Welcome to Stantec's fourth quarter and year-end 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 investor section at stantec.com. Today's call is also webcast. Please be advised that if you are dialed in while also viewing the webcast, you should mute your computer as there is a 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's management discussion and analysis, and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in CAD and are generally rounded.
With that, I'm pleased to turn the call over to Mr. Gord Johnston. Please go ahead, sir.
Good morning, and thank you for joining us today. We're very pleased to report our Q4 and full year 2021 results, which reflect the solid execution of our multi-year strategy. We grew our global employee base by around 15% through strategic acquisitions. We saw an increase in our employee engagement scores from pre-pandemic levels, and our financial performance was strong. For the year, we delivered record earnings per share, both on an adjusted and on an as reported basis on stronger margins, the ongoing execution of our 2023 real estate strategy, and lower taxes. Net revenues of CAD 3.6 billion approximated the prior year, and on a constant currency basis, increased by roughly 3%. Excluding Trans Mountain, every one of our business operating units had flat or positive organic growth in Q4.
Sequentially, we had improving organic growth in each quarter of the year, with Q3 and Q4 returning to positive organic growth as expected. Our adjusted EBITDA margin increased to a record 15.8%. We enter 2022 having built our backlog to a record CAD 5.1 billion, representing 13 months of work. This is a 17% increase from 2020. We significantly advanced our growth ambitions in 2021 through the completion of six acquisitions, deploying more than CAD 700 million of capital and adding more than 3,200 employees to drive synergistic revenue growth. Each of these acquisitions are consistent with our strategy of pursuing targeted small to medium-sized firms that bolster Stantec's presence in key business lines and geographies.
In doubling the size of our footprint in Australia and materially boosting our environmental services offerings in the U.S., we've strengthened our ability to address the growing demand in both of these markets. The Cardno integration is going well, and of particular note, we're pleased to announce that Susan Reisbord, Cardno CEO, is taking over the leadership of our environmental services business in the second quarter of 2022. Moving to our results by region. Our U.S. business delivered net revenue of CAD 440 million in the fourth quarter and CAD 1.8 billion for 2021. As we noted throughout 2021, the stronger Canadian dollar was a headwind and the recovery in the U.S. was slower to start than in other regions.
Our U.S. backlog achieves 10% organic growth through the year to a record $3 billion, with our U.S. environmental services business recording more than 50% organic backlog growth. The momentum we're seeing in backlog growth, coupled with significant infrastructure stimulus and economic expansion, are all strong indicators that the U.S. recovery has begun. While it may take another quarter or so to ramp up, we're confident that our U.S. business will deliver a strong performance in 2022. This growing momentum is evident in our buildings business, where in addition to the healthcare and e-commerce work that we've discussed in previous quarters, we recently won our largest contract ever for this team.
The Denver International Airport Great Hall project, with fees in excess of $100 million, will transform the main terminal, improve security, and help our client achieve their goal to accommodate 100 million passengers. The drive for greater sustainability is also creating opportunities for us to design for the adaptive reuse of built environments, such as a two million sq ft L Street Station redevelopment pictured here. The use of existing building stock is gaining favor among our clients as a way to preserve heritage properties and to reduce new construction carbon emissions. The need to bolster supply chain security is also creating increased opportunities for Stantec. We're seeing a push to retrench domestic production facilities in the U.S. as global supply chain disruptions have highlighted the need for onshore manufacturing capability.
One example of this is our growing work on domestic vaccine production with a major pharmaceutical company in the U. S., where we recently began work on a new facility in California. Our Canadian business delivered CAD 260 million in net revenue for the fourth quarter and CAD 1.1 billion for the year. Generally consistent with last year and better than we expected, taking into consideration the descoping of the Trans Mountain contract. Growth was solid in virtually every sector due to strong demand in healthcare, transit systems, and land development in Western Canada. We see the continued strength in these markets as reflected in the project wins that we've highlighted on the slide.
There's also a growing demand for our expertise as a result of the increased frequency of extreme weather events, like what we saw in British Columbia in 2021. We're being called upon to assist with remediation efforts and for future readiness as we draw upon new technologies developed by our innovation center. A prime example is our Flood Predictor, which is a cloud-based machine learning application that significantly reduces lead times for accurate flood prediction. Similar to the reshoring efforts underway in the U. S., we're working with clients to strengthen the supply of pharmaceutical-grade radioactive isotopes for cancer treatment through the development of manufacturing facilities in Canada. Education, both in K-12 and post-secondary, continues to be a strong driver for our buildings business. The picture on the slide highlights our work on the design of the Students Association building at the MacEwan University in Edmonton.
Our global business performed very well and delivered CAD 216 million in net revenue in the fourth quarter, a 39% increase compared to the same period last year. For the year, net revenue increased by 18% to CAD 768 million. This net revenue growth reflects roughly equal contribution from both acquisition and organic growth. Specifically, we saw the strongest growth in our water and transportation sectors in the U.K. and New Zealand, while strong commodity prices drove revenue growth in our mining business. We also saw increased opportunities from both public and private clients in our buildings business in Australia. Private investment due to high commodity prices and economic expansion is being supplemented by infrastructure stimulus programs.
The U.K. government has committed more than GBP 130 billion to the National Infrastructure Strategy, which will focus spending on transportation, energy, and utilities. This is expected to lead to additional transportation projects like the A19 Tees Crossing in the U.K. that we've recently been awarded and the transportation planning services contract we recently won in Scotland. In addition to this funding, the U.K. government has committed GBP 26 billion to the Green Industrial Revolution and GBP 96 billion to the Integrated Rail Strategy . In Australia, AUD 110 billion is being spent over 10 years funding energy, transportation, water, waste, and social programs. All of these drivers contributed to global backlog increasing over 19% during the year to a new record level.
