feel like where we are at today is really healthy, and that's certainly what we would aspire to achieve going forward as well.

And then from an EBITDA perspective, we continue to benefit from much lower discretionary spending than we've typically seen, but we're also managing to keep our overall cost down. So as we round out the rest of this year, typically Q4, the margin compresses somewhat just because of the holiday season. And so don't have as many chargeable hours with the holidays particularly in North America. But I think we're really pleased with where our EBITDA margin is coming out.

Michael Tupholme -- TD Securities -- Analyst

Okay. That's great. And then just lastly, looking at Canada's organic net revenue growth, I know it would be higher were it not for the Trans Mountain drag. That said, organic net revenue growth slipped to 1.1% in the third quarter whereas it was closer to 6% in the second. I'm just wondering if you can comment on the driver behind that pullback quarter-over-quarter.

Gord Johnston -- President And Chief Executive Officer

Yes. And also, you're right, without Trans Mountain, that would have been 8%. So certainly has a -- that Trans Mountain continues to have that sort of an impact and we're actually really looking forward to when we don't have to reference Trans Mountain anymore here. One more quarter, and then that will be clear of the -- of our results.

Michael Tupholme -- TD Securities -- Analyst

Okay. Fair enough. I guess I'm just wondering though, the Trans Mountain impact was in there both in Q3 and Q2. So just looks like it was a bit softer in the third quarter. Just wondering if there's anything kind of behind that.

Gord Johnston -- President And Chief Executive Officer

Nothing in particular. Our -- the Buildings group continued to roar ahead with a number of the big hospital jobs. Infrastructure, both land development and transportation, was very, very strong. I do think that we're getting some new projects going in our Environmental Services group. We mentioned -- sorry, Energy & Resources group, we mentioned Tidewater. So some of these projects were just starting up in the quarter as well as some of the ES projects that were, again, just starting up, the some of the carbon capture projects for Shell and so on. I think that was probably just a quarterly blip as the number of projects we're restarting.

Michael Tupholme -- TD Securities -- Analyst

Okay. Thanks for the details.

Operator

Our next question comes from Chris Murray with ATB Capital Markets.

Chris Murray -- ATB Capital Markets -- Analyst

Yeah thanks folks, good morning. Maybe just kind of continuing on this theme, maybe a different way to ask the same question around Canadian growth. So Gord, ex TMX, you're running an 8% clip in organic growth. Is that -- does that feel sustainable to you as we go into 2022?

Gord Johnston -- President And Chief Executive Officer

I do think that Canada and Global got off to a stronger start as we emerge from the pandemic. You can look like in our -- ex TMX, Canada Q -- 8% in Q3, Global 10% -- a little over 10% organically in Q3. I think that those started earlier. So yes, we said that certainly, yes, we saw great growth in Canada and Global, both to an early jump out the gate here in 2021, U.S. a little bit slower. So I suspect that next year, we'll see a little bit lower organic growth numbers in Canada and Global, but much stronger in the United States.

Chris Murray -- ATB Capital Markets -- Analyst

Okay. That's fair. And then to the U.S., I mean, one of the things that's interesting about Cardno is their security business with the U.S. federal government, and I think that's an area that you don't really participate in now. I think it's actually a closing item for that transaction. Can you talk a little bit about the impact that you're thinking about -- around growth in that business? And how you can leverage existing Stantec services into that business? And what -- I would assume that because of the exclusivity of being in that world, the margin profile should be a little bit better. But any thoughts around that would be helpful.

Gord Johnston -- President And Chief Executive Officer

Yes. That secure area of business, DoD type work, is a particular interest for us. And we're still learning more and more about it. But to your point, there are great opportunities there to expand the Stantec service offerings into it. In terms of overall margins and in terms of the overall size of that, I think we're still truly just kind of wrapping our heads around what that would be. And so we probably have a better clear -- better picture to give you a little bit more clarity at Q4 earnings call.

Chris Murray -- ATB Capital Markets -- Analyst

Okay. Fair enough. Thanks folks.

