Welcome to Stantec's First Quarter 2021 Earnings Result 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 a webcast. Please be advised that if you are 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's 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.
Well, good morning, thank you for joining us. Stantec delivered solid performance in the first quarter as we continued to execute on our strategic plan. Our focus on excellence delivered increased earnings, improved margins, and strong cash flows. As we look forward, we're seeing solid signs of recovery, with outstanding backlog growth across all of our business units and a book-to-bill ratio of 1.2 for the quarter. Altogether, backlog grew organically by 5.8% from the end of 2020 and now sits at CAD 4.6 billion. Our business development pipeline continues to be very active, and we're confident in our ability to deliver on our organic growth expectations over the balance of the year. We also continued to drive acquisition growth in the quarter. We completed two acquisitions in Australia that together add more than 300 employees and increase our presence there by roughly 20%.
With these two acquisitions, we've rounded out our ability to deliver services across all of our key sectors and to deliver upon our growth ambitions in the region. Turning now to our results by key geography. As anticipated, U.S. revenue retracted organically, largely due to our Buildings and Transportation businesses. The good news is that the significant increase in wins through Q1 is driving organic backlog growth in U.S. Buildings, and as a result, we expect this business to swing back to organic growth in the third and fourth quarters. In Transportation, we continue to wind down several major alternative delivery projects which affected both net revenue and margins this quarter. Overall, our infrastructure business is holding its own as a result of the breadth and depth of both the transportation and the community development business.
In addition to the significant projects that are already in our backlog, we expect U.S. infrastructure stimulus to become a significant tailwind in future quarters. We continue to see solid growth in our Water business and see growing momentum for increased spending in Water from the CAD 350 billion from the American Rescue Plan that are being appropriated for state and local governments and that can be used for, among other things, water and wastewater infrastructure. The recent CAD 35 billion Drinking Water and Wastewater Infrastructure Act that has passed the Senate, and the CAD 6.5 billion Water Infrastructure Finance and Innovation Act that has been released by the USEPA. Altogether, we see great momentum for increased Water spending going forward. Mining activity in the U.S. is also increasing with improved commodity prices.
Our U.S. business development pipeline continued to be very active during the first quarter, driving our backlog up 7.4% organically since year-end 2020. This was driven in part by multiple contracts worth up to CAD 102 million in work supporting the maintenance and enhancement of California's electrical grid. This work will be delivered through our Energy and Resources and Environmental Services business units, where our organic backlog growth approached 40% and 25% respectively during the quarter. Canadian revenue retracted organically due almost entirely to the reduced scope of our role on the Trans Mountain Expansion Project. This dynamic, which has been incorporated into our guidance, will continue to be a headwind for organic growth in 2021. Offsetting this, however, is growth in our Canadian Buildings business. The investments being made in Canadian healthcare facilities is unprecedented and has led to record backlog in the sector.
This drove organic growth in our Buildings business during the quarter, and we continue to win new projects like the Cariboo Memorial Hospital redevelopment in British Columbia. Also during the quarter, we generated year-over-year organic growth in infrastructure from both community development and transportation projects, and we expect continued momentum in infrastructure as a result of recent project wins like the Queens Quay East Extension and the Waterfront East light rail transit projects in Toronto. Strong account management and business development has driven our Canadian backlog up 7.6% organically since year-end 2020, with backlog growth across all of our businesses. As in the U.S., Energy and Resources and Environmental Services were particularly strong, with organic backlog growth approaching 35% and 20% respectively during the quarter. We're also seeing continued strength in Canada's Water business, partly as a result of our work on Saskatchewan's Westside Irrigation Project.