We continue to expect strong performance from our global operations in 2022, backed by strong macroeconomic factors and continued investments in infrastructure. I'll now turn things over to Theresa to review our financial results in more detail.
Thank you, Gord, and good morning, everyone. Before I dive into the details, we have made some minor presentation changes in order to comply with the new National Instrument on non-GAAP measures. You'll note that we're also using the new term project margin for what we used to call gross margin. There is no difference in how it's calculated. As Gord mentioned, the change in the Canadian/U.S. exchange rate had a substantial impact on our U.S. earnings this year, and it was particularly pronounced in the first nine months of the year. We've summarized the impact on our key financial line items on this slide for your reference. For the fourth quarter, we reported EPS of CAD 0.15 compared to CAD 0.13 last year, and adjusted EPS of CAD 0.57 compared with CAD 0.60 last year.
Operating performance was stronger than Q4 last year, but recall that last year's results included the favorable recovery of claim costs and resolution of certain tax matters. Net revenue grew by 6.3%, with 2.0% organic growth and 6.7% acquisition growth, partially offset by a 2.4% reduction due to foreign exchange. Project execution was very strong in the fourth quarter, increasing project margin by CAD 51.6 million and by 250 basis points as a percentage of net revenue to 55.3%. Adjusted EBITDA increased CAD 142.1 million, representing a 15.5% margin. The decrease from Q4 last year is mainly due to increased share-based compensation expense, which translated to 146 basis points of margin.
Decreased margin also reflects lower utilization in the U.S. as well as the previously mentioned recovery of certain claim costs recorded last year. Our Q4 net income on an as-reported basis also reflects an aggregate pretax CAD 37.3 million in impairment and onerous contract costs arising from the ongoing execution of our 2023 real estate strategy. For the full year, we reported EPS of CAD 1.80 and adjusted EPS of CAD 2.42, both of which are records for Stantec. Full-year net revenue was CAD 3.6 billion, a 2.6% increase on a constant currency basis, driven by acquisition growth of 3.9%, partly offset by a slight organic contraction, and with the effect of foreign exchange, net revenue contracted by 3.2%.
Project margin increased CAD 32.8 million, delivering a 160 basis point increase as a percentage of net revenue to 54.0%. Adjusted EBITDA approximated amounts generated last year, and margins increased by 10 basis points to a record 15.8%, despite an 83 basis point reduction due to increased share-based compensation expense. Our record earnings also reflect the ongoing success of our 2023 real estate strategy, which contributed more than CAD 0.18 per share in cost savings to as-reported EPS or CAD 0.15 to adjusted EPS. On a pre-IFRS 16 basis, we estimate the cumulative impact of this initiative would have increased 2021 adjusted EBITDA margin by more than 100 basis points.
We remain on track for our target of a 30% reduction in real estate footprint by the end of 2023 relative to our 2019 baseline and expect to deliver a further 20-25 cents per share by the end of 2023. Our balance sheet remains strong. At December 31, net debt to adjusted EBITDA was 1.8x within our expected leverage range. We anticipate reducing leverage over the course of 2022 on the strength of our cash flow generation. Day sales outstanding was 75 days at year-end, consistent with year-end 2020. Our 2021 cash flow generation was strong, although it did decrease relative to 2020. 2020 cash from operations was elevated due to the success of our efforts to significantly reduce DSO and due to the deferral of certain tax payments under government-introduced pandemic measures.
2021 cash from ops reflects the stabilized lower level of DSO, the outflow of those deferred tax payments, and the substantial effect of the stronger Canadian dollar. Beyond operating cash flow, we deployed CAD 703 million to fund acquisitions and returned CAD 123 million to shareholders through dividends and the repurchase of shares through our normal course issuer bid. Our board of directors yesterday increased our annualized dividend by 9.1% for 2022. This is the ninth consecutive year our board has increased our dividend, and it reflects our confidence in our ongoing cash flow generation and commitment to return capital to our shareholders. I'll now turn things back to Gord to review our outlook for 2022.
Thanks, Theresa. As we enter 2022 with a record 13 months of confirmed backlog on our books, we see a number of macro trends that Stantec is particularly well-positioned to capitalize on in the years to come. Much has already been said about the magnitude of infrastructure stimulus spending that's occurring around the world, and that we're well-positioned to capitalize on. However, a growing component of this infrastructure spend will be directed towards disadvantaged communities, which is an area where Stantec's community focus is of particular benefit to our clients. Our multidisciplinary expertise and our supplier diversity and equity team helps to align funding to strengthen the resilience of these communities and is a competitive advantage for us. In addition, we have over 150 funding specialists that work with communities across North America.
Collaborating with community leaders, technical staff, and other partners, this team is focused on helping communities access public funding for infrastructure with an eye towards long-term sustainability. This is a further benefit to our clients as they look for additional sources of funding for their projects. These are just two great examples of the full breadth of our service offerings that continues to create our competitive advantage. A major takeaway from the pandemic for governments around the world has been how fragile the global supply chain is, and the exposure this creates for domestic economies if access to critical products or resources is curtailed. As I mentioned earlier, we're seeing growing investment in domestic manufacturing capability for strategic or essential products like vaccines, radioactive isotopes, solar panels, and electric vehicle batteries, and we're actively involved on all of these fronts.
Another great example of this domestic supply chain strengthening involves the more than $80 billion that's been announced related to semiconductor manufacturing in the U.S. We're currently engaged in design work on multiple semiconductor fabrication and related supply chain facilities in the U.S., and these draw on the full suite of Stantec service offerings, from water and wastewater treatment to industrial buildings, site development, power and environmental services. The extreme weather events experienced globally in 2021 serve as critical reminders that global action must be taken to improve infrastructure resilience, and we're engaged with clients around the world to harden their assets against increasingly frequent and severe events. Stantec is currently involved in responding to over 20 climate disasters, each with losses exceeding $1 billion that have occurred around the world.
