Good day and thank you for standing by. Welcome to the WSP Global Inc. second quarter 2024 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Weber, Global Head of Investor Relations. Please go ahead.
Thank you. Good day, everyone. Thank you for joining our call. Today, we will be discussing our Q2 2025 performance, followed by a Q&A session. Alexandre L'Heureux, our President and CEO, and Alain Michaud, our CFO, are joining us this morning. Please note that this call is also accessible via webcast on our website. During the call, we will make forward-looking statements. 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 the MD&A for the quarter ended June 28, 2025, which can be found on SEDAR+ and on our website. In addition, during the call, we may refer to specific non-IFRS measures. These measures are also defined in the MD&A for the year ending December 31, 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 critical 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 reported by other issuers and accordingly may not be comparable. These measures should not be considered as a substitute for the related financial information prepared by IFRS. With that, I will now turn the call over to Alexandre.
Thank you, Quentin, and thank you all for joining us today. Let me start by saying that I am very pleased with our performance in Q2 2025. We had robust profitability, increased cash flow generation, and a historically low DSO for a second quarter. We are also enhancing our 2025 financial outlook. Let's dive into a few highlights. First, on net revenues. In Canada and the U.K., we delivered high single-digit organic growth, and considering our backlog, the pipeline of opportunities, and the recent economic stimulus announcement, we feel positive on the outlook. In the U.S., POWER Engineers delivered a solid 16% organic growth and significant revenue synergies opportunity, and the integration is progressing as planned. When considering the organic growth of POWER, we delivered high single-digit organic growth in the U.S. this quarter, and our backlog is solid.
In the Nordics, we have seen an uptick in the activity level, and our backlog is growing. In Australia and New Zealand, our rightsizing activities are largely completed, our backlog and pipeline of opportunities are expanding, and we expect a progressive return to growth in the second half of the year. All in all, we delivered solid growth while keeping our business fit for purpose, which is a continued testament of the strength of our diversified platform. Second, on profitability, adjusted EBITDA grew by 22% in the quarter. Our adjusted EBITDA margin increased by 80 basis points as we continue to own in our productivity and project performance. I am particularly pleased with the fact that we delivered margin expansion across each of our reportable segments despite absorbing optimization and rightsizing costs, which impacted our overall margin by approximately 50 basis points in the quarter.
Excluding these costs, our focus on operational excellence delivered 130 basis point improvement in the quarter. Third, following a strong cash generation performance in Q1, Q2 performance was even stronger. In fact, free cash flow increased by almost $400 million versus Q2 2024 and over $600 million versus last year for the first six months period. Our DSO stands at 69 days, making a historically low level for a second quarter. Our leverage ratio now stands in the middle of our target range, and further deliveraging is expected in the second half of the year, which puts us in a favorable position to seize opportunities. On the M&A front, we continue to pursue opportunities and strategically deploy capital. In Q2, we announced the acquisition of Lexica, a U.K.-based consulting firm specializing in healthcare and life sciences.
This acquisition adds an expert to our planning, property, and advisory business in the region, forming a new healthcare and life sciences advisory team. WSP also announced the acquisition of Ricardo. Headquartered in the U.K., this consultancy firm delivers strategic advisory and engineering solutions that intersect the global transport, energy, and environment agendas. Ricardo operates across Europe, Australia, North America, Asia, and the Middle East. On July 15th, the shareholders of Ricardo approved the scheme at the shareholders' meeting held in connection with WSP's acquisition. The acquisition received overwhelming support, with over 90% of shares voted in favor of the scheme. This step marks an important milestone towards welcoming the team to WSP. Closing, the acquisition remains subject to obtaining the required regulatory approval and the sanctions of the scheme by the U.K. Court, all of which is expected to occur in Q4 2025.