This project is expected to irrigate up to 500,000 acres and more than double the irrigable land in Saskatchewan. It's also the largest public works project in the province's history. As expected, global revenue retracted organically compared to the pre-pandemic first quarter of last year, and this was largely due to the impact of the pandemic on our Buildings business. Our Global Water business helped to offset the retraction with solid organic growth in the quarter. The AMP7 programs in the U.K. and the water frameworks in Australia and New Zealand are running at full tilt, and we are actively onboarding new employees to meet project needs. Significant funding in the U.K. and New Zealand continues to fuel organic growth in Transportation. During the quarter, additional work was awarded to our Transportation team as part of the ongoing Ōtaki to north of Levin Expressway project in New Zealand.
During the quarter, we announced the acquisition of GTA Consultants. On April 30th, we closed our acquisition of Engenium. We're already seeing the benefit of combining our teams in Australia in terms of client interest and project opportunities. Backlog declined organically in our global operations by about 1.6%, primarily due to buildings projects as a result of pandemic-related challenges. We also saw a slight retraction of Water backlog as we began to work through the longer-term frameworks that we won last year. I'll now turn things over to Theresa to review the quarter in more detail.
Thank you, Gord. Q1 earnings were slightly ahead of our expectations with adjusted net income from continuing operations increasing 3% to CAD 56 million, which represented 6.4% of net revenue. Adjusted earnings per share increased 2% to CAD 0.50 per share. Our adjusted EBITDA margin rose to 14.7% as a result of improved gross margin and lower discretionary spending. I would note that our Q1 stock-based compensation expense increased by CAD 11 million due to the increased valuation of our share price. This has had a 125 basis point impact on our adjusted EBITDA margin. In other words, excluding this non-cash fair value adjustment, adjusted EBITDA margin would have been 15.9%. Continued strong cash flow generation meant that no draws were required on our revolving credit facility in the first quarter, which led to a year-over-year decrease in interest expense.
Earnings also reflected the benefit of the implementation of our 2023 Real Estate Strategy, which is on track to deliver CAD 0.10 per share in adjusted EPS by the end of 2021. Our Balance Sheet remains strong as a result of strong cash flow generation and cash management. At March 31st, net debt to adjusted EBITDA remained below our targeted range at 0.8x . Day sales outstanding was 75 days at quarter end, which is consistent with Q4 2020 and is down 11 days compared to the same time last year. We generated CAD 14 million in free cash flow in the first quarter, when operating cash flows are traditionally an outflow. This represents a CAD 99 million increase over Q1 2020. While half of this increase can be attributed to the timing of our payroll in the quarter, the improvement in operating cash flows is significant.
As I mentioned earlier, our CAD 800 million credit facility is currently undrawn, giving us significant dry powder to fund growth through acquisitions. With that, I'll turn it back to Gord to wrap up.
Thanks, Theresa. Today, we reaffirmed our guidance and targets for 2021. Our projected low to mid-single digit organic revenue growth for the year is underpinned with our expectation that Q1's organic retraction should turn the corner in Q2. For Q3 and Q4, we expect a strong shift to growth. Bear in mind that we have not incorporated the proposed U.S. infrastructure stimulus into our revenue expectations because it hasn't yet been finalized or passed. We think it'll take roughly one to two quarters once this package is approved for revenue to materialize in a meaningful way. We see this as a tailwind potentially for the last quarter of this year, but more realistically for 2022 and subsequent years. Before concluding, I'd like to draw your attention to our recently released 2020 sustainability report, which is available for download through the interactive sustainability section on Stantec's website.
This report is a fantastic resource that describes our commitments and actions towards achieving our ESG goals. One metric we're particularly proud of is the degree to which our revenues support the UN Sustainable Development Goals. We continue to lead the industry in providing this data, which for 2020 amounted to CAD 2.3 billion. This represents 49% of our 2020 gross revenue that's aligned with the UN SDGs, up 7% from 2019, underscoring the key role our skills and expertise play in the global pursuit of a more sustainable future. There's also a few areas where we've augmented our disclosure, including enhanced ESG metrics aligned to the Sustainability Accounting Standards Board and the Task Force on Climate-related Financial Disclosures. On the innovation front, last week, we launched our integrated approach to digital services, branded as Stantec.io.