The energy transition is driving growth in our energy and resources business, where we continue to work on the largest solar energy project in Canada, the first large-scale renewable diesel facility in Canada, and multiple wind projects globally. With a heightened awareness of the effect climate change has on global water supply, governments are prioritizing spending towards addressing water scarcity, and Stantec is currently working on some of the largest water security projects in the world. For example, in California, our teams are involved on every large flagship advanced water treatment project currently underway, which will meaningfully improve water supply security in the region. Of course, our ability to capitalize on the opportunities ahead is heavily dependent on our ability to attract and retain a talented workforce. With the majority of our staff continuing to work from home, I'm grateful to their collective resilience and perseverance.
By prioritizing the health, safety, and well-being of our people, we've improved our employee engagement score by 6% relative to pre-pandemic levels. While the competition for talent continues in all sectors, we're seeing top industry talent migrate to Stantec in recognition of our culture and future prospects. You've heard me describe the tenfold increase in the value of our U.S. Federal IDIQ framework, and this progress started with a strategic hire who's been a catalyst for building out our federal team.
Similarly, we've recently completed several other key growth-related hires in California, Texas, and in our water business. These strategic hires and our broad portfolio of large-scale iconic projects are precipitating revenue growth and follow on talent movement in our direction. We expect the strong trends that I just talked about and our recent acquisition to drive net revenue growth in the range of 18%-22% for 2022, with organic net revenue growth in the mid to high single digits, weighted to the second half of the year. Organic growth in the U.S. is expected to be in the high single digits, driven by growing momentum as evidenced by our record high U.S. backlog and project opportunities arising from the $1.2 trillion dollar infrastructure stimulus bill.
After a year of robust organic growth in Canada in 2021, we expect to maintain high levels of activity, driving to 2022 organic growth in the low single digits. Organic growth in Global is expected to achieve high single- to low double-digit growth, propelled by strong economic growth, continued demand and stimulus in infrastructure sectors. As we continue to remain disciplined in project execution and operational efficiency, our adjusted EBITDA as a percentage of net revenue is expected to range between 15.3%-16.3%. This range reflects investments we're making to support growth by bolstering our internal resources and the commercialization of our new innovations and technologies.
Strong EBITDA margins and the ongoing execution of our real estate strategy are expected to drive our adjusted net income margin to be at or above 7.5% and adjusted EPS growth in the range of 22%-26%. We expect to deliver an adjusted return on invested capital above 10.5%. With a favorable market backdrop, an engaged workforce, a full M&A pipeline, and a healthy balance sheet, we are very optimistic for the years ahead. With that, I'll turn the call back to the operator for questions. Operator?
Thank you. If you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take our first question from Jacob Bout from CIBC. Please go ahead.
Good morning.
Morning, Jacob.
Yeah, first question is on margins. So, you know, 2022 EBITDA, you're saying 15.3%-16.3% range. 2023 at 16%-17%. I'm assuming that's still valid. Maybe just comment on some of the moving parts in your 2022 guidance. I mean, I think SG&A moves higher with reopening and there's gonna be higher labor costs with inflation. I guess the offset is next and I guess better, you know, reduced real estate footprint. So that's on 2022. Then maybe on 2023, just talk about the bridge, how you get from your guidance on 2022 to 2023.
Sure. You know, the outline's really nicely actually, Jacob, you know, what we're expecting in 2022 and where we expect to come out for the year. As we move into 2023, you know, a part of that underlying expectation is that the investments we are making in 2022 to really strengthen our internal resources, whether it is, you know, on the back office front, HR, accounting, IT systems and so on, and the investments we're making in innovation. The expectation is that as we move into 2023, you know, we'll continue to see growing benefit from that because we see such a strong multi-year cycle coming ahead of us for 2022 and beyond that productivity and efficiency should just continue into 2023.
That's in large part what we're expecting. You know, we're also thinking about, you know, continuing to work toward our goals on synergies and integration savings through the Cardno acquisition, continuing to grow our Pune operation, which we have grown substantially in 2022. Continue to focus on where we can grow that delivery center, and now determine how much we can grow the Manila operations that came with Cardno as well. There's a number of things, and as I've always said, there isn't just one or two, you know, key things that we can do to really change the margin. It is a number, a multiple of things that we'll drive toward.
In your mind, what's the biggest risk as far as actually achieving these 2023 targets?
I guess, you know, we have talked about, you know, everyone is talking about, you know, the labor shortage. You've heard Gord describe why, you know, although we're not going to be immune to that, why we feel good about our positioning with the, you know, the culture that Stantec has that is drawing people to us. That remains, you know, a bit of a risk just because of the unknown elements of that. You know, will we be able to hire the people that we need to address the growth that is, you know, kind of coming towards the back end of this year, and into next?
I think, you know, as much as we are, you know, very confident in our abilities to integrate acquisitions, Cardno is a large one and, you know, it's complicated. We, you know, as it's progressing, we feel good about the progress we're making and are confident that we'll be successful in that integration. There's always risk associated with the timing, and how disruptive that kind of activity can be to a firm that you've acquired. Those are a couple things that we're watching.
Last question here. Any exposure or how are you thinking about the Russia-Ukraine conflict and implications for Stantec?
We, as the temperature began to increase in the Ukraine last fall, we researched any project that we might have ongoing in the Ukraine. We did have an EU-funded project, a development project that was ongoing. We withdrew our people from the Ukraine late last year. This year, as the temperature continued to increase in January, we met with our clients, and we wrapped the project up, wrote our final report. You know, we really haven't had historically very much exposure to the Ukraine other than through some EU development projects.