Now, allow me to elaborate on the dynamics across our four core market sectors. The transportation infrastructure sector continued to perform well in Q2. In particular, our leading tunnel teams continue to win new business, including a Virginia Department of Transportation mandate to provide project management services for two tunnels as part of the Hampton Roa ds Bridge- Tunnel Expansion Project. Water continues to benefit from investment across most of our geographies. Of note, WSP secured a role in the substantial expansion of Ontario's Courtright Wastewater Treatment Plant. Rail and transit also maintain robust momentum. For example, in Finland, we secured new business for several strategic projects in Nordic countries, including a segment of Rail Baltica in Estonia and the renewal of the Copenhagen Metro signaling system. In APAC, WSP picked up strategic wins as the market continued to show signs of recovery.
The new terminal of Perth International Airport is one of the many new projects we signed recently. Let's now shift to our property and building sector. We posted strong performance in Canada, the U.S., and the U.K., which account for approximately two-thirds of our business, and our backlog and pipeline remain healthy, which provide a positive outlook for the rest of the year. Four standout areas are data centers, industry and advanced manufacturing, healthcare, and defense, all generating significant opportunities that point to future growth. For example, we continue to see strong data center investment in AI and digital infrastructure, with approximately 300 new mandates in the quarter and robust activity across all of our geographies. These mandates encompass site acquisition due diligence, campus master planning for new AI gigafactory, greenfield data center design projects, brownfield data center upgrades, and the growing power and water infrastructure demands.
Let's move on to power and energy. The sector continued to demonstrate strong momentum throughout the quarter. Our thermal generation business is driving considerable growth. The transmission distribution market in the U.S. has remained active, and most of our clients are maintaining or increasing their spend projections for 2026 and beyond. Now, a brief update on the ongoing integration of POWER Engineers. We successfully achieved several milestones, and preparations to move POWER in our ERP system are in full swing. The success of this integration is evidenced by strong financial performance. The business is growing at a double-digit pace. We have a growing backlog, and with over 250 active pursuits in the pipeline today, we are accelerating our joint market presence with new and existing clients. On Earth and environment, sectors thrive in a fluid environment.
This last quarter, we secured a number of very important new wins in high-demand areas like power, energy, defense, technology, water, and mining, to name just a few. WSP was awarded a major PFAS project for the U.S. Air Force in the American Midwest. This win shows our strong position in the combined defense and water markets. Moreover, our leading biodiversity and marine expertise remains a key differentiator for WSP, and in Canada, WSP has secured a new mandate for Hydro- Québec's major Gull Island hydro projects, which includes environmental studies, biodiversity assessments, and geotechnical scopes. Finally, a few updates on digital. As a reminder, at our invested area this year, we share three priorities for our digital strategy. One, growing organic digital revenues at least twice as fast as our core business. Two, pioneer solutions that grow recurring digital revenue.
Three, be a catalyst for change in our industry, working with our clients and the world's innovative technology companies. We saw strong momentum around all these three focus areas for the first half of the year. We have met our internal organic growth ambitions globally and are confident for the rest of the year. Our pipeline is strong and growing across all our target offerings. For example, we have received multiple awards from clients who have requested our engineering and science expertise to organize their critical asset data artificial intelligence application. Another example, we were awarded a multi-year contract in New Zealand to continuously monitor areas of landslide risk using specialized sensors and real-time alerting systems. Real-time monitoring of geohazard and extreme weather risk is one of several areas where we see strong growth signals for recurring digital revenues, which is in line with our second objective.
We have a lot of momentum with our digital ecosystem partners as well. In addition to the Microsoft Alliance announced in February, WSP announced a strategic partnership with Urban Logic in late May and recently won a project where domain expertise and artificial intelligence solutions will predict wildfire risk in Alberta. We are in active discussion with several other potential technology partners. We are very pleased with our progress with the Microsoft Strategic Alliance. Externally, this has resulted in several strategic wins and has led to numerous client conversations regarding how WSP and Microsoft can collaboratively address their most significant challenges.
