Good morning, everyone. Welcome to WSP's first quarter 2024 results conference call. I would now like to turn the meeting over to Quentin Weber, Investor Relations. Please go ahead, Mr. Weber.
Good morning. We hope you're all doing well, and thank you for joining our call today. We will be discussing our Q1 2024 performance, followed by a Q&A session. Joining us today this morning are Alexandre L'Heureux, our President and CEO, and Alain Michaud, our CFO. Please note that this call is also accessible on our website via webcast. During the call, we will be making some forward-looking statements, and actual results could differ from those expressed or implied. We undertake no obligation to update or revise any of these statements. Relevant factors that could cause actual results to differ materially from those forward-looking statements are listed in our MD&A for the quarter that ended March 30th, 2024, which can be found on SEDAR and on our website. In addition, during the call, we may refer to certain non-IFRS measures.
These measures are also defined in our MD&A for the quarter that ended March 30th, 2024. Our MD&A includes reconciliations of non-IFRS measures to the most directly comparable IFRS measures. Management believes that these non-IFRS measures provide useful information to investors regarding the corporation's financial condition and results of operation as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS, do not have any standardized meaning prescribed under IFRS, and may differ from similarly named measures as reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS. I will now turn the call over to Alexandre.
Thank you, Quentin, and good morning, everyone. I am pleased with our first quarter performance as it sets a solid foundation for the remainder of 2024 and reflects the positive momentum we continue to experience in our business. Globally, our backlog and pipeline of opportunities remain robust across all sectors, especially in the Americas, which recorded a double-digit organic backlog growth. In Q1, we delivered strong results in line with our expectations, and our top line and profitability continued to trend positively. During the quarter, we continued to future-proof WSP over-indexing three core elements. First, we focused on optimizing our global platform to unlock even more possibilities and drive sustained organic growth and margin improvement. Second, we added expertise in new clients through a number of acquisitions completed in the first quarter.
Third, we remained dedicated to being the premier partner to our clients and our communities, and let me review each in further detail. On the optimization front, I'm sorry, we elevated further our outstanding platform, seizing productivity opportunities and bolstering project performance. These efforts are allowing us to already report an impressive increase of 50 basis points in adjusted EBITDA margin when compared to the first quarter of 2023. Moreover, it provides us with the confidence to deliver on our three-year strategic plan ambitions to increase our margin profile by at least 150 basis points. We also concluded the go-live of our Global ERP in the U.K. This region is the third key geography to onboard to the platform after Canada and the U.S., and we now have over 70% of our EBITDA converted and more than 50% of our employees on the new platform.
This is one of the largest transformations we have undergone as a business, and it covers the modernization of our sales, procurement, project management, HR, and finance functions. We are already beginning to reap the benefits of this initiative through enhanced business intelligence capabilities, the exchange of best practices, the leveraging of insights and data, and increased collaboration. Also, we are pleased to report that our deployment schedule is on plan and on budget. Since the beginning of the year, we have continued to bolster our platform by deploying capital towards strategic acquisitions, and we have announced four transactions recently. The first Communica is one of Canada's leading Indigenous and stakeholder engagement and information management consulting firms. It is recognized for its collaborative approach and its ability to deliver authentic, open, and transparent stakeholder and wider community engagement, including with Indigenous communities.
This acquisition reinforces WSP's commitment to delivering impactful community projects and enhances its ability to respond to the increasing demand for stakeholder engagement and information management services. The second is Proxion, one of Finland's largest rail consultancies that offers a range of railway and railway system design services, including traffic and energy services as well as safety and security expertise. Proxion adds key rail expertise in Finland to WSP's transport and infrastructure capabilities in the Nordics and strengthens our market position and ability to lead large-scale projects in the Finnish market. By combining our respective expertise and teams, we aim to elevate our capabilities, broaden our portfolio, and strengthen our market position in the country.
The third is 1A Ingenieros, a Spanish consulting firm in transmission and distribution operating mainly in the power and energy sector, which will enhance WSP capabilities in Spain, creating a strong multidisciplinary business in the region with a balanced portfolio in our core end markets. It will also increase our local workforce by approximately 70% and expand our geographical presence in the country by adding four new regions. Through this acquisition, WSP will be positioned as one of the leading international engineering firms in Spain. The fourth is AKF Group, a specialized mechanical, electrical firm that designs complex healthcare, science and technology, and mission-critical facilities. AKF enables us to strengthen our scale in the US and expand our expertise within property and building by 20% in the US alone.