Certainly, all of our people are out, all of our people are safe, and we don't see at this point it to be a significant impact on us, one way or the other.
That's helpful. Thank you.
Thanks, Jacob.
We will now take our next question from Jean-François Lavoie from Desjardins Capital Markets. Please go ahead.
Yes, thank you very much, and good morning. I know it's still early in the integration process, but I was wondering if you could talk about what's your vision for the margin profile of Cardno's Asia-Pacific business over the next two to three years, please? Thank you.
Certainly. You know, as we talked about when we announced the acquisition, overall, we expect Cardno's margin profile to be largely consistent with ours, and to continue to improve over time as we're driving within legacy Stantec. We have noted that between the U.S. business and the Australia business, the margin profile is different. In the U.S., where it is largely focused on environmental services work, that does tend to be a higher margin business. You know, that portion of Cardno will generate stronger than average Stantec's margins.
In Australia, where the business is more focused on transportation and other sectors that are, you know, are still consistent with Stantec's businesses but not as high as ES, we would say that those margins will continue to be a little bit lower than our average. All in all, it you know kind of underscores why it was such a good fit for us. Very consistent margin profile to our specific sectors and opportunities to continue to streamline and expand margins as we continue those initiatives within Stantec.
Okay. That's really helpful. Thank you very much. I was wondering if you could talk a bit more about your M&A strategy. You mentioned that the pipeline was full, but considering that the integration is still in its early phase, should we expect more of a tuck-in approach in the near term for 2022, or there are still some opportunities that could materialize later this year?
Yeah. Our primary focus is to ensure that a smooth integration of the teams that are joining us from Cardno. We're working hard on that. You know, to your point, that said, our balance sheet remains really strong even after the Cardno transaction, and the pipeline of potential firms is really robust. You know, we're continuing to look for firms. We're in active discussions, as we are at any time, but with firms in different geographies. Primarily right now, you know, we're looking at firms in Canada, the U.S., the U.K., Western Europe, New Zealand. Primarily looking at firms, water, transportation, buildings, environment, and so on. While we're continuing to look in Australia, you know, the teams there, you know, we've almost doubled the size of our group there.
We wouldn't want to layer on another significantly sized acquisition in Australia, I think, certainly within the first half of this year, until you know, we kind of get over the hump with the overall integration there. You know, I think the pipeline is still very full. Our appetite is still very strong. Our ability to integrate additional firms, you know, we still have the capacity to do that. We could do it in Australia as well, but I think it just would be, you know, probably too much to layer on an additional one there. Because remember, in Australia in 2021, we acquired GTA, Engenium, and then Cardno. We're really in the process of integrating three firms into our one Stantec philosophy in Australia.
You know, we wanna give a good chance for that to settle and ensure we're getting the success of that before we layer on too much more.
Okay. That's great. The last one for me on the one you mentioned in the press release, the investment you're making for commercialization of new technology. I was wondering if you could provide a bit more details about that and the impact it might have on margin in 2023 and beyond. Thank you very much.
Yeah. Thank you. You know, within our innovation group, we're working on a number of things. Like, firstly, we're working on systems and processes that can make ourselves more efficient internally so that we'll be able to develop projects or to deliver projects faster, be able to increase the net revenue generation per employee, per FTE. We're working on a number of things there to automate and expedite the design process. Externally, we're working with clients to develop a number of systems that will meet their needs. You know, I mentioned in the prepared remarks, the Flood Predictor model that helps us to, you know, assess where there might be flooding events, where we might see landslides and these sorts of things.
We have other products that we've developed and have, you know, 60 or more clients using it, which is like a financial management system that helps clients automate their capital planning process. The beauty of that is that it both is a sort of a software as a service, an annual renewal, software renewal type of an agreement. Then we're often hired as well on our consultative practice to help them work with the software and deliver it. Those are, you know, just a few examples of the types of things we're doing both internally and externally. We are investing in those things this year. We've also talked previously about some of the investments that we're making in third-party firms like BlueSky Resources that are underway and will add additional benefit to our clients. As an example, BlueSky Resources that we've talked about previously uses remote sensing information to provide information on you know concentrations of contaminants in the atmosphere, and it can be used really anywhere around the world to provide some of our multinational clients with understandings of you know are they meeting their regulatory requirements in terms of pollutants and things in different locations? These are the types of things that we're delivering, investing in now, but a number of them are bearing fruit already for us. We're really pleased with the progress in that area.
Great. Thank you very much.
Thank you.
We will now take our next question from Yuri Lynk from Canaccord. Please go ahead.
Hey, good morning, Gord, Theresa.
Morning.
Morning.
Wondering, I don't know who wants to take it, but just wondering if you could talk about your expectations for utilization in 2022 versus last year?
Sorry, Yuri. Would you [crosstalk].
Utilization.
Oh, you were really soft there. Couldn't quite hear. Were you asking about utilization?
Yes, that's right.
Utilization for 2022 over 2021? Yeah.
Okay. Excellent. From a utilization perspective, you know, as you've seen reflected in our results for 2021 and the guidance we've given for 2022, you know, the U.S., we've said a lot, was slower to come out and recover than we expected. As much as we have been managing our workforce in the U.S., there is some latency there because as we look at the size of our backlog and notified awards, and then the momentum we expect to continue to build when infrastructure spending starts to flow, we've maintained a good portion of that workforce, which, you know, in 2021 was not as highly utilized as we would typically want or expect.