Operator

And our next question comes from Benoit Poirier with Desjardins Capital Markets.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Just to come back on the organic growth for the full year, still maintaining the guidance, although you commented about the expectation for Q4. However, when we look at cost containment efforts and the gross margin improvement, am I right to say that the focus is more on the EPS growth. And given those strong margin improvement, it's less dependent on your ability to achieve the high end of the organic growth range?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. I think that's right, Benoit. I mean, just back on the outlook for organic growth for the rest of this year, as Gord indicated, I mean we do expect the continued push toward organic growth for the quarter in Q4. And then for the whole year, where that lands us in that range for the full year, we do expect it will be toward the lower end of that range. But I kind of reiterate too, I mean, that is why we provide a range. And I think it's a bit of a reminder as well that a range, at least as we think about it, doesn't necessarily mean that you gravitate to the middle of it.

I think we provide a range so that we can give a sense for a range of outcome and so that would be kind of where we sit and what we're thinking about at this point. But to your question about EPS growth, that absolutely is our focus. And of course, revenue growth is going to drive EPS growth, but there are so many other factors that we are focused on in delivering the EPS growth that we've been actually, I think, quite successful on. And so that is better gross margin, but it's also around our EBITDA, our cost containment. It's the strategies we've employed around real estate that have really made like a meaningful contribution to EPS. So it is all of those things together that we are very focused on, that we are looking at driving our stronger metrics up from a bottom-line perspective. And that is a reflection of how we think about running this business.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. And in the MD&A, you mentioned that employees are in the process of returning to the office. I was just wondering if employees' preference has changed toward work from home versus the initial expectation for the plan.

Gord Johnston -- President And Chief Executive Officer

It's interesting that we've seen over the pandemic because there's been a couple of times where we said, OK, let's all go back in as of after Labor Day. And then, hey, everybody stop, don't -- everybody go home again. And so I think a little bit of this -- these waves of get ready to come in, OK stop, get ready to come, OK stop. But we have seen -- we track on a weekly basis, sort of reentry. We are seeing more and more people coming back to the office, more and more people saying that they're looking forward to coming back to the office. So I think in general, our overall real estate strategy in terms of the discussions we had with employees remains sound. And then we'll just have to -- it's different by different regions as well.

Even by country, it is different. Some areas, for example, in the United States that are in urban areas, large cities, where people -- lot of people travel public transit. We have a little bit less people coming back to the office as a percentage basis than we would in a smaller center where you park in the parking lot and walk into the building without needing to go in an elevator or public transit. So we're seeing some of those things. We're -- and so we're just continuing to monitor and talk to folks, but we still remain confident in our overall real estate strategy.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. That's great color, Gord. And with respect to the overall labor shortage, wage increase, could you maybe provide some color on how it impacts organic growth, whether it will provide -- how much of the boost it could provide on organic growth going forward as you pass-through those price increase to customers?

Gord Johnston -- President And Chief Executive Officer

Sure. So a couple of things there. Firstly, about just the staff comp numbers. We always find there that the best way to keep your staff counts high is to not be losing people. And we've always talked about -- since the pandemic began about how we've been increasing communication and ensuring that our employees felt connected to each other and to Stantec through the overall pandemic. So we did actually just conduct an employee engagement survey in the fall and able to compare our results to pre-pandemic numbers.

And it's interesting that our overall employee engagement score rose by almost 6% since the last survey, whereas globally, overall firm's engagement scores have fallen through the pandemic. So we're very pleased by that level of engagement we've got and the Delta to our overall industry. But one of the things we've often talked about is that our voluntary turnover rates are always 2% to 3% below industry average. Certainly ours fell during 2020, but everyone else's did as well. But now that we're coming out, certainly, our voluntary turnover rates have risen, but they're still a couple of percentage points below where they were before the pandemic.

So we still -- we read in the paper about the great resignation and so on but -- and we're seeing some pressure there, but certainly, again, still below the levels that we were pre-pandemic. And then -- so what our hope is that through this sort of period of uncertainty, that we'll be a net importer of having people join us and continue to grow rather than losing more people than that. But it absolutely is top of mind and something that we're talking about every day. And then from a salary pressure perspective and how that might impact margins and things going forward, there absolutely no question is salary pressure.

In many of our contracts, we do have a cost of living increase to them, but certainly, not all of them. So as we go into next year, we don't anticipate a significant impact to margins but it's possible that we might see some -- particularly in the first half of 2020, but you certainly can never say never and we don't anticipate it to be significant, but there could be some impact there.

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Okay. Thats great caller. Thanks very much for the time

Operator

Our next question comes from Sabahat Khan with RBC Capital Markets.

