Good morning, ladies and gentlemen. Welcome to WSP's First Quarter 2022 Results Conference Call. I would now turn the meeting over to Quentin Weber, Senior Advisor, Investor Relations. Please go ahead, Mr. Weber.
Good morning. We hope that you're all safe and doing well. Thank you for taking the time to join the call today, during which we will be discussing our Q1 2022 performance, followed by a Q&A session. With us today 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 be different 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 management's discussion and analysis for the year ended December 31, 2021. Also, during the call, we may refer to certain non-IFRS measures.
These measures are defined in our management's discussion and analysis for the quarter ended April 2, 2022, which can be found on SEDAR and on our website. Our MD&A also 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 operations 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. With that, I will now turn the call over to Alexandre.
Thank you, Quentin, and good morning, everyone. Let me start by saying that I'm very pleased with our performance in the first quarter of 2022. These strong results are a testament to the expertise and passion of our teams. Day in and day out, our 56,000 employees win new projects, provide strategic advice, design forward-thinking projects, and contribute to a more sustainable world, ultimately delivering high-quality services to our clients across the globe. Before going any further, I would like to highlight the following three points. First, our results were robust across our geographies and sectors and ahead of our expectations. Organically, net revenues grew by an impressive 12.7%, while our continued focus on profitability resulted in an adjusted EBITDA margin increase of 110 basis points compared to 2021. Second, we continue to witness strong market conditions.
Our backlog reached a record high of CAD 11 billion, growing organically 6.2% year to date and 15.8% year-over-year. Opportunities abound across all our markets. For instance, there was a significant expansion in public infrastructure investing in the United States. Lastly, we continue to attract the brightest minds who share our purpose of creating positive impact in our communities. Thanks to our strong brand and career opportunities across regions and markets, just shy of 4,000 professionals joined WSP since the beginning of the year. In summary, thanks to our strong organic growth, healthy increase in backlog, and strong talent attraction, WSP delivered a robust performance in its first quarter. On that note, let me now take a moment to highlight a few notable project wins.
In Ontario, WSP and its partners, the ONxpress team, have been awarded the mandate to expand the GO Rail network in the Greater Toronto and Hamilton regions. The OnCorr Project will transform GO Rail from a peak period commuter service to a two-way all-day rail service with a subway-like frequency. With the acquisition of an electric train fleet, the electrification of 600 kilometers of tracks and the addition of 200 kilometer of new tracks, this is one of the largest regional transit projects in Canadian history. By 2055, GO Rail will welcome an estimated 200 million riders per year, making it one of the busiest railways in North America. This contract, to be added to our second quarter backlog, is our fifth major consecutive win in connection with the transformation of the GO Rail network since 2014.
For WSP, this represents our largest multi-year project ever won in Canada. In Italy, WSP and Golder were awarded all the environmental surveys, impact studies, and permitting work for an offshore energy hub in the Adriatic Sea. This innovative hub, called the Agnes Project, will combine green hydrogen production systems, floating solar cells, and a new type of wind turbines. The Agnes Project aims to generate 700 megawatts of power once it becomes fully operational or enough electricity to power over half a million Italian homes. In Australia, WSP recently won a contract to redevelop a hospital in Melbourne. With the 12-story clinical services tower, new mental health and oncology services, this project will transform the delivery of its medical services. Once completed, this hospital will treat 35,000 more patients each year, in doing so, cutting waiting times and reducing pressure on neighboring hospitals.
By working on hospitals and other specialized buildings, such as data centers and scientific campuses, WSP continues to expand its specialized high-end services in the property and buildings market. In Ontario, WSP will be providing key services for Canada's largest wastewater infrastructure project to date. This project uses a novel collaborative approach to deliver a complex project whereby the client, the consultant, and the contractor work together to develop the best overall solution. In our view, this integrated project delivery approach represents the future of procurement. Our first quarter not only saw exciting project wins, it marks the one-year anniversary of Golder and WSP joining forces. This merger has been a great success on all fronts. WSP provided leadership position to over 70 of Golder's leaders. Our combined expertise has helped us grow our net revenues through climate-related work such as energy transition, decarbonization, adaptation, resilience, and ESG reporting.
For instance, I'm sorry, our integrated high-end quality services have allowed us to capitalize on the strong demand for environmental services, mainly in the mining industry. Regarding ESG, we continue to lead by example. In March, we published our first standalone report on WSP climate risk and opportunities according to the Task Force on Climate-related Financial Disclosures, or TCFD, the leading ESG framework in transparent disclosure to investors. Recently, our diversity initiatives in the United States were also acknowledged by influential chapters of the American Society of Civil Engineers. To further these initiatives, WSP created the new position of Global Inclusion and Diversity Leader, awarded to our U.K. colleague, Jane Grant. In this role, Jane will leverage our U.K. inclusion diversity strategy and bring new momentum to our worldwide efforts to foster an inclusive workplace at all levels of the organization.