As we go into next year, you know, we do think as we're seeing in Q1, that it is continuing to be slow in terms of that ramp-up. U.S. utilization will probably be, again, a little bit lower. That's why we're saying, you know, that our EBITDA margin in Q1 is probably going to be at the low end or maybe even a bit below the low end of our range, for you know, seasonal reasons. It's typically a little bit lower. Coupled with the lower utilization in the U.S. That we expect to really build as we get past the first quarter into the second and beyond. That's the situation we expect to improve.
You know, and of course, you know, in light of the labor shortage, and the very, you know, technical and skilled employees that we need, you know, we believe it's the right thing to retain those employees, so that we have that workforce available to address the growth that is coming.
On the whole, maybe not a big change in utilization in 2022?
I think as we get towards the second half of the year, we expect a significant improvement. I think Q1 maybe not so much.
Yeah. Okay. Correct me if I'm wrong, but utilization would be one of the biggest drivers of your project margin?
Not project margin, but EBITDA margin because, you know, to the extent that project margin is your revenue minus direct labor, that we expect to continue to be quite strong. It's when you have a workforce that isn't chargeable, that goes into your admin and marketing costs, and that will cause those expenses to be a little bit higher. It'll be more reflected in our EBITDA margin and not in project margin.
Okay. Second one, just digging in on the first quarter, why would your organic growth be back half weighted when you're facing really easy comps in the first quarter? It was down almost 7.5% last year.
You know, I think as we're looking into the first quarter, we continue to see in the U.S. and somewhat in global as well, that these larger projects that we are winning and, you know, are in our backlog. So that gives us, you know, confidence that the backlog, the work is there. We are finding it is taking a little bit longer to complete the processes and get the work started. You know, we're winning larger sized projects, they're more complex, and so, you know, the early work that we have to do is not labor intensive.
It's, you know, a handful of specialists kind of dealing with the client to get the specifics scoped out and the work orders issued. Then as those projects ramp up, you know, it's really when we can deploy large numbers of our staff to really get those projects up and running. That's what we're seeing in the first quarter. Despite, you know, Q1 being an easy comp, I would say that's probably the biggest factor is just that lag in getting the backlog converted into task orders and work orders that we can actually deploy, you know, large portions of our workforce toward.
Okay. Last one, why wouldn't that bleed into the second quarter?
It may. I think our expectation is that given what's in our backlog and the sort of early work that as we get towards the second quarter, you know, that we will largely have passed that hurdle and have those projects up and running. That's our expectation.
I think another factor there too, Yuri, is the environmental services backlog. That, you know, typically really gets rolling in the second quarter, particularly in northern U. S. and in Canada, when we can put those people out in the field. You know, you've seen in our U.S. ES backlog up by, you know, 50% organically. Add on that the Cardno folks. I think, well, which of course won't show up in organic growth for the first year. You know, I think we see pretty robust growth in our environmental services business, and that really ramps up in quarters two and three.
Thank you.
Thanks, Yuri.
We will now take our next question from Michael Tupholme from TD Securities. Please go ahead.
Thank you. Good morning.
Morning.
Maybe just to build on one of Yuri's last questions there, just with respect to organic growth guidance in 2022. Are you able to provide just sort of a little bit more detail about the cadence and the progression through the year, I guess overall, but also across the regions, the various regions, Global, Canada, and U.S.?
Yeah. Sure. I'll start with that, and perhaps Theresa can dive in, you know, when it's appropriate. You know, maybe I'll start with Global because, you know, we had a really strong year in Global, almost 9% organic growth in 2021. We really, with the backlog that we've got, see that coming in, you know, a good backlog growth. We mentioned high single to [upper tops] low double-digit growth in 2022. We're seeing a lot of transportation work. I mentioned the preferred routes in the U.K., certainly Australia and New Zealand. We're seeing, you know, some buildings work down there. We've talked about the Footscray Hospital and others.
We talked just about the amount of infrastructure stimulus, U.K., Australia, and so on. We're getting support from high copper and some of the other commodity prices in our mining businesses in South America and Western Australia. I think we feel pretty good about our global organic growth throughout the year. Even though it was strong in 2021, we feel it's gonna be pretty strong and robust in 2022 as well. Maybe talking about Canada. You know, excluding Trans Mountain, and we'll be so happy that we don't have to ever mention that again after this quarter, the impact on revenue of that project. You know, excluding that, we had organic growth this year in Canada of just over 5%.
You know, Canada came out of the gates pretty quick as did global in 2021. You know, we expect good performance still in 2022. Because a lot of Canada sort of came out of the gates in 2021, you know, we see organic growth in Canada in that low single-digits i n 2022. U.S. is interesting because, you know, you've seen the organic growth that we've got there, you know, 10% organic growth in the U.S. When you add in there our acquisition backlog, you know, U.S. backlog is up over 23%, you know, to a record of CAD 3 billion. Pretty significant there. You know, strong backlog as we go into 2021.
The tailwind from infrastructure stimulus, I think, will be a second half of the year. You know, we're starting to see some of those RFPs hit the street now from the bipartisan infrastructure law that is anticipated to come. We're seeing some state and local work coming out in anticipation of it, you know, in water, lead service line replacement, transportation. Interesting, we've responded to five, you know, EV charging network RFQs in the past two weeks alone. There's a lot of work coming out in those areas too. We talked about semiconductors, where we're working on a number of these facilities already, and certainly there's more to come. You know, we do feel pretty good about organic growth in the U.S.
You know, and I think you might, you know, many of our other multi-sector global peers have talked about the first part of the year being a little slower than the second part, and I think, you know, what we're feeling is consistent with that.
Okay, thanks very much, Gord. That's very helpful. Just shifting over to your EBITDA margin guidance. In the release, you talked about the guidance reflecting investments in internal growth resources to support the growth in the business and the commercialization of new innovations and technologies as being factors that are gonna weigh on the margins. Can you just elaborate on the investments you're making and what you're doing in those areas?