Our unified platform combines technologies like machine learning, digital twins, and parametric design with our subject matter experts to accelerate and enhance our solution delivery. Finally, we continue to support our global employee base in every way we can as the pandemic continues to evolve. I just want to take a moment to thank all of our employees for their continued commitment and diligence in supporting our clients and colleagues around the world. To wrap up, the quarter delivered as we had expected. Net revenue retracted compared to a pre-pandemic Q1 2020, as we've been messaging for the past few quarters. Our EBITDA margin improved, adjusted EPS was up, free cash flow generation was very strong, and our Balance Sheet is in great shape, and organic backlog grew 5.8%, all of which supports the reaffirmation of our 2021 guidance.
This, coupled with a strengthening global economy and the potential for additional infrastructure stimulus, we believe, provides a solid tailwind for the remainder of 2021 and into 2022. With that, we'll open the call up to questions. Operator?
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal. Our first question comes from Benoit Poirier with Desjardins Bank. Please go ahead.
Yes. Thank you very much, and good morning, everyone. Just with respect to organic growth, obviously, in Q1, this has been a tougher compare versus last year. Would you expect organic growth to become positive in Q2? With respect to organic growth for Energy and Resources, could you maybe quantify the impact of TMX on organic growth? Thanks.
Yeah. Thanks, Benoit. Good morning. Firstly, as we think about Q2, as we said in the prepared remarks there, I think that Q2 from a net revenue perspective, again, it'll be compared to a Q2 2020, which was a pandemic influenced quarter. It's going to be flat to slightly positive in Q2. We'll see, I believe, good organic growth in Q3 and Q4 based on the backlog and those things that we were talking about. That should then result in that low to mid-single digit organic growth that we've been talking about for the year. It's interesting, as you mentioned E&R. The backlog growth in E&R this quarter was truly exceptional. The impact of that Trans Mountain job, it's interesting.
In Q1, while we saw that Canada had about a 7.6% retraction in net revenue, if we had taken out the impact of the revenue that we had generated from Trans Mountain in Q1 the previous year, Canada would have been flat. It would have taken roughly, overall for the company, would have been about 5.4% instead of 7.4% retraction. From a net revenue perspective, it's significant. We see that about 2% as a headwind that we'll see even for the full year. From a company perspective, we'll see about a 2% headwind in organic growth because of the removal of that revenue from Trans Mountain. Even factoring that in, we reaffirm our commitments to that low to mid single digit organic growth for the year.
Okay. That's very good color, Gord. Now for Theresa, in terms of capital deployment, you were not active in Q1 despite having a leverage ratio well below your targeted levels and showing strong free cash flow numbers. I'm just wondering, how should we read into it? Could it be explained by big expiration on the M&A front or more because the stock hit a certain level in Q1?
Yeah. The capital allocation strategy remains consistent from what I've stated in the past. We really are focused on directing our capital toward M&A growth. Gord will tell you that there's a lot of activity there. The pipeline remains full for various targets that we are looking at. From that perspective, retaining that capital for that purpose is our priority. The share price was pretty strong in the first quarter. Overall, we continue to look for opportunities to purchase shares to the extent we see a bit of a dislocation in the market. That remains as well, an opportunity for us when we believe the timing is right. It really is around acquisitions that we'll be looking to allocate our capital.
Okay. That's great. Last one for me. Free cash flow typically is negative in Q1. It seems the good performance was driven by better working capital movements in Q1. Is it a fair statement? What should we expect in terms of working capital movement for the full year versus the +CAD 79 million reported for 2020, Theresa?
Yeah. Q1 had to have a couple of interesting things occur. You're right, this is, I think, the first time in our memory that Q1 has been cash flow positive from an operating standpoint. Typically, because of seasonality, it drives to being a net outflow. We do want to point out that it was like CAD 99 million of increase year-over-year, that about half of that just was attributed to timing of payroll that went out the day after quarter end. We don't want to take credit for all of that increase, but the remaining half is reflective of better working capital management and the fact that our discretionary spending has gone down dramatically on a comparative basis. That has also given our working capital a boost.