Through this acquisition, we aim to enhance our technical practice and boost our capabilities and presence in several essential high-end demand markets and in a wide variety of sectors such as corporate, cultural, healthcare, education, hospitality, retail, science, and technology. The sustained expansion of our platform is attributable to strategic capital deployment and organic growth, but also to nurturing our internal talent and resources. This is why I'm proud that we continue to focus on internal promotions and have set high ambitions in our strategic action plan. In 2023, we filled over 75% of our global leadership roles with internal candidates, and since the beginning of the fiscal year, another example was Joe Sczurko being promoted to the role of President of our business in the United States. Joe brings decades of invaluable leadership experience and a deep understanding of the industry and evolving client needs.
I'm thrilled to see him and many others take on new challenges. The third core element of focus in the quarter was and will continue to be elevating the standard in client experience and being a premier partner to communities. We are making great strides on this front, as witnessed by some recent project wins. Today, I have selected three that best illustrate this. In the U.K., we have confirmed our work on one of the largest programs ever won by WSP in the U.K. in terms of scale, revenue, length, and complexity, which is aligned with our ambition to stay at the forefront of the energy transition and bring exciting new career opportunities for talent. The Great Grid Upgrade is a major program to deliver electricity transmission infrastructure across the United Kingdom and enable 50 gigawatts of network capacity by 2030.
It is a critical step in the pathway to Net Zero to reduce reliance on fossil fuels and enable a shift towards renewable energy. WSP has been appointed as one of seven industry partners tasked with providing over GBP 9 billion worth of design and construction for National Grid's over 12 years. Our scope consists of providing professional services across the whole delivery lifecycle, from early-stage scheme development to environmental services, planning, consent, and detail design. This win is well aligned with our ambitions to stay at the forefront of the energy transition and bring exciting new career opportunities for our talent. In Los Angeles, we have also signed a new $100 million program management contract to support LA County Metro on the 15-mile light rail extension to Southeast Los Angeles County, which connects underserved communities from 10 cities to downtown Los Angeles.
The project is important as it broadens the scope of WSP traditional design services for this important customer. During the selection process, WSP scored highest amongst competing firms, achieving the best score in each of the major categories: firm experience and capabilities, key personnel, and project approach. WSP has been the leader in the rail and transit sector in the U.S. since the design of the New York City subway system in the 1880s, and we fully intend to remain in the top position. In Australia, we are supporting the Queensland Train Manufacturing Program, which aims to deliver 65 new six-car passenger trains in time for the Brisbane 2032 Olympic and Paralympic Games. This initiative is a pivotal support system for the region's growing population and economy. The program will not only boost Queensland's jobs market but also offer substantial training and development opportunities.
WSP provides civil, structural, rail, geotechnical, building, and power design services for the greenfield facility. These three examples are a testament to the types of projects that allow us to partner with like-minded clients and deliver projects that profoundly enhance and impact the lives of communities. On that note, I will now invite Alain to review our financial results.
Thanks, Alex. I'm very pleased this morning to report on our strong results for the first quarter of 2024, where we've seen net revenue grow organically by 4.6%, EBITDA by 8%, and earnings per share by 13%. Let me elaborate further on each of these points, starting with our top line. For the first quarter, revenues and net revenue reached CAD 3.6 billion and CAD 2.8 billion, up 2.7% and 4.7% respectively compared to the first quarter of 2023. We achieved net revenue organic growth of approximately 6.5% when normalized for the same number of billable days compared to Q1 2023. As stated in our outlook issued in March, these additional billable days will reverse in Q4. Backlog as of March 30, 2024, stood at CAD 14.2 billion, representing 11.8 months of revenues.
Of interest, as Alex stated, the Americas reportable segment achieved organic backlog growth of 10.3% over the last 12 months. Adjusted EBITDA in the quarter reached CAD 446 million, up 7.9% compared to the first quarter of 2023. Adjusted EBITDA margin for the quarter reached 16%, an increase of 50 basis points when compared to the first quarter of 2023. For the last 12 months, our EBITDA margin now stands at 17.7%. This increase is mainly attributable to our continued focus on productivity, as evidenced by a reduction in our personnel costs as a percentage of net revenues. For the quarter, adjusted net earnings reached CAD 194 million or CAD 1.55 per share, up approximately 13% compared to the first quarter of 2023.