On that, I will pass it on to Alain, who will review our financial results in greater detail. Alain?
Thanks, Alex. I'm very pleased to report on our strong results for the first quarter of 2022. Starting with our top line. For the quarter, revenues and net revenues reached CAD 2.7 billion and CAD 2.1 billion, up 29% and 26% respectively, compared to Q1 2021. The increase was driven by acquisition growth of 22%, as well as overall record-high Q1 organic growth of 12.7%, of which approximately 4.5% is due to more billable days in Q1 2022 when compared to Q1 2021. On an annual basis, we would like to remind you that these additional billable days will be offset by less billable days in Q4 2022 versus the prior year. Of interest, in the last twelve months, our net revenues grew organically by 7.6%.
Backlog as of the end of Q1 stood at CAD 11 billion, representing 12.1 months of revenues, with strong order intake in each of our reportable segments. Our backlog grew organically by 15.8% over Q1 2021 and by 6.2% in the quarter alone. We are witnessing continued high level of activity and favorable win rates across our end market with a second quarter in a row with over CAD 3 billion of order intake. Moving to profitability. For the quarter, adjusted EBITDA reached CAD 325 million, representing an adjusted EBITDA margin of 15.5% compared to 14.4% in Q1 2021. The improvement in adjusted EBITDA margin is the result of strong performance across geographies and end market.
For Q1 2022, adjusted net earnings stood at CAD 136 million or CAD 1.16 per share, up 45% and 40% respectively from Q1 2021. The increase in these metrics is mainly attributable to higher adjusted EBITDA. Let's now review some cash flow metrics. Our free cash outflow in Q1 2022 amounted to CAD 185 million. Trailing twelve months of free cash flow amounted to CAD 376 million, representing 0.8 times net earnings attributable to shareholders. The main contributor of outflow in Q1 2022 compared to last year is an additional period of payroll representing approximately CAD 125 million, which will reverse in the second quarter of 2022.
Overall, except for the additional period of payroll, cash flow is in line with our expectation and reflects the usual seasonality. Cash outflow from operating activities of CAD 83 million in the three-month period ended April 2, 2022, compared to cash inflow of CAD 163 million in Q1 2021. Our day sales outstanding stood at 70 days at the end of Q1 2022, compared to 60 days in 2021, and skew at the lower end of our target range of 70-75 days. Lastly, our balance sheet continues to be strong with a net debt to adjusted EBITDA ratio of 0.8. During the quarter, we also declared a dividend of CAD 0.375 per share for shareholders on record as of March 31, 2021, which was paid on April 18, 2022.
With a 49.6% DRIP participation, the net cash outlay was CAD 21.4 million. In conclusion, our first quarter was a strong start to the year, and we are reaffirming the financial outlook for 2022 issued in our Q4 2021 press release. On that, Alex, back to you.
Thank you, Alain. To recap, our team has come together to produce a robust quarter, which is a great start to 2022, but also to our new 2022-2024 global strategic action plan. With the Golder integration essentially behind us and with our strong balance sheet, we can now turn our sights to the future. Today, everything is in place for us to realize the ambitions for our action plan, all in view to become the undisputed leader in our industry. As a final note, I would like to invite you to our virtual annual meeting of shareholders to be held today at 11:00 A.M. Eastern Time. Thank you, and I would now like to open the line for questions.
Certainly. If you have a question at this time, please press star then one. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Jacob Bout from CIBC. Your question please.
Good morning.
Hello, good morning, Jacob.
Good morning.
Morning. Alex, very positive opening comments, but you know, stock market seems to be pricing in either, you know, stagflation or recession for the coming year. You know, given this backdrop, you know, when you look at your backlog, what do you think is at risk as far as, you know, what could be pushed out or canceled? What are your clients, you know, indicating? You know, how concerned are they about economic conditions currently?
Well, thank you, Jacob. This is a very good question. First of all, I think we are not paying too much attention to what's happening to the stock market at the moment. I think we are staying very close to the ground and staying very close to our clients and client sentiment. Right now I must admit that things are going very well. I'm not suggesting things are not gonna change in the distant future, but at the moment we are being awarded a lot of great work both in the public and also in the private sector. This is across the patch as well. This is not just a North American thing. I think you look at our U.K. operation right now, that is doing extremely well.
The backlog is growing, so is Australia, New Zealand, even in Sweden, in the Nordic countries, and then moving to Canada and the U.S. I'd say we have seen organic growth in our backlog year to date across all of the regions and also in all of the sectors, both public and private. For us, this is obviously a great start of the year. It's just not a concern that has been there only for the last 90 days. I think we were all aware last year that the inflation was there and mostly was there to stay. We certainly tried to prepare with that in mind when we started the year. Obviously, you know, we can only control what we control.