I would expect that it's going to remain strong throughout the rest of the year because operations are solid. We're not seeing any headwinds from an operations perspective that will disrupt our cash flows. The focus on DSO remains, and our team's just doing a fantastic job of being focused and continuing to find opportunities to keep DSO at the level that it's at now. Overall, I think it should be positive for the year.
Okay. That's great. Thank you very much.
Thank you. Our next question comes from Yuri Lynk with Canaccord. Please go ahead.
Hey, good morning. Gord, wanted to chat a bit on the American Jobs Plan. Obviously, it featured pretty prominently in your prepared remarks if it gets passed. How do you feel the industry, and Stantec in particular, is equipped to meet what looks to be double-digit growth in end market demand, given just the size of the program? You said you anticipate some impact within one or two quarters of it being passed. How do you see growth going forward and where Stantec plays in that?
We've been giving a lot of thought to. You're right, there's the American Jobs Plan, but even in some of the other ones, the American Rescue Plan has CAD 350 billion in direct funding to state and local government that they can use on a number of COVID-related things, but one of which, of course, is water and sewer infrastructure. There's some of the other potential stimulus as well. With the American Jobs Plan layered on top of that, we see that as a really strong tailwind. It's the latter part of this year, but certainly even into 2022. What we've been spending a lot of time is thinking about how would we, as a company, we're very good at moving work to different locations. How would we even continue to improve on that?
How do we share work even better with Canada, Australia, New Zealand, the U.K.? How do we ramp up our operations in Pune, in India, to help support a lot of these things? We do think that we're seeing it now, the labor market is beginning to get tight already, which is one of the reasons why we spent so much time early on in the pandemic investing in communicating with our employees. We've seen a decrease in voluntary turnover rates, but we really wanted to make sure that our staff feel valued. They feel that Stantec has treated them right through the pandemic, so that when we all collectively emerge from this, we'll be a net beneficiary of bringing staff into Stantec rather than being an exporter of staff.
That combined with our ability to move work around to our various global operations, I think are some of the things that we're looking at as a way to be able to staff up for what we believe is quite a wave of opportunity to come.
Yeah. Just on that, given the size of what's being contemplated in that act, if it were to be passed in its current form, do you envision a time where your U.S. business, particularly your Water business, would be growing at double digits organically?
All of the various programs that have yet to roll out, but you can see already our Water has been up every quarter over the last couple of years, 3.7% again here. To stretch to double digits is possible in Water. I would also see Transportation as a net beneficiary where we could see some significant growth in Transportation, public transit, coastal resilience, a lot of these things. I think from my gut, that those will be the two net beneficiaries, in addition to some of the clean energy work that we're getting out of our Power group and our Environmental Services group to support those.
Okay. Last one before I turn it over, just continuing on this theme, what do you have to do to prepare for potentially double-digit growth in some of these end markets, versus how you're positioned now? Thanks.
A couple of things that we've talked about for 2021 is that this was a year that we came into really focusing on growth. Certainly growth from an M&A perspective, but also growth from an organic perspective. What we want to ensure is that we're going to get our fair share and then more, and grow market share through as these things come out. Again, it's really cranking up our organic growth machine in terms of some of these will come out in P3s, so talking about contractors, about teaming up already. As we begin to think about what some of the projects we're already in, talking to some of the clients about that, as we chatted about just earlier on there. Really thinking about how do we begin to share work amongst the various geographies.
These things are all under active discussion now, just to be sure that we're ready to take advantage of this when it comes.
Thanks, Gord. I'll turn it over.
Great. Thanks, Yuri.
Thank you. Our next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.