Free cash outflow reached CAD 125 million for the three months ended March 31, 2024, better than the same period last year and slightly ahead of our expectation. Our DSO stood at 76 days as of the end of March, stable and unchanged when compared to December 31, 2023. Our net debt to adjusted EBITDA ratio stood at 1.6 times, within management's target range of 1 to 2x . As we progress through our business transformation journey, we continue to aim for a 100% conversion of net earnings to free cash flow for 2024. In conclusion, we're off to a great start with a solid set of results, a strong operating plan, and healthy market condition. We are therefore reiterating our outlook with confidence. Now back to you, Alex.
Well, thank you, Alain. Given our prudent start of 2023 compared to our solid start in 2024 and given our progress made in the current strategic cycle, we are confident in the future. We welcome approximately 10,000 employees through 15 acquisitions since the beginning of our plan, and notably four since the beginning of the current year. We continue to have a promising pipeline of growth opportunities, a solid balance sheet, and looking at the rest of 2024, we are moving forward with confidence. Our focus remains on delivering on our ambitions bolstered by healthy market conditions. Our shared vision and collective efforts are the cornerstone of our success, and I am confident they will continue to guide us on our journey to be recognized as the undisputed leader in our industry.
On a final note, I would encourage you to explore our 2024 Global ESG report, which will be published shortly. You are also invited to take part in our annual general meeting, which will be held in person and virtually at 11:00 A.M. Eastern Standard Time today. More details can be found on our website, and I will now open the line for questions.
Thank you. To ask a question, you'll need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We will now take our first question. First question is from the line of Benoit Poirier from Desjardins. Please go ahead.
Yeah. Good morning, Alain. Good morning, Alex, and congratulations for the strong start.
Thank you, Benoit.
Thank you, Benoit.
Yeah. Hey, just in terms of headcount, you added about 700 people so far this year. Obviously, you've been through 4 M&A transactions. So I was just curious to know how many people came from acquisition and what's your expectation for the remainder of the year in light of your growth trajectory. And also, if you could comment about the greatest opportunities you still see from a productivity improvement standpoint.
Well, look, I think if I start with M&A, we have a very good start. I'm very pleased with where we stand at this point in time. The pipeline is healthy, so I'm confident that the remainder of the year should bear fruits. I think on that front, I'm feeling good that we should have a good year in 2024. Perhaps, Alain, you want to comment on headcount?
Yeah. So on headcount, Benoit, with the Communica, Proxion acquisition in Q1, we've added about 200 people. Our focus, as we've discussed many times, in 2023 and at the start of 2024, we've been heavily engaged on maximizing the productivity of our business. So headcount growth is important, but it's a balancing act, delivering also on increased productivity and efficiency. So we are in line with our budget in terms of growth of headcount. For the remainder of the year, we intend to continue on a similar path of maximizing our productivity.
Okay. Excellent.
You need to remember that the last two acquisitions have been completed in Q2.
That's right. Beginning of Q2. Yeah.
Yeah. Yeah. Okay. That's great, Caller. Some of your peers mentioned weakness in the Chinese housing market as well as in the UK, where one player proceeded to some cut headcount in their transportation division. I know China is not material for you, but I was wondering if there was any update and whether you were seeing anything similar.
No, Benoit. I mean, actually, yes. I think we've consistently been saying over the last three or four quarters that Asia is challenging. There's no doubt about that. Having said all that, as you just mentioned, mainland China for us, it's 300 people out of 67. So for us, it's de minimis. As it relates to the U.K. market, we are not seeing what has been perhaps described by others. We're feeling good about our performance. We're feeling extremely good around our recent win of a National Grid, which would provide good organic growth for the business for years to come. So overall, I'm extremely pleased with our performance in the U.K. market.
Okay. Thank you very much for the time.
Thank you.
Thank you. So we'll now take our next question. This is from the line of Chris Murray from ATB Capital Markets. Please go ahead.
Yeah. Thanks, George. Good morning. Just really quick, just looking at the backlog in Canada, the organic number was actually slightly negative this quarter. Just wondering if there's anything going on or it's just sort of a temporary thing, if you can just give us more color on maybe the reason for it being kind of flattened out?