Sure. You know, again, there are a couple of components to it, but you know, as I mentioned earlier, the growth that we see coming, coupled with you know some disruption in you know in overall labor that everybody is experiencing, we are seeing a need you know for instance to bolster our internal resources and human resources because we need the talent acquisition people to hire the people to deploy to these projects. That's a really hot market right now. You know, hiring additional people in HR, hiring additional people you know on our other back office teams to support the growth is something that we have been quite frugal on in the last couple of years.
We just believe that in order for us to be able to achieve the growth that we see coming, we need to now kind of loosen those purse strings a little bit. You know, cybersecurity continues to be an area that requires just constant investment, and we see some of that coming. As well, our IT systems to support the increased work we're doing on both U.S. and Canadian federal. You know, there are requirements there around your IT systems. The increased IDIQ work that Gord has been referencing. You know, it requires us to put some investment toward our IT systems to meet the regulations and the requirements of that particular client.
Those are the kinds of things that we are focused on internally. From an innovation standpoint, you know, it is around, you know, ensuring that we are not penny-wise and pound-foolish when it comes to innovation, but that we are, you know, really critically determining where to put our capital dollars towards what innovation activities that will, you know, either create opportunities with our clients in terms of new services or make them stickier to us through as an entryway and add on other services to it. Or in our ability to deliver our work such that we can be more efficient and can either drive to more competitive pricing or, you know, greater margin expansion that we're able to keep.
That's kind of the general suite of things that we're looking at.
Okay, thanks very much, Theresa. Then maybe just one last one, probably for you as well, Theresa. Just sticking with the subject of your EBITDA margin guidance. I know you said you’ve not made any assumptions around the impact of share price movements since year-end as it relates to stock-based comps. But what have you baked into your 2022 adjusted EBITDA margin guidance with respect to stock-based compensation relative to what you would have expensed in 2021?
What we have baked in is an assumption that the share price remains stable as of where it was at the end of the year. Given market activity today and how long it lasts, you know, it may help or hurt us as we go forward. One thing I will mention with respect to our stock-based comp, and it is in our MD&A, and I suspect you haven't gotten to those pages yet in our public disclosures. We did at the end of the year enter into a swap for a portion of our stock-based compensation to try and mitigate some of the volatility that we saw this year.
You know, in aggregate, about, you know, 35% of the units that we have outstanding have been hedged effectively. We should be able to then offset volatility in share price movement for that portion of the units we have outstanding. The balance, you know, remains subject to share price fluctuations, but those swaps will help to mitigate it somewhat.
Okay. I'll take a look at that and follow up if need be. Thank you.
Okay.
Thanks, Michael.
We will now take our next question from Frederic Bastien from Raymond James. Please go ahead.
Hi. Good morning. Have you seen the coming together of Cardno and Stantec drive new revenue opportunities that might not have been attainable prior to the combination?
Yeah, I think what's been interesting with combining Cardno and Stantec, Frederic, is that, you know, while we were working through the process, doing the due diligence, certainly it was only the executive level that was aware of the transaction, and we're chatting about it. We felt that there was, you know, really good synergy in clients and with some of the individuals. When we announced the transaction, just the outpouring of folks from both Cardno and Stantec who said, "You know what? We work with this group on a project here.
I worked with them at a you know previously at you know their company or this company. Just the amount of synergy between the employees has been fantastic. Without question, that has driven more excitement and more opportunities, I think in terms of than we actually thought that there was initially. It's been a pleasant surprise for us.
Don't like asking that question, but were there any things that surprised you from more of a, you know, cautionary example or something that may not have been, you know, super pleasant about the acquisition? Or is overall everything pretty good to go?
You know, through the due diligence, we had really searched hard to unearth any concerns that we might have from, you know, tax and project due diligence, IT due diligence, and so on. No, there's actually been no real downside surprises, because we had unearthed those things during due diligence.
Okay, super. Where do you expect the leverage to finish by the end of this year, assuming you know you don't do any major acquisitions? You know, is it possible you go towards the low end of your target range?
Yeah. That is my expectation. Assuming that, if we don't layer on any assumptions around acquisitions, we should be towards the low end of our range.
Awesome. That's all I have. Thank you very much.
Thanks, Frederic.
We will now take our next question from Ian Gillies from Stifel. Please go ahead.
Morning, everyone.
Morning.
Morning.
Could you elaborate a little bit on how you factored in a rate hiking cycle and the impacts it may have on the buildings portion of your build business, whether it be on the commercial side and/or on the residential side?
As we've been talking with, you know, with our clients, we haven't seen a lot of sensitivity in our discussions at this point to rate hikes. Where we have seen more sensitivity from some of our commercial buildings clients has been with regards to inflation in terms of supplies. And you know, if the cost of the building increases by, you know, a certain amount, how can we value engineer it to kind of get the cost back down in line with where things might be? Yeah. The discussions we've been having so far have been less about rate hikes and more about just inflationary pressures in overall.
Okay. That's helpful. The other thing I wanted to ask about was with respect to the infrastructure bill in the U.S. You're already starting to see some commentary that proponents or people who are gonna participate are moving to smaller projects rather than larger projects given inflationary pressures. I mean, does Stantec have any preference on whether you're working on small or large projects with respect to this bill, or is it kind of all equal?
Yeah. You know, I think that's one of the beauties actually of the Stantec model, is that we work on projects from, you know, CAD 5,000 in fees to several hundred millions of dollars in fees. We've kind of scaled our whole operation from the smaller community ones to those larger, sort of global class type projects. No, I think, you know, we're okay. However, our clients decide to put out the projects, will be just fine with us.
Okay, thanks very much. I'll turn it back over.
Thanks, Ian.
Our next question comes from Maxim Sytchev from National Bank Financial. Please go ahead.