Great. Thanks very much. Just on the U.S., I guess one of the themes we heard coming out of Q4 reporting was some of the clients in those end markets were just being cautious until they better understood the priorities of the new administration. Can you maybe give us some insight into some of the conversations you're having and understanding some of these bills that haven't passed? Where are you seeing movement? Which end markets are still being a little bit cautious? Just some color on the pipeline and the conversations you're having.
Yeah. I do think that there's a lot of optimism amongst our clients there. When you look at different transportation agencies, both roadways and public transit, certainly water, some of the state and local governments. There's a huge backlog right now of opportunities that we've got out in the transportation space already. There are some agencies that are waiting to see a little bit what's happening from a funding perspective. That said, our backlogs in water and transportation overall as a company are strong and will carry us through the remainder of 2021, in any event, really even absent significant additional projects coming in the door. As we talked about, I see organic revenue strengthening to flat to slightly positive in Q2, and then continued growth through Q3, Q4, and just really a solid tailwind as we go into 2022.
Okay, great. Then just on your water comments there, I think you mentioned in your commentary earlier that you are working on some of those larger wins. I guess, to kind of replace some of that pipeline over the 12, 24-month period, would it have to be some of this funding going into some of these U.S. water projects? Where do you see sort of the opportunity in the water space as you kind of cycle through some of the framework agreements you won in the U.K.?
A lot of those, the U.K. and the Australia-New Zealand frameworks have been awarded, they've been contracted. We see that in backlog already. We're continually getting new awards, and that'll continue to grow backlog. The big backlog growth opportunities really are in North America. A lot of great coastal resilience opportunities down in the U.S., particularly in the Gulf area. A lot of work related to shoreline hardening, shoreline strengthening. A lot of treatment work as well, PFAS and these sorts of things, we're seeing more and more discussion related to how can we treat for those things. I think overall, the market is pretty robust. We'll see good growth in Water, and I do believe we'll see good backlog growth in Transportation through the remainder of this year as well.
Okay. Just the last one from me, just digging into the commentary around having to maybe add on staff, I guess if you maybe could give us some color by end market. Where in the U.S. across your end markets are you well-staffed? Where do you see the need to maybe hire more people, given where the opportunities are? I guess, just want to get an understanding of where you'll be hiring.
We're actively recruiting. When you look at our number of open postings, we're up well over 1,000 from this time last year. We're actively recruiting, in Canada, the United States, U.K., Australia, New Zealand, all of those locations. In North America, as we've talked about, for us, a big part of it is how do we share work between different geographies? We're primarily looking for the right people. If we can get them in some of the growth geographies, Texas, the coasts, we'd love to get them there. If we can get them in other locations, we'll take them there as well with our ability to share work around. We just are more interested in getting the right people. Of course, geography would be secondary to where we look.
We're looking to hire additional people in Water, in Transportation, in Buildings. Certainly, our Power sector is very actively looking for additional staff, as well as our Environmental group. As we see organic growth ramping up through Q2, Q3, Q4, our hiring will be ramping up to support that.
Sorry, if I could just squeeze in one more. I guess just on a comment around sharing some of this work, I guess. With some of these builds, do you foresee there might be some of this Made- in- U.S. element, or do you have enough staff in the U.S. and then you can send some periphery work out to some of these centers? Just as an industry, I guess, do you see that as a potential concern with more government dollars coming into the industry?
Yeah. When you look at some of the Buy American provisions, they seem to be mostly related to product, and less related to the services industry. Now, there are some works that we do for the U.S. Navy and other armed forces groups that have a requirement for a certain number of U.S. citizens to be involved and there are security requirements and so on. In general, that doesn't seem to be a significant impediment to us being able to move work around.
Thanks very much for the color.
Great. Thanks, Sabahat.
Thank you. Our next question comes from Jacob Bout with CIBC. Please go ahead.
Good morning.
Morning.
I had a question on your new digital solutions platform, the Stantec.io. How big of a revenue driver do you think this will be? Do you plan on breaking this out into a separate division? What percentage of this platform do you think will be a recurring revenue type model? I see that you're offering a subscription service as well as part of this division.