Yeah, Chris. If anything, we feel extremely confident with the backlog in Canada and the market condition. I mean, it's mostly timing-related, the ins and outs of a larger job. Underlying business is performing quite well, and the backlog is solid. So no issue in Canada. Same comment for the Americas for that matter and across the board.
Feeling very, very good about Canada at this point.
All right. No, that's helpful. And then just following on maybe your comments about the ERP system. So congratulations on getting to 70% complete. But thinking maybe over the next year or two, what's left to be done on this program? And is it fair to think that it should be substantially complete by the end of this fiscal year?
Well, currently, as Alex said, 70% of our EBITDA, so Canada, US, and UK, is done. And when we reflect that, what we've achieved since the beginning of the year, it's 25,000 and more that have been onboarded on the platform. So we're extremely proud of that and proud of our team that have devoted significant effort on that front. We are now moving to the east, and there's other region to be done, the Nordics, Australia, New Zealand. So I think it's more a 2025 calendar year that we will see the majority of our business into one platform. That's the intention, Chris.
The way, Chris, I'm thinking about it and the way I think you should view this is I like to think, and I'm saying that in a very I'm obviously cautious in the way I'm saying it, but I feel we have substantially de-risked this program at this point in time with our three largest countries on the platform, with 70% of our profit on the platform. However, we are operating in 60 countries. So the remainder 30% will take a bit more time, but we're highly confident that things are going to go well and they're going to be smooth. What I'm especially proud of is, and you may have noticed it in our numbers, yes, the DSOs have increased slightly.
But given the sheer task that we had to go through, I'm very proud that we kept our DSO stable, and I feel it's only going to improve from now.
All right. That's helpful. Thanks, folks.
Thank you.
Thanks, Chris.
Thank you. We'll now take our next question. Please stand by. This is from the line of Jacob Bout from CIBC. Please go ahead.
Good morning.
Hello, Jacob.
Hi, Jacob.
Yeah. I had a question just on M&A. I know you're saying that the pipeline looks pretty strong, but maybe you could talk a bit about how the pipeline's looking for the mid- to larger-size acquisitions. And then my second question just on this M&A, what the margin profile of the recent acquisitions look like?
Yeah. The margin, sorry, of the acquisition we just completed are fairly similar to our margin profile at this point in time. However, we continue to believe that we can improve the margin profile of those firms as soon as we are in a position to integrate them into our platform. So, feeling very good about this, Jacob. Look, around mid- to larger-size acquisition, I think I've said that on numerous occasions in the past, it's extremely difficult to time acquisition. Oftentimes, it takes many years to convince a firm to join your ranks. It takes a lot of nurturing. What I can tell you is that I continue to have formal and informal discussions with smaller-size, medium-size, and larger-size acquisitions.
I cannot guarantee you when we are going to complete these, but what I can tell you is that I'm encouraged by the discussion that I'm having right now.
That's fair. Maybe just going back to backlog and just looking specifically at APAC, it's down organically year-over-year. Talked a bit about China, but how about Australia and New Zealand? I know you called it the timing of some projects there, but are you expecting a slowdown, or is this just all timing in your view?
Well, I think in New Zealand, with the recent election, I think there has been a pause. Like any governments now, I think it's a more center-right government and took a pause on infrastructure spending. We expect that to change and resume in due course. Are we overly concerned by that? No. I think we're calm when things are hot, and we're calm when things are cooling off a little bit because we believe this is timing and infrastructure needs are needed. Same with Australia. We've experienced double-digit organic growth for, I think, two years now. So obviously, we're starting from a higher base, but the activity level is good. We have a very strong business. We have a very strong team. So I'm positive in the longer term for that region.
Yes, Asia is, as I said earlier on today, it's been challenging, and I believe will continue to be challenging for some time. Thankfully for us, this is a small part of our business.
Appreciate the call. Thank you.
Thank you.
Thanks, Jacob.
Thank you. We'll now take our next question. This is from Devin Dodge from BMO Capital Markets. Please go ahead.
All right. Thanks. Good morning.
Hello, Devin.
Maybe a couple of questions, maybe not so much related to Q1, but maybe longer term. But look, the demand environment is really quite strong across many of your regions. How do you think about the balance between pursuing the growth opportunities that are available and being more selective in your bidding activity to drive margin expansion?