Hi, Gord there. Theresa, good morning.
Good morning.
Good morning.
Gord, just a quick question in terms of the U.S. potentially benefiting from Biden stimulus in the back half. I think when we look at some of the peers, people are sort of pointing to 2023. Just wondering what gives us sort of the confidence about that inflection point maybe a little bit earlier. I guess any comment there.
Yeah. No, great point, Maxim. It's interesting. One of the ones that came out earlier this week that was talking about 2023, I think their 2023 starts in our Q4. As they're talking about 2023, it's kind of maybe even back half to us. I do think because we're starting to see some of the projects hit the streets now that, you know, this won't be a Q1 story for us or, you know, I think we'll start to see some revenue generated in Q3. But I do think this will be a Q3, Q4 story for us and certainly, you know, providing strong tailwinds as we go into, you know, calendar year 2023 also.
Okay. That's helpful. Thank you. Just one last question. In terms of expectations of sellers, obviously we have seen a deflation of multiples in the public market but wondering if you know the conversation that you have right now with the potential private targets, if you're seeing any change in the buyer language or it's still kind of pretty sticky. Maybe just any comment there. Thanks.
Yeah. You know, some of the discussions that we've been having, certainly, you know, as in the latter part of last year, expectations of sellers from a multiples perspective crept up. You know, as in concert, you know, the public company multiples were creeping upwards as well. It's been, you know, since the beginning of the year that we've seen some of the public multiples come down a little bit. The firms that we're talking to, I think they academically understand that, you know, there's a certain accretive delta in between there that we need, you know, to hold on to.
We've had some discussions on those with some sellers, and I think they're just waiting to see kind of what happens with things. I think everyone's being reasonable, but you know, this response in the public market since the beginning of the year, you know, hasn't quite crept into some of these private firms yet. I think it will if things stay where they are. We haven't seen any transactions, you know, since the beginning of the year to really know how that all plays out.
Right. Okay. That's very helpful. Thank you. Thank you so much.
Great. Thanks, Max.
We will now take our next question from Mark Neville from Scotiabank. Please go ahead.
Hey, good morning. Just a few questions. First, just to be clear, do you expect the business to put out some organic growth in Q1?
Yeah. Yeah, absolutely. You know, Theresa and I were looking at each other in terms of who was gonna respond. We do expect organic growth in Q1, just strengthening, you know, quarter-over-quarter as we go into the latter part of the year.
Okay, got it. In terms of the investments that you've laid out, Theresa and Gord, appreciate the color, but could you maybe provide sort of a quantum of the size of that investment, just to understand sort of the impact it's having this year?
You know, it's effectively embedded in the adjusted EBITDA range that we've put out, the 15.3%-16.3%. Our assumptions around where that spending will go, coupled with some, you know, increased spending. I think that actually the one area that I haven't hit on, I talked about, you know, HR, IT, is our marketing and business development activities. That assumption is baked into that EBITDA margin, and we haven't provided sort of specific dollar ranges for what those additional costs might be explicitly.
Okay. No, that's fine. Maybe just last question, just on free cash flow. I mean, is the expectation sort of grow in line with earnings? Is there anything sort of to think about in terms of CapEx or working cap or I don't know?
Well, I would say that, you know, I agree with you. The expectation is that free cash flow will grow along with our earnings. So that should be pretty robust this year. You know, CapEx is never a huge part of our overall spend. It will probably notch up a little bit next year just because, you know, through the pandemic, we've been pretty careful in tamping back requests for capital spending. It won't be outsized by any stretch, but it will probably creep up a little bit relative to this year.
Got it. All right. Thanks for the time. Appreciate it.
Thank you.
We will now take our next question from Sabahat Khan from RBC Capital. Please go ahead.
All right, great. Thanks, and good morning. I guess there's been a bit of discussion on the U.S. and the infrastructure bill contribution. I guess trying to get an idea of when you think about sort of building a buffer, the mid- to high-single-digit organic growth guidance, I'd say some of the spend from the infrastructure bill does get pushed into 2023. Is that what maybe pushes the organic growth into sort of the mid-single-digit range for the year for total company? Just wanna understand, you know, kind of the buffering or how much contribution may be reflected in the guide for this year.
There, you know, as we put our thoughts together on what our expectations were for the U.S., you know, the things that we're starting to see both from, you know, what's in our backlog to the level of activity on the marketing front, is embedded in that mid- to high-single-digit organic growth. You're right, I mean, some of it is, you know, there's always a component of revenue that you think you're going to win, but maybe isn't explicitly identified to projects yet. That is embedded in that mid- to high-single-digit range.
As we've talked about in Q1 with you know a bit of a slower uptick, again, how the year unfolds and how quickly we get actually moving and getting utilization up and getting those projects up and running toward the end of the year, whether that pushes us towards the higher end remains to be seen. Those are the assumptions that would be embedded in that range.
Okay, great. Thanks for that. I guess just one related to kind of the real estate rationalization strategy. I think it looks like from your income statement build up, there's a non-cash impairment related to some of the leasehold assets on your balance sheet. It looks like there was one last year. I wanna make sure I understand that. Is that really just being able to sublet space that you might be operating in at a lower rate than maybe what you might have gotten? I just wanna make sure we understand the accounting here. Then also, if you can comment on, you know, if you are subletting space, is that going to be recognized as maybe an offset to your SG&A costs, or where would that kind of flow into your income statement?
Just a bit of clarity on those, line items, please.
Yeah, sure. You know, I mean, if anyone can crack the nut on IFRS 16, you know, they deserve a medal. It is very convoluted and complex. We'll just talk about the lease impairments first. You know, we did take a large impairment last year, and that related to a space that we identified that we could both downsize and then make available to sublet or leases that, you know, that we could exit at that time. As we advanced through this year, the lease impairment that we took in 2021 made up of two pieces. One is the further identification of spaces that we could rationalize. The second relates to some of the space that we impaired last year.