I have to say that what we can control, we feel, we're doing well at the moment.
Maybe just on the organic growth, you know, strong. I think it was close to 13% in the first quarter, but yet you maintained your full year guidance, I think it's 3%-6%. I understand there's less billable days, but, you know, is the expectation here that you're still gonna see a boost from U.S. Infra in the second half of the year? I'm just trying to gauge, you know, how conservative you're being here.
Yeah. I think we've always said in past quarters and when we had the opportunity to exchange with all of you that, in our mind, this Biden plan will only take effect, or at least we'll feel the impact of it only, in 2023. We're not actually thinking that we are going to benefit from the plan in 2022. Having said all that, we've never, ever raised our outlook after the first quarter in the past, Jacob. We believe that in good year, bad years, I think it's very early days to rethink your outlook. You mentioned the billable days, and obviously, we know that there will be an impact in Q4.
We believe at this time, at this point in time, it's the prudent thing to do to keep our outlook the way it is.
Thank you for that.
Okay. Thank you.
Thank you. Our next question comes from the line of Benoit Poirier from Desjardins. Your question, please.
Hey, good morning, Alex. Good morning, Alain. Congrats for the good start.
Thank you, Benoit. Good morning.
Yes. Obviously, given the recent pullback in share price and compression of valuation multiple, I was curious to know how does it change your M&A strategy. We know that you've been a disciplined acquirer. Accretion is a key focus. Does it make some M&A opportunity less attractive, or would you expect asking prices to go downward?
Well, right now, this is not just an industry thing or it's, you know, what we're seeing in the stock market is something that we're seeing in all industries and in all sectors. I think, Benoit, you've heard me saying this before, and I think I've said it in the last quarter, WSP we're quite agnostic to the market that we are operating in. I think we've always been opportunistic, and we've always been in a position to find attractive opportunities in expensive markets and less expensive markets. I'm confident now that we have the integration of Golder behind us, we have a very, very strong balance sheet. I feel good about the operation and the way we are delivering right now, that opportunities will come our way.
We are going to be able to execute on our plan. For me, as I just stated, I feel that there will be some opportunities, and then we will be able to take advantage of them.
Okay. That's great color. Maybe for Alain, positive impact from billable days was around 4.5% in Q1. Should we expect a similar impact in Q4, but on the negative side, Alain? Is it kind of the magnitude we should expect in Q4?
Yes, you should, Benoit. That's exactly it.
Okay. That's great. Okay. Congrats. Thank you very much.
Thanks, Benoit.
Thank you, Benoit.
Thank you. Our next question comes from the line of Michael Tupholme from TD Securities. It's your question please.
Thank you. Good morning.
Morning, Michael.
Two-part question regarding the organic growth. I guess, first off, can you talk about what Golder would have seen in terms of organic growth within its business in the quarter? More looking forward, can you talk about how we should expect organic growth to trend as we move through the rest of the year?
Michael, we're no longer tracking Golder separately. It has been fully integrated into our system and business, so it would be very difficult for me to give you an indication. What I can tell you is that our Earth & Environment sector is growing strong. I think if I can provide a bit of color, we're seeing the type of growth environment and Earth & Environment that we have seen in last year. It's a very, very good first quarter for Earth & Environment.
Perfect. You know, I appreciate the billable days impact in the fourth quarter. That was just discussed. For the next few quarters, any thoughts or color on how we should think about sort of the progression of organic growth?
Well, despite or in spite of the billable days, we, the top line came ahead of what we had expected for the first quarter. Having said all that and what I just told Jacob, we believe that it's early days after the first quarter to rethink our outlook. I think we're quite comfortable with the outlook that we have right now. For the time being, we feel that that's an appropriate level of performance for the company at this point in time.
Okay. No, it's perfect. Next, just on the headcount, I'm not sure if I heard this correctly in your opening remarks, Alex, but I thought I heard you say you added 4,000 people since the beginning of the year. If, I guess, first up, if we can just clarify that because it seemed larger than I had thought was the case. Secondly, can you just also talk more generally about how you're managing with respect to talent retention and attraction, and with obviously a very tight labor market?
Yeah. Well, that too, I feel we've done a very, very good, a lot of good groundwork over the course of the first quarter. Obviously, going into the year, we knew that attracting talent would be the key for us to be able to deliver the year from a top-line point of view. We've done, I feel, extremely well. Again, this is not just one country pulling the company or the organization. I feel all of our large operations have done extremely well in attracting talent. That bodes well for the remainder of the year. Again, this is early days, so that's why I don't get overly excited by it.
Having said all that, I think the team should be commended for the outstanding work that they have done to attract talent to the organization. Obviously, Michael, like any other companies in the professional services world or people business, we are putting boots on the ground to be able to get people back to the office. We have worked extremely hard in the last quarter. Some countries and regions are doing better than other. I think Europe, for instance, are doing better than North America in bringing people back to the office. We are seeing a change right now in North America and hopefully in Q2 we'll see North America catching up with Europe.