Well, this is a balancing act, as you just mentioned, right? If I look where we are today as a company, WSP, I look at the brand awareness of the company. I look at the type of projects that we are now in a position to tackle as a prime designer or a prime consultant. And I compare that to where we were 5, 7, 8, 9, 10 years ago. We are in a different space. Again, I mentioned and I highlighted three projects this morning that is a testament of what I just mentioned. I look at the great strides that we're making in sectors where three, four years ago, we were not big. I mentioned a few quarters ago the award of Propel, Propel Project, another energy transition project in the state of New York, massive project for us, and now National Grid.
Three, four years ago, we were not there. So I was telling our board this week, the absolute number in organic growth is obviously important. And we're pleased if you compare orange with oranges or apple with apples that we grew 6.5% this quarter. But it's the type of growth that we are able to generate in sectors where we were fairly small a few years ago. I'm extremely pleased with the type of award that we are able to secure right now. So that's telling me that we are continuing to diversify the platform. We continue to grow in sectors where we were not a leading firm. And then we continue to capitalize on the sectors where we have a strong presence. And the Proxion acquisition in Finland is a testament or an example of that.
Now, in the rail sector where we have the leadership franchise around the world, we're going to be able to tackle large projects in Finland. So overall, I'm feeling very good about that. And even though we're going through a conversion, an ERP conversion, we have been able to increase our utilization, and we have been able to increase our margin over the recent past. So I feel, as Alain mentioned, our team should be commended for the extraordinary work that has been accomplished recently.
Thanks for that. That's a good color. Okay. Second question on PFAS. Lots of interest on the back of the EPA releasing some final rules last month. Do you view this as an opportunity for WSP? Can you walk and if so, can you walk us through the services that you provide and where you expect to see the most benefit going forward?
Tremendous opportunities. Perhaps, Alain, you can cover that. But clearly, for us, like any other firms in the space, it's a real opportunity. The rules and the regulation are strict, and the requirements will increase demands for our services. So I feel that over the coming years, we'll have our share and we'll be winning our share of work in that space. Alain, anything to add?
Yeah. Definitely positive, Devin, in terms of development. The rules in the U.S. are probably the most strict that we've seen. But I think it bodes well for our expert. We probably have around 500 PFAS experts in the U.S. alone. Our backlog in Q1 has already seen some good level of work. So we're extremely positive about the impact of the new regulation and the flow of work that should come our way given our expertise and profile in the space.
Great. Thanks for that. I'll turn it over.
Thank you.
Thank you. We'll now take our next question. This is from Frédéric Bastien from Raymond James. Please go ahead.
Oui, bonjour.
Bonjour.
Salut, Fred. Guys, I'd like to circle back on M&A for a bit. I'm wondering what has changed from an internal or external standpoint to make you say, "Hey, okay, now it's time to open up the M&A valve again"?
Yeah. If you remember, Frédéric, I think it was the last quarter, yeah, the last investor call, I mentioned that we view 2023 as a year of consolidation. Last year alone, we grew our top line by over 20%. Yes, not all of this was organic growth. There was a lot of acquisition growth, but we grew our top line by one-fifth in one year. So I consider that to be very meaningful and very transformative. So last year was a year of consolidation. We wanted to extract the value from the platform. We wanted to complete the integration of Golder. We wanted to activate our work on the integration of Wood E&I . So that's why I considered last year a year of consolidation. This year, we've had a strong start of the year. Mind you, these are not large acquisitions but are very strategic to us.
Yes, we're clearly open for business. We have a strong balance sheet. As I said before, I feel we have substantially de-risked the ERP project and transformation. I feel that all of the ingredients are now in place for us to continue to grow inorganically and organically.
Thanks. Super helpful, Hill. Next one is perhaps for Alain. We saw better-than-expected margin expansion in the quarter, at least from our standpoint, and that sets you up quite nicely for the rest of the year. Do you anticipate similar gains in future quarters, or will we see a bit of variability as we build into Q2, Q3, and Q4?
Yeah. So as Alex said, we're very proud of the lift in Q1. We usually have lower margin expansion in the first quarter of the year, so we're extremely proud about that. We've devoted significant effort on working on all those levers, as you know, Fred, on productivity. We are certainly aiming to push and continue to increase margin in the following quarter, and we're feeling confident about the 65 basis point increase that we have guided for the full year. So we'll keep on working hard and pushing hard on improving the productivity of the firm.