Sabahat Khan -- RBC Capital Markets -- Analyst

Great, thanks and good morning. Just wanted to get a little bit more color on what you're seeing in the U.S. We're hearing from a lot of your peers as well recently that the clients there are taking a bit of a wait and see approach, and I think you indicated that continues into late this year. Can you maybe share a little bit of color on what you're seeing in public versus private customers? And it sounds like infrastructure was one of the one where there was some caution. But what are people really -- I guess, is it, hey, look, we'll proceed with these projects if the infrastructure bill comes to do? Or is it the quantum of spend? Just want to get a bit more color on the dynamics in that region.

Gord Johnston -- President And Chief Executive Officer

Yes. Interesting that we've seen backlog growth in all of our business operating units in the U.S. with the exception of Infrastructure on a year-to-date basis. And I think that's because from an infrastructure perspective, while we're -- there's still jobs coming out, where people are still taking a bit of that wait and see attitude toward -- as you mentioned, toward the infrastructure build. In particular, we called out in the prepared remarks, the energy transition and a lot of work from electrical transmission and distribution companies strengthening their grids, replacing grids, relating to both year -- we've got over a -- for year-to-date, sorry, over a 40% backlog increase in our Energy &

Resources business and over a 55% increase in our Environmental Services business. So pretty significant there. So -- but a lot of that backlog growth we're seeing, certainly some in the public sector, but we are actually seeing the private sector begin to -- we've talked there things like -- with e-commerce facilities, distribution centers, electrical utilities and the like. So I think that we're seeing solid growth, again, over 10% backlog growth in the U.S. year-to-date. But I think that's only going to increase once the U.S. stimulus -- infrastructure stimulus bill hits.

Sabahat Khan -- RBC Capital Markets -- Analyst

Okay. Great. And then just, I guess, on your two other markets that are going pretty well, the Water and Environmental Services. Just want to get your perspective on -- is this more of, at this point, is just a bit of a rising tide going on in those two end markets? Are you capturing share in the Water market because of your positioning there? I just want to understand how long this sort of elevated level of growth in those two end markets can continue? And your thoughts on those two businesses as we head into 2022 and you lap some of these numbers.

Gord Johnston -- President And Chief Executive Officer

Sure. So certainly, from a Water perspective, we mentioned that we've seen organic growth in each of the last 10 quarters in our Water business. And so we're very strong in that business. Certainly, we've talked about some of the long-term framework awards in Australia, New Zealand, the U.K., a lot of opportunities, certainly in the U.S. and Canada, U.S., in particular, from a coastline hardening, coastline protection perspective. So long term, we continue to feel good about our Water business. And the other one was Environmental Services?

Sabahat Khan -- RBC Capital Markets -- Analyst

Yes.

Gord Johnston -- President And Chief Executive Officer

And so -- yes. So our Environmental Services business, sorry, is also very strong. Again, overall, in our ES business, we've seen over 40% backlog growth year-to-date, 55% in the U.S., well over 40% overall. So a lot of continued good work there. So we do think from both an ES perspective and a Water perspective that we are gaining market share.

Sabahat Khan -- RBC Capital Markets -- Analyst

And just I guess as we head into '22, I guess, could we expect this level of just elevated growth to kind of continue into next year? Or do you see it more normalizing toward sort of like broader industry growth rates?

Gord Johnston -- President And Chief Executive Officer

Right now, we -- as we're talking to our clients, there still seems like there's a lot of work coming out. But I think it'd be hard to anticipate that we'd be getting, in our environmental group from an overall basis, in excess of 40% backlog growth on an annual basis, would be pretty hard to imagine. But what I do see next year is that backlog converting into revenue, very similar to Energy & Resources and some of the other groups. So we feel quite positive about those verticals going into next year.

Sabahat Khan -- RBC Capital Markets -- Analyst

Great. Thanks so much for the caller.

Operator

And our next question comes from Maxim Sytchev with National Bank Financial.

Maxim Sytchev -- National Bank Financial -- Analyst

Hi, good morning everybody. Gord, actually, maybe just kind of building on this comment around backlog. I'm curious if there is anything structural in terms of the projects that you run right now, that the conversion rate would be maybe different versus history? Or how should we think about it? Because, I mean, obviously, when you talk about 40% backlog jump, people will assume that there is going to be commensurate sort of revenue growth, but clearly, is the duration of these projects is a bit different? Can you provide maybe any color on that?