Obviously in Asia, I think you all, I'm sure you've seen the news that, you know, it's a bit more challenging right now in the regions with a lot of cities in quarantine. Hopefully, this will be behind us by the end of Q2. So far, I think we're managing it well and we intend to do equally well in Q2.
All right. Thank you very much.
Thank you.
Thank you. Our next question comes on the line, Frederic Bastien from Raymond James. Your question please.
Bon matin.
Bon matin, Frederic.
Bon matin.
I hope you guys are well. Alain, just a quick question on the billable days. They seem to have had a different impact on growth in Canada, APAC versus EMEIA. Would you mind just walking through explaining the differences here?
Sure. Our quarter end varies by region, and this is reflective of the systems and setup we have in each region, depending on how we build the platform in each region through M&A mostly. That's why you see differences from one region to another in terms of how the impact was in terms of billable days. For example, Canada and the U.S. was a bit higher, whereas the U.K., they have the March thirty-first quarter end, you know, so they had no impact. That's what explains the differences you've seen from one reportable segment to the other.
Okay. Super. That's helpful. Backlog growth pretty strong on a sequential basis. Were there any big projects that would've moved the needle, or was it just representative of just good overall growth, across all sizes of projects?
Frederic, representative of a general growth in all of our markets. Obviously, I mentioned during my you know the address this morning that in Q2 we will be recording the first phase of the OnCorr project. That will have a very positive impact on the Canadian backlog. This was not part of our Q1 backlog, so this is one of the largest multi-projects that we ever won in Canadian history in our business. That will be booked in Q2. But other than that, it's really a general sentiment right now. The backlog is growing pretty much everywhere at the moment.
Okay. Just a quick one to finish it off, Alex. Is this the strongest operating environment you've seen since joining the firm?
Well, I've seen. Seems like yesterday that I joined the firm, but I've been going through some peaks and valleys, obviously. But I have to say, Frederic, that I look at the growth that we are experiencing right now. I'm looking at the margin improvement that we have been able to to orchestrate over the last 3-5 years. I look at also how all of the regions are all pulling in the same direction at the moment and very aligned on the strategic plan and the execution thereof. If it's not the strongest, it's certainly a very good period for the company and the firm.
That's awesome. Great job. I'll turn it back.
Thank you.
Thank you. As a reminder, if you have a question at this time, please press star then one. Our next question comes from the line of Dimitry Khmelnitsky from Veritas. Your question please.
Hi, and thanks for taking my question. I was wondering if you can walk us through potential impacts of recession, particularly on the commercial client side, for each of your key market verticals. Transportation infrastructure, Earth & Environment , global tech and building, power and energy and industry. Thank you.
That would require a lot of time, but look, at the end of the day, at the moment, if I look at our transportation sector, this is a sector that is mostly public, and it's fueled by, obviously, government spending. Right now, we are seeing clearly positive momentum. We're not only seeing positive momentum in the U.S. or Canada or North America for that matter. We are seeing governments, generally speaking, reinvesting in their respective countries. It's something we're seeing in the Nordics, we're seeing in the U.K., we're seeing in Australia and New Zealand.
Right now, I think we haven't seen this slowing down. The inflation team, as I mentioned earlier on today on the call, is something that is certainly not new to us. Obviously, it's something that we see more and more. It's something recurrent, but it's something that we've been talking for the last 2-4 quarters. There's a lot of background noise. I don't know if we could mute the speaker phone if that would be possible. Thank you very much. On the property and building sector, it's, I mean, we are doing more and more public sector work especially in the Canadian market. But in the rest of the world, this is mostly a private sector business.
Yet again, in the private sector business, we have seen a lot of activities, especially in the healthcare sector or the mission-critical data center sector. We are seeing a lot of activities on that front, and we are rehabilitating a lot of existing buildings and sites. That combined with the climate change and the trends, I mean, we are doing more and more work on the building side from an ESG point of view. Yet again, there we are seeing a lot of work. Then finally on our Earth & Environment sector, I just mentioned this is one of our strongest sector at the moment, and I expect this to continue in the future quarters.
All in all, I feel that there's a lot of positive momentum. I am not trying to deflect the inflation theme. I think that's a theme that we all have to deal with. So far, I think we have been able to work in collaboration with our clients and expect us to hopefully continue to do well in the current environment.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.
Well, thank you very much for attending this call. We really appreciate. Just as a friendly reminder, we will be hosting and holding our shareholder the AGM call later today at 11 Eastern time. You're all invited to join in. I would like to wish you a great day, and looking forward to engaging with all of you on an individual basis, or if not, during the Q2 call in 90 days. Thank you very much, and have a great day.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.