Okay. But do you expect that to be linear, or I mean, 65% is a massive improvement. Would that be back and forth?
You're very persistent. That's the intention, to continue to push in that direction.
All right. Thank you.
Thank you.
Thank you. We'll now take the next question. This is from Maxim Sytchev from NBF. Please go ahead.
Hi, everyone, gentlemen.
Hello, Max.
Alex, maybe the first question for you, if I may. In terms of certainly, it feels like there's a theme emerging when it comes to power, big win in the U.K., Spanish acquisition. We're reading that U.K. will need to invest by a factor of 7 when it comes to full energy transition. Do you mind maybe expanding a little bit on this important theme and maybe the opportunity potentially in the U.S. and Canada, how to sort of take advantage of this? Thank you so much.
Yes. Look, you've been following us for a very long time, Max, so you know us inside out. We've always been undertaking a very disciplined approach in the way we're building our firm. And as I said, the first pillar we started with more than 10 years ago was with property and building. Then we moved to transportation infrastructure, and we continue to raise the bar in those two sectors. More recently, we said that we wanted to become the leading firm in the green transition. So we built our pillar around earth and environment. And now, I feel that we are ready to make a big push in the energy transition. So more recently, we've invested a lot in talent, and we invested a lot of effort in growing our presence in that sector.
As I said before, I could not be prouder of the work that has been accomplished in this strat plan to grow our presence there. I think now we're tackling some of the largest energy transition programs in the United States and in the U.K. I'm extremely pleased about that. You're right in pointing out that our push in Central Europe with the 250 people acquisition and transmission distribution is another example of our core strategy at this point in time. Yeah, we're going to continue to push in that sector.
I appreciate that. Thanks so much, Alex. And then one other follow-up that I have. Do you have any update in terms of IIJA and how that funding is flowing through and how we should be thinking about this in terms of the impact?
Yeah.
Yeah. Thank you.
I could take that one, Max. So the latest number that have been published, there's about 40% of funding that have been deployed. This is April data, and it's up from February data by more than 30%. So we were at 30% deployment in February, 40% in April. So it's moving certainly in the right direction. 40,000 projects have been awarded funding through the Biden infrastructure bill. So that continues to support our thesis around and our confidence around the U.S. And if you combine that with the regulation and PFAS we've covered before, we continue to feel very strong about the U.S., especially given our leadership position in the transportation business. And I have to say, transportation represents currently about two-thirds of all the funding that have been deployed through the bill. So that's good news for us and supports our thesis.
Okay. Excellent. That's it from me. Thank you so much, Alain.
Thank you.
Thank you. We'll now take the next question. This is from Michael Tupholme from TD Securities. Please go ahead.
Thank you. Good morning.
Hey, Michael.
Morning.
This may tie into the last answer you just provided there regarding IIJA, but the 10.3% organic growth and backlog in the Americas that you've highlighted a few times, can you talk a little bit about the areas that drove that increase in the quarter?
All the sectors, Michael. I mean, transportation, property and building, earth and environment. We are seeing growth in those sectors. We've seen growth in power, as I talked about. At the moment, I feel we are going to continue to grow in those sectors. One that I would perhaps add as well is advanced manufacturing. We are doing more work in that space, and I expect to continue more and more. That also is a real opportunity for us to grow and to develop new sectors.
It doesn't sound like it from your response just now or any of your other comments, but more broadly, when we look across the business from an end-market perspective, are there any areas that are looking weaker right now or causing you to be concerned at all?
Are you talking in the Americas, or you're talking globally?
Globally. I don't mean regionally. I mean, I know you've touched on Asia and China regionally, but just from an end-market perspective, globally, is there anything that you see as slower?
I don't think we can look at our sectors and conclude that things are slowing down. To the contrary, I feel we're in a good spot right now. But yes, there are some pockets of geographies that are more challenging than others. But for the most part, I feel our top countries are performing well at this point.
Perfect. And then just lastly, looking at the margins in the APAC segment, you did see a decline in EBITDA margins year-over-year in Q1. I see from the commentary that the performance in Asia was the source of that. I guess I'm just wondering how we should think about APAC margins going forward as you move through the year. Is there an opportunity to grow margins, or how should we be thinking about margins?