Yeah, absolutely. Yeah. We do see that software as a service and these annual subscriptions as something that will be an ever-evolving and increasing amount of revenue generation in a number of spaces. Certainly, in the Water industry, we see it being good opportunities there through some of the financial analysis models that we've got, through some of the models that we're using working with clients as they're modeling stream flow, dam breaks, and all these sorts of things. In terms of how big could it get, we're still just exploring that, I think, Jacob, and we see that that'll be something that will evolve over time. Now we've brought together roughly 40 different platforms that we had.
Some are much larger than others, of course, but bringing it together allows us to co-brand it, I think to give us the opportunity for even more cross-selling and for everyone to understand what we have and what we can offer to our client base. I think it's an important step. I think it's going to become even more important from a revenue-generating perspective as we move forward. We're still I think determining what percentage of revenue it could be, because it'll be different by Water versus Buildings versus Transportation and so on. Little early for us to maybe come out with those projections now, but we do see it as being an important part of our strategy in the years to come.
Our plan is that also that we won't break it out separately, that the product that we have that are related to Water, will still be revenue generated within Water. Those within Transportation, still revenue generation within Transportation. It wasn't our intention to break it out sort of as a fifth business operating unit at this point.
Do you have a standalone group, that provides this digital solutions platform? Or is it more of an integrated type model that you're using?
We do. It's really coming as part of our overall Innovation team. We have a couple folks that are helping to pull this together, looking at how we can design these common platforms going forward. It is a dedicated group.
Okay. Then the impact of the wind down of a number of these large-scale U.S. Transportation projects, how much of a headwind will that be in the second quarter?
It's interesting, if you looked at Infrastructure and the organic retraction over the last number of quarters, each quarter the organic retraction becomes less. I think that's what we'll see going forward that these things have a tail. Sometimes it's a long tail, but it does get a little bit less of an impact each quarter. We're still, as we're doing this work, we are submitting change orders. That change order negotiation process will take some time and will we get everything we ask for? Likely not, of course, but we do see the opportunity for some pickups in, we hope we see that in 2021, but likely, more so into 2022 we'll see a pickup, as a result of some of the costs we've already incurred. As we negotiate those change orders and get paid, we should get some inflows subsequent quarters.
Okay. I'll leave it there. Thank you.
Great. Thanks, Jacob.
Thank you. Our next question comes from Frederic Bastien with Raymond James. Please go ahead.
Good morning, everybody.
Morning.
Gord, I was intrigued by your comment on the unprecedented investment levels in Canadian healthcare facilities, and probably because many super hospitals have already been built. I was wondering which segments of that particular market are you seeing momentum?
Certainly, out in your neck of the woods, Frederic, there's the St. Paul's Hospital that we're engaged with. In Calgary, we're working on the Calgary Cancer Center. In Toronto, there's a number of new hospitals we were awarded there. We talked about the, I'd say, the Cariboo Regional, up in British Columbia there. Those plus just the number of opportunities that we see coming, it's from both a Canadian and also an Australian perspective is where we really see a significant uptick in the healthcare business. We've got some additional awards as well that we haven't yet put into backlog or disclosed. We just see that great opportunities coming in the healthcare space that certainly is keeping our Canadian groups busy, and we're sharing work, at this point, with our U.S. group.
Some good awards, as we mentioned in the prepared remarks, in the U.S. as well, that I think is going to turn our U.S. Buildings business into positive organic growth on a quarterly basis, on the last half of the year also.
Good. You're hearing governments pretty much everywhere talking up long-term care and how much money they're going to put into that sector. Are you well positioned to participate in any of the growth that might result from that?
Absolutely. Healthcare overall, whether it's long-term care facilities or larger or smaller hospitals, our Healthcare group is very strong and so very well positioned for that, really, from a global perspective. We're looking forward to some of those opportunities coming along as well.
Thank you.