There's all kinds of modeling that goes into the determination of the value of those leases and what you write off. For some of that space, market conditions in 2021 ended up to be outside of the low end of what we would have modeled. We had to take a further impairment on those spaces. As we look forward into what that means, you know, it does mean that there's going to be a combination of cost savings from having exited spaces that we are no longer paying for, or spaces that we have rationalized and are subleasing, and that will result in some inflow of earnings and cash.
As far as I can see, that inflow of cash will not flow through our admin and marketing expenses. I think the majority of it is going to still be outside of our EBITDA calculation. It will, you know, if there's cash flow, of course, it'll show up in our cash flow statement. It is a little convoluted and a bit tough to pick apart. You know, the effects of leasing now really largely reside outside of the EBITDA calculation.
Okay. No, great, I appreciate the color, and yeah, definitely a bit convoluted. I guess in terms of just the work towards it seems like a good chunk of the savings already came in in 2021. Is there just, I guess, a bit more of this subleasing/exiting of leases remaining? Or maybe just in terms of the amount of legwork left to get those savings done, for the next year or so.
You know, we have identified you know, a good portion of the spaces that we have both impaired or sort of made available for subleasing. There's still a bit to go, but I think you know, from an identification perspective, we have done a lot of that legwork. It's being managed pretty carefully. You know, the potential that there might be some spaces that become available or that we identify that we hadn't initially pegged is always possible. We you know, would continue to say, again, CAD 0.20-CAD 0.25 over the next two years of EPS uplift from this initiative.
Great. Thanks very much for that.
Thanks, Sabahat.
We will now take our final question from Devin Dodge from BMO Capital Markets. Please go ahead.
All right. Thanks. I wanted to start with the, you know, the global segment. Can you help us understand, you know, that really strong net revenue growth figure that you reported? I just don't see. I don't recall seeing an organic revenue growth number that high before. You know, were there some favorable, you know, closeouts or settlements, or is this a true reflection of the underlying demand?
You know what? Oh, go ahead.
In Q4, there was some collection of, you know, previously provided for reserves, not material enough to kind of swing things, but there was a bit of that in Q4. Overall, for the year, you know, what we saw was just really strong performance in Australia and New Zealand. Some pretty large projects that we were successful in winning and then we're executing on. Mining was really strong especially as we got towards the back half of the year. Some of the, you know, community development and transportation work we were doing in the U.K. was also pretty strong.
You know, the AMP program in the U.K. is in full swing, and that is also, you know, being really supportive from a revenue organic growth standpoint. You know, those two regions in particular, Australia, well, New Zealand, and the U.K. is where much of the growth occurred. Really, as we look into next year, what we would continue to expect is really strong macro factors in those regions that will drive growth.
It's interesting, as I go back and look at, you know, the organic growth each quarter this year. You know, we did have a retraction in Q1, but Q2 and Q3 organic growth were both in, you know, plus or minus the 10% range. You know, to finish the year at 9%, it's sort of like, you know, it's kind of reflective of what we've seen sort of in the mid part of the year. A little higher in Q4, but overall, you know, that 9%-10% is sort of what we've been seeing.
Okay. I'm just trying to understand. Is a lot of this, let's say, internal hires that you guys have been able to, you know, accommodate that work, or is it more subcontractors coming on? Or, I guess, how should we think about that? Because, obviously, that kind of plays into how the next year, 2021 unfolds in that global segment.
Yeah. Well, you know, we have been actively hiring in the majority of our regions from a global perspective. You know, it's certainly a robust labor market out there. You know, the one thing that I think we've been able to do is, you know, we continue to be able to move our work around, you know. For example, we can send project work from the U.K. over to Australia and vice versa, and then into Canada and so on. I think that's certainly been beneficial. I think the one benefit that we have going into 2022 is that, you know, the size of our workforce in Australia and New Zealand is influenced by inbound migration as well.
Really, in 2021, there was very little to none of that because the borders were sealed in those locations. Now that we're starting to see those borders open again, I think that'll give us an additional source of individuals that we can draw from as we hire people into Australia, hire people into New Zealand, that'll certainly help in those locations as well, something that we did not have really in 2021.
Okay, thanks for that. Maybe just to close off here, the cadence of EPS in 2022, you know, part of the guidance was, you're pointing to 40% EPS in Q1 and Q4. You're pointing to a stronger second half, so presumably Q4 will take up more, you know, a greater share of that 40%. I usually don't like to get too granular on this stuff, but I just wanted to give you an opportunity to frame the consensus numbers here. Do you expect to improve earnings sequentially, so from Q4 into Q1, despite a full quarter contribution from Cardno?
Yeah. Thank you for bringing that up. The 40-60 split is what we'll expect for the shoulder quarters and the second and third quarter being stronger. That will be the case just because that's when we can be most productive. But you're absolutely right. Typically, we expect Q1, Q4 to be roughly even, partly because of weather, partly because you ramp up in Q1. Q4 is very heavy with holiday and time away. But in 2022, we do expect that Q4 will be stronger than Q1. That 40% overall, you should not expect, we don't think that to be evenly split between Q1 and Q4.
It should be more weighted towards the fourth quarter.
Okay, thanks for that.
Great. Thank you.
As there are no further questions in the queue at this time, I'd like to turn the call back to your speakers for any additional or closing remarks.
Great. Well, you know, thanks again to everyone for joining us on the call today, and we look forward to continuing to speak with you throughout the year, about our continued progress, a year that we're pretty excited about. Thanks again, everyone. Have a good day.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.