Yeah. Actually, Australia margin profile, we're not reporting the different countries. But just to give you a sense, in Australia, we have seen our margin profile going up, not going down. Equally, New Zealand has been stable. So overall, I think we're feeling good.
If you look at Asia specifically, Q1 last year was a quasi-normal quarter. The comparison Q1 over Q1 is a little tougher. If you look sequentially versus Q4, Asia is not significantly moving down. Overall, if you think about Australia, New Zealand, feeling confident about their margin profile improvement for the rest of the year and stabilization in Asia.
Okay. That's helpful. Thank you.
Thank you. We'll now take the next question. This is from Michael Doumet from Scotiabank. Please go ahead.
Hello. Good morning, guys.
Hey, Michael.
Hey, Alex. You guys discussed productivity, again, as being a focus in 2024. And when I look at the project margins and the improvement there, obviously great in the first quarter, I can think about that as coming from an increase from a combination of higher price and higher utilization. Is there a way maybe that you can discuss the trend of each? And I'm just curious going forward where you think there's more room.
Well, definitely, we definitely believe there's more room in the years to come. You can always improve. We believe there are some geographies and some sectors where the productivity is now where it needs to be, as far as we are concerned, number one. And number two, going back perhaps to a question that was asked earlier on this morning, being more selective in the projects that we undertake. WSP, we excel in complex projects. That's where we feel we can do better, and we can increase our margin profile. So the type of projects that we undertake is also going to have an impact on our margin profile. So obviously, by selecting projects where we believe we can really raise the bar, provide a better service, or a differentiated service, will allow us to increase our margin profile.
I would argue that this is all of the above at this point.
Okay. No, that makes sense. And Alex, maybe just turning to Alain, look, you've been here for a long, long time, and you've done a lot of deals. We're living in a world where valuations are high and interest rates are high. You would think that maybe one of the two would have given a little bit. But when you look at deals today, do you feel more strongly about the need to drive synergies to get to the appropriate IRR, or do you still think that there is sufficient value out there, particularly when we're talking about the medium to larger deals?
Yeah. Look, it's not the first time we're going through an environment that is challenging. I think you heard me saying that before. You just mentioned, "I've been there for a very long time," so. So we've gone through times where I remember 2014, that's 10 years ago, but the turnaround in oil and gas and the markets were challenging. But you know what? In those difficult times, there are also some opportunities. So if you recall, at the time, the exchange rate between the U.S. and Canada was 1-for-1. So we were able to acquire Parsons Brinckerhoff in a difficult period where, however, from an exchange point of view, we had favorable tailwinds. So my belief is that in good times and in bad times, you have to be creative, and you have to find value in the transaction that you look into. Mind you, you're right.
We have to be disciplined. If the interest rate is impacting financial sponsor, I don't see why it would not impact us. So we have to be disciplined in the way we're thinking about the transactions. But for the right acquisition, I am not going to shy away because of the current environment. We need to have a long-term view on transaction and what we're trying to build as a company. So that would be my take at this point in time, is we should not be using the market conditions as an excuse. We should instead push ourselves to be creative and find value.
Yeah. No, I appreciate those comments. Look, maybe I'll ask a third. I'm assuming I'm lost here. But just as a clarification, should we interpret your reiterating of your guidance as it being unchanged, including the recent acquisition and the favorable effects, or just not updated yet?
It's early in the year, Michael, so we didn't feel, given the impact of the recent acquisition, we didn't feel the need to increase or change our guidance. We'll continue to track that and see in Q2 and Q3 what we do. But we're feeling equally strong as we felt in March when we issued our guidance with the platform we had at the time. So I think that.
Let's revisit this in Q2 or Q3.
That's right.
Yeah. Sounds clear. Perfect. Thank you, guys.
Thank you.
Thank you. Well, and that's our next question. This is from Ian Gillies from Stifel. Please go ahead.
Morning, everyone.
Good morning.
Morning.
I just wanted to follow on some of the questions in and around power and your intention to grow there. I'm just curious on how that business, or perhaps the ones you've looked at, or in broad strokes, how it stacks up, I guess, maybe against the corporate averages. Because one of the great things about growing that earth environment business, it appears to be higher margin than the corporate average. I'm wondering if power tends to have some of the same traits.