Gord Johnston -- President And Chief Executive Officer

Yes. Not seeing so much from a duration perspective, Max. I do think that in the U.S., we have seen projects a little slower to convert from backlog to revenue. It just seems to be not just from a Stantec perspective, but a bit of an industrywide phenomenon. Just people are getting the work out there, but a little slower to get the jump on things going. So it's our hope and based on our discussions with our clients that will -- some of those things will get going, the latter part of this year, but really into the first half of next year.

Maxim Sytchev -- National Bank Financial -- Analyst

Okay. But there was nothing structural in terms of kind of duration convertibility relative to what you would have seen historically, right?

Gord Johnston -- President And Chief Executive Officer

No. Not at all.

Maxim Sytchev -- National Bank Financial -- Analyst

Okay. And then also I was wondering, we talked in the past a lot about AMP programs in the U.K. Just curious right now, is there like any significant rebuild cycle coming up or everything is sort of status quo for the next, let's call it, 12 to 15 months?

Gord Johnston -- President And Chief Executive Officer

Yes. No, I think that with the typical AMP cycle, and there is about a 12% capital increase in this AMP cycle over the previous. So that will roughly translate into our fee growth as well. No, there's nothing structural there. We tend to ramp-up in year one, year -- then the next couple of years are sort of just years of continuous design and having things going, and that's where we are now. So we kind of expect our performance on the AMP cycle jobs to -- for 2022, 2023 to be pretty stable, actually.

Maxim Sytchev -- National Bank Financial -- Analyst

Okay. Super helpful. And maybe just last question for Theresa, if I may. Just when you talk about tax strategies' optimization, how should we think about this? Is this sort of a permanent change? I guess that's the first question. And do you mind maybe sharing what exactly you guys are doing on this front, if you can disclose that?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. So it's hard to go into detail, Max, around what some of the various strategies are that we are employing other than to say that they are all sound and completely permissible within legislation around the world. And so what we effectively try to do is optimize -- given the geographic locations that we operate in, is to try and optimize the taxes that we incur in those various jurisdictions. And so the various strategies that we use typically do have a tax -- or kind of a horizon to them.

And in particular, now with some of the strategies we have given discussions around U.S. tax reform and other proposed changes globally to taxes, there is a potential that some of the strategies that we have in place may not be as long-tailed as we would have expected. So it's something -- it's too early to say. I think we feel -- again, we haven't given guidance for next year but at this stage, we don't think there's going to be a material change next year. Beyond that, we're going to have to monitor and see what happens with changes in cash legislation.

Maxim Sytchev -- National Bank Financial -- Analyst

Right. And sorry, and the minimum tax requirement kind of globally that some taxes$50:16 are pushing for right now, would that have any effect in terms of how you're going to be approaching tax rates or not at all?

Theresa Jang -- Executive Vice President And Chief Financial Officer

So that's -- I think you're referring to the 15% minimum corporate tax globally, that's being discussed by the OECD. We don't think that, that will, as we currently understand it, have a significant impact on us. And again, those rules that they're bringing in are really to try and capture organizations that are trying to take advantage of the lower tax rates of where they really don't have operations.

And that is different from Stantec's approach, where we do carry on economic activity in the countries where we are taxed. And so we don't see a big impact to us. But again, that hasn't been fully written yet. And so you never know for sure until they've actually got the words down on the page, and you've had a chance to review it.

Maxim Sytchev -- National Bank Financial -- Analyst

Thank you so much.

Operator

Our next question comes from Ian Gillies with Stifel.

Ian Gillies -- Stifel -- Analyst

Morning everyone. I wanted to start with the backlog. You noted in the release, I believe, you saw 30% increase in the Environmental Services backlog year-over-year. Cardno is obviously going to have a material increase in that once it gets consolidated into Stantec's operations. Can you talk a little bit about what that may do to the business' margin profile moving ahead and how we should be thinking about that?

Gord Johnston -- President And Chief Executive Officer

When you look at the Cardno business in the U.S., largely environmentally focused, their backlog is in order, is in the same sort of range as ours. We have about 12 months backlog. I think they have roughly 11. But it has -- I think as we've noted that the -- their margins in the U.S. are actually even a bit stronger than ours. So I think as we add these two groups together, backlog will be similar, and then margins will be similar, if not slightly strengthened in the Environmental group.

Ian Gillies -- Stifel -- Analyst

Okay. That's helpful. The other thing I wanted to touch on was revenue per employee on a consolidated basis. I mean, it's kind of inching back up to where it was pre-pandemic. Do you think you can get there? And has there been any new process put in place where maybe you get a bit better, so the need for people isn't quite as high as one might think?