Great. Thanks, Frederic.
Thank you. Our next question comes from Chris Murray with ATB Capital Markets. Please go ahead.
Thanks, folks. Good morning. Just maybe thinking a little bit about the product portfolio going forward and your Energy and Resources business. This has been one of the more cyclical parts of the business, I guess, for a few years now. It certainly sounds like TMX is going to shrink a little bit. Can you just talk a little bit about how you think you want to shape the Energy and Resources business going forward? I'm also thinking about things like carbon capture, storage, hydrogen, and some of your other ESG goals in that context.
Yeah. As we saw this quarter, with changing our contractual relationship on Trans Mountain, we're just not running all the independent contractors through Stantec. That's why the revenue has decreased from an oil and gas perspective. We're still doing all the other work that we were doing previously. We see a real pivot on the Power side. We've talked before about the work that we're doing in renewables, solar and wind and pumped storage and so on. We talked in the U.S. this quarter, we got up to a CAD 100 million project to strengthen the grid in California. We're seeing a pivot really on the Power side, particularly to clean power. In mining, we're seeing certainly due the increase in commodity prices, copper, iron ore are certainly at significant peaks from where they have been over the last number of years.
We're also seeing our mining practice pick up into other areas that do support the long-term transition also to cleaner energy sources. We're doing some work on lithium mines in Central and South America, required, of course, for battery storage. I see that over time, that the Power group will continue to grow. Our Mining group, particularly as we talked about with Engenium and some of the opportunities that they have, that transition to sustainable mining and so on, as well as our Water Power and Dams group, will continue to grow, and we're seeing that already. I think just over time, we're not planning in any way to divest or get out of oil and gas, but I just see the other groups probably growing at a higher rate than we'd see in that oil and gas sector.
All right, fair enough. Going back to M&A, and your original comments, I think, earlier this year, thinking about how you wanted to see growth, I guess, for the full year. Certainly, we've seen some really neat little tuck-in acquisitions. I guess going back to thinking about the rate of growth that you want to be able to achieve, I guess a couple of pieces of this. One, I'm assuming you're still thinking about that's what you want to try to get to this year. Two, how has the M&A process been evolving now that, in a lot of ways, we're moving past some of the, call it COVID complications, with getting some of the overview and transactions done?
We're still very active, certainly in the M&A space. We've seen our Balance Sheet is really strong, of course. We really are continuing with our strategy as it is. We're being very disciplined as we're reviewing firms. Certainly looking, because we need these to be successful from a long-term perspective. We're sticking to the geographies that we talked about, Canada, even more so the United States, looking into the U.K., the Nordics, Denmark, and Australia, New Zealand, and so on. The pipeline of firms that's come to market right now is really, really strong. There's some larger firms as well that are beginning to come to market. Some of them are PE exiting, at the end of their investment horizon. We're having a good look at all of these things, as others are as well. Will they spin to PE again?
Will they come out to a strategic? These are all things that we'll have to continue to assess. Certainly our appetite for continued M&A growth is strong. Our Balance Sheet is strong. We will participate in having a look at these acquisitions, whether they're in our typical sweet spot of less than 1,000 people, but some of the larger ones as well. It's really, for us, just maintaining that continued discipline as we move forward.
Okay. Has your ability to do due diligence improved in any way, shape, in the last maybe few months?
I think over the pandemic, and even before that, we were really looking at how to improve our opportunity to diligence these potential acquisition targets from a global perspective. I think our organization is much more mature now in terms of our U.K. and European operations, in terms of our Australia and New Zealand operations. We have the ability to diligence those potential acquisitions using local or certainly, in any event, regional resources, and we don't have to send people from North America to do that. I think that's been a maturing and a strengthening of the overall organization. Certainly, maturing and strengthening of it from an M&A and a diligence perspective.
Okay. That's helpful. Thank you, folks.
Thanks, Chris.