Yeah, it's a fair assumption. It's a fair assumption. Right now, the world is in dying need of new sources of energy. So I feel I mentioned a few projects this morning. This has not gone unnoticed for us, and we believe that WSP is uniquely positioned to provide services in that space. Because the power space, it's not just about and around connecting new sources of energy to existing grid. There is also a collateral impact on other sectors, such as building earth environment and transportation. So we wanted, in a very disciplined way, to build our presence in earth environment, which we've done since late 2018. But clearly, as you can see and notice, I've been talking about this over the last few quarters.
I'm quite keen to continue to diversify our platform, and I'm quite keen to continue to grow in sectors where we're not leading, and we have the aspiration to become a leading firm.
That's incredibly helpful. Thanks very much. The other separate question I had, one of the things that's been talked about on prior calls is trying to increase your presence in the U.S. with respect to federal government spending, whether it be through GSAs or other avenues. Is that still a focus, or is there enough work going on elsewhere that you've shifted priorities?
No. They're not mutually exclusive. That's the way I would answer the question. I think we can continue to push. I talked about power, but I mentioned advanced manufacturing. I think there's real opportunities for us to grow in that space organically and potentially through acquisitions over time. So I think these are new sources or new opportunities for WSP, and we intend to take advantage of them.
Okay. That's very helpful. Thanks very much. I'll turn it back over.
Ian.
Thank you. We have one more question. The last question today is from Sabahat Khan from RBC. Please go ahead.
Great. Thanks and good morning. I guess just hearing about where you see the demand, whether it's by region and market, how are you balancing these demand indicators against hiring and then trying to just maintain the right level of utilization and drive margins? I'm just trying to understand what the demand environment still seems like it's in a reasonable place. Labor situation is somewhat better than a few years ago, but just curious how you're deciding on the right number of employees to onboard while also considering M&A there. Any quote would be helpful.
Yeah. Well, I'm glad you bring this topic, Sabah. I mean, if I look at our trailing 12-month numbers, our turnover is at historical low levels, meaning that we have a lower turnover in our last 12 months, and we've had it in pre-pandemic levels. So that, combined with our increased productivity and extracting the value from our platform, we are obviously this is a balancing act. But recently, we have chosen to work on the engagement of our people, reducing our turnover, increasing productivity rather than being out there and obviously hire just for the sake of hiring. You look at the fee per employees that we are generating and the curve that you are going to witness if you do the math over the last 10 years, I mean, that's something I'm really focused on.
I want to make sure that, and I'm saying that with all due respect to our employees that are listening to the call, but I want us to do more with less. I want us to be in a position to deliver more with less. So I want us to run a very, very tight ship and a very, very efficient platform. So that's the mindset right now.
Great. And then I guess with some of these moving parts about end market growth and the IIJA, if we look particularly at the U.S. market, do you expect any meaningful shift putting M&A aside, any meaningful shift in your end market mix? I think you're large in transportation. That's a big part of the IIJA. Do we expect more of the same? Do you expect any evolution in where your business comes from over the next two to three years in the U.S. market?
Well, as I said, I think there are untapped territories for us. So I mentioned power, advanced manufacturing. I feel we could do more there. We can always do more in water, which we're going to continue to grow. But there's so much work in the property and building sector. There's so much more that we can do here. And transportation, we're subscale in many states and many parts of the U.S. So I do feel that we have tremendous opportunities pretty much in all sectors. But as I mentioned today, there are some sectors that I would like to grow because I feel we're too subscale at this point in time.
Okay. Then one last quick one, maybe for Alain. I guess a lot of discussion on this call around M&A. With the scale of the company growing and the cash flow base growing, should we expect any other areas of focus within capital allocation besides M&A over the next one to two years? Thanks.
I will take this one up, and Alain can comment. But yeah, as part of our next strategic cycle, clearly, we are going to continue to invest in R&D and digital, definitely.
It's a mix of organic and inorganic priority.
Great. Thanks very much.
Thank you.
Thanks, Sabah.
Thank you. There are no further questions at this time, so I'll hand back to the speakers for any closing comments. Thank you.
Well, thank you for attending the call today. Thank you for your support. As a friendly reminder, we will be holding our annual shareholder meeting at 11:00 A.M. Eastern Time today. We are encouraging you to attend in person or virtually. We look forward to updating you in Q2. On that note, I would like to wish you continued success and a great starting of the summer. Thank you very much.
Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.