Gord Johnston -- President And Chief Executive Officer

They're -- you're right, that revenue for employee continues to creep up. And I don't see any reason why we won't get back to -- sort of to where we were. There are a number of things that come through our innovation program where we're looking to continue to be more and more efficient. Design automation tools and the like to make ourselves become more efficient. So I do think there's some opportunities to -- as we go forward to potentially even increase that revenue per employee, even squeeze a little bit more out of it. But we're still working through incrementally how much that might be. But certainly, it will increase both our competitive positioning as well as potentially the margin as well.

Ian Gillies -- Stifel -- Analyst

Okay, thats very helpful. Thats all for me. Thank you very much.

Operator

[Operator Instructions] Our next question comes from Troy Sun with Laurentian Bank Securities.

Troy Sun -- Laurentian Bank -- Analyst

Good morning. Gord, maybe just a first question. I'm wondering, Gord, if you can make some incremental comments on the Australian market. Obviously, appreciate the fact that the GDP and employment data is back to pre-pandemic levels now. Just given how the geography is coming out of very strict COVID restrictions, how should we be thinking about the organic growth profile for that region in 2022? And knowing that you've doubled the headcount in the country as well, what's sort of a reasonable assumption for mid-term growth profile for Stantec in the region, please?

Gord Johnston -- President And Chief Executive Officer

Yes. Great. We haven't provided guidance for 2022. So it's a little hard to comment on that. But you know what, a couple of things though I could comment on is that when we combine our teams, transportation will be the largest group that we -- one of the largest groups that we have down there. And certainly, huge transportation funding opportunities there. They've announced roughly AUD118 billion in transportation funding. Also very, very strong in Water. We're already very strong from a Stantec perspective, and we look to continue to grow that.

Certainly, with some of the higher -- the commodity prices high, mining continues to grow. And certainly, great opportunities to continue to grow our environmental business. So we feel very, very good about Australia and New Zealand for the remainder of Q4, but also going into next year, great tailwinds there. The strengthening of the size of our team, expanded client relationships and such that we'll get in Australia, I think is going to situate us very, very well for continued growth.

Troy Sun -- Laurentian Bank -- Analyst

Great. That's super helpful. And maybe just switching gears, quick question for Theresa. Appreciate the color on the decrease on the lease depreciation from the Real Estate Strategy there. Is it fair to expect that line item to continue to trend down in the near future?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. For sure. That -- as a part of the overall Real Estate Strategy is where -- with IFRS 16, those costs do reside now in the depreciation and interest lines. And so as we continue to execute on our strategy, that reduction should be realized in those line items.

Troy Sun -- Laurentian Bank -- Analyst

And sorry, Theresa, just to confirm. So from the Real Estate Strategy itself, like you're expecting the impact on legacy EBITDA to be 40 basis points, right?

Theresa Jang -- Executive Vice President And Chief Financial Officer

Yes. Well, what I said was for the quarter. And I think for year-to-date, it's actually a little bit higher on a pre-IFRS 16 basis. Yes, that would have been a 40 to 50 basis point uplift in pre-IFRS 16 EBITDA margin.

Troy Sun -- Laurentian Bank -- Analyst

Okay, great. Thats all for me, thank you.

Operator

And that concludes today's question-and-answer session. Mr. Johnston, at this time, I will turn the conference back to you for any additional or closing remarks.

Gord Johnston -- President And Chief Executive Officer

Well, great, I just wanted to say to everyone, thanks again for joining us on the call today. We look forward to speaking with you in the near future about our continued progress. So have a great day, everyone.

Theresa Jang -- Executive Vice President And Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Theresa Jang -- Executive Vice President And Chief Financial Officer

Gord Johnston -- President And Chief Executive Officer

Frederic Bastien -- Raymond James -- Analyst

Yuri Lynk -- Canaccord Genuity -- Analyst

Jacob Bout -- CIBC -- Analyst

Michael Tupholme -- TD Securities -- Analyst

Chris Murray -- ATB Capital Markets -- Analyst

Benoit Poirier -- Desjardins Capital Markets -- Analyst

Sabahat Khan -- RBC Capital Markets -- Analyst

Maxim Sytchev -- National Bank Financial -- Analyst

Ian Gillies -- Stifel -- Analyst

Troy Sun -- Laurentian Bank -- Analyst

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