Thank you. Once again, if you would like to ask a question, please press star one. Our next question comes from Michael Tupholme with TD Securities. Please go ahead, sir.
Thanks. Good morning. I was hoping you could provide an update on the progress you've made in terms of your real estate footprint optimization.
Sure. I guess what I'd say is that we are a couple of months into a three-year planned execution. With still a large portion of our workforce working from home, there hasn't been a lot of movement, per se, in terms of folks coming back to the office. What we have done over the last couple of months is communicated with our staff, who have been very welcoming of this flexible workplace arrangement, and having discussions with staff around, at the individual level, what's appropriate for them given their roles, given where they are, and starting to map that out. Everything's on track, but it is early days.
Okay. Thanks for that. Next question is just, I guess, somewhat of a follow-up related to M&A, which you've already touched on, Gord. Just a question about the Australian market. You've been fairly active there with acquisitions. I'm wondering if you can just comment on how you feel about your footprint in that market now, and how much more additional acquisitions in that market you think you may or may not need, if you're comfortable with where you're at now, or it's a continued focus region for you in terms of further M&A.
It is a region of continued focus for us. I think now we have a good Water platform there. We have a good Transportation platform. Certainly, Mining is good. Buildings are strong. We have continued opportunities to grow in Environment. Certainly, continued opportunities to continue to grow in Transportation, even in Water. Really, the majority of our business groups there, we could continue to grow. We do see Australia, and to a lesser extent, New Zealand, as a great opportunity for us to continue to deploy some capital towards M&A.
Okay, have you started to realize some cross-selling benefits as you've been there now for some time and layered in additional acquisitions?
Absolutely. Yeah. With bringing on Engenium in the mining space, both on the East and West Coast, we have an environmental presence as well. We see great opportunities to tie that environmental group in with the client base that Engenium had. We're seeing a lot of cross-selling, even between our Transportation business and Water and Building. We're really getting the benefit of adding these additional resources down there. That's where I think it's so attractive for us to continue to grow through M&A, to sort of fill out our space there a bit.
Okay. That's helpful. Thank you. Just a question regarding organic growth. I know you had been calling for a retraction in Q1, and you reiterated your full year organic growth target range. I'm just wondering, though, if your assessment of risks around being toward the top end of your organic range for the full year versus the bottom end, if that assessment has evolved at all since last quarter, considering sort of the start you had to the year with organic growth.
I think we still see that we would target and guide into that low to mid organic growth. With also the caveat that, as we mentioned early on there, that taking out the revenue that we had generated from Trans Mountain is about just approaching a 2% headwind to that organic growth for the year already. While we say low to mid, we're reaffirming that even with that approaching 2% headwind from Trans Mountain.
Okay, got it. Lastly, Theresa, you had talked a little bit about stock-based compensation and the increase year-over-year. What had you included in your 2021 EBITDA margin guidance range for stock-based comp when you set that range?
We would have based it on sort of the prevailing share price at the time that we were preparing our budgets and our forecast. We've seen, as you know, a pretty significant increase in the share price since January, February. That's kind of what's driven it to the range that it's at. Our practice is to not try to predict where it's going to go in the year. We sort of base it on what the prevailing price is. That increase was a pleasant surprise, but did create a headwind on our EBITDA margin.
Okay. Based on the price of the stock at the time that you'd been developing the budget, would that have sort of led you to be forecasting kind of flattish stock-based comp year-over-year, whereas in fact now, at least the start of the year, it's coming in higher?
Yeah, that's right.
Got it. Okay. Thank you.
Okay.
Thank you. We have no additional questions at this time. Mr. Johnston, I will now turn the conference back to you for any closing or additional remarks.
Great. Well, I just wanted to say thanks everyone for joining our call today, and we look forward to continuing to connect with you in the near future and talk about our continued progress. On behalf of Theresa and I, have a great day everyone, and stay safe. Thank you.
Thanks, everyone.
This concludes today's call. Thank you all for your participation. You may now disconnect.