Internally, WSP has pragmatically deployed AI tools globally with strong initial impact and feedback. Several internal AI workstreams are in progress, with some already contributing to internal productivity improvements. In summary, we are starting strong in our digital ambitions for the strategic cycles. Now, before I turn over to Alain, I am pleased to reaffirm our number one position in Engineering News-Record 2025 list of the top 225 international design firms, a standing WSP has proudly held since 2021, with leading position in transportation, building, power, water, hazardous waste, and sewer waste. Now, over to you, Alain.
Thanks, Alex, and hello, everyone. I'm pleased to report on our solid quarterly results. For the second quarter, revenue and net revenue increased by 15% and 16% respectively, displaying robust year-over-year growth. The increase is mainly attributable to acquisition growth of 10.4% and organic net revenue growth of 3.5%. POWER Engineers continue to demonstrate strong growth with an organic growth rate of 16% compared to Q2 2024. Canada, the U.S., including power, and the U.K. each delivered high single-digit organic growth in the quarter. Backlog reached $16.3 billion, up 10% in the 12-month period, representing 11 months of revenue. Our book-to-burn ratio is above one, similar to what we have delivered every quarter for the last four years. Overall, each of our key markets remains strong, and of interest, we are seeing positive development and backlog increases in the Nordics, Australia, and New Zealand.
Moving on to profitability, adjusted EBITDA in the quarter grew to $633 million compared to $520 million in the second quarter of 2024, an increase of 22%. Adjusted EBITDA margin for the quarter stood at 18.2% compared to 17.4% in Q2 2024, an increase of 80 basis points, mainly due to the continued focus on productivity. Excluding optimization and restructuring costs, our margin increased 130 basis points in the quarter, and each of our reportable segments delivered solid margin performance in the quarter. Adjusted net earnings for the quarter reached $307 million, or $2.35 per share, up 30% and 24% respectively, compared to the second quarter of 2024. The increase is mainly attributable to higher adjusted EBITDA. As for our cash position, I'm particularly pleased with our very strong cash flow generation this quarter.
Net debt to adjusted EBITDA ratio stood at 1.5 times, which is within management's target range of one to two times, which provides flexibility to deploy capital. As we now conclude the first half of the year in a good position, we decided to update our 2025 financial outlook with adjusted EBITDA now expected to reach the higher end of the range. This is due to continued strong performance in Canada, the Americas, and EMEA, and to the fact that our business in APAC is now largely rightsized and fit for purpose. Our net revenue outlook remains unchanged between $13.5 billion and $14 billion, with organic growth on a constant currency basis between 5% and 8%. From a segment standpoint, net revenue in the APAC reportable segments is expected to conclude the year with low to mid-single-digit organic contraction. The remaining 2025 targets and other assumptions are reiterated.
As a reminder, the 2025 financial outlook excludes the expected contribution of acquisitions not completed as of August 6, such as Ricardo plc. Lastly, I'm pleased to share that in addition to delivering strong financial performance in the quarter, we continue the deployment of our new ERP. We are now live in 15 countries, with the Middle East, India, and Africa added in June 2025. These recent implementations went well, and we have seen strong billing stats volume in the first month of operation. We now have approximately 50,000 active users under the new system. On that, back to you, Alex.
Thank you, Alain. Let me just reaffirm how proud I am of our results this quarter and in the first half of the year. Our North American and U.K. businesses are benefiting from strong growth momentum and delivering leading margins. Our rightsizing initiatives in APAC are largely completed, and the business is now fit for purpose with a growing backlog. Our ERP rollout continues to progress as planned, with productivity gains starting to materialize. We announced key acquisitions to further strengthen our platform, and we have a strong balance sheet, and the M&A pipeline is healthy. Overall, we are well positioned for the future and are feeling good about the second half of the year. We believe our diversified business and the long-term trends driving our industry will continue to support compounded sustainable performance. With that, we can open the lines to questions.
Thank you, Alex. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one if you have any questions and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to proceed with our first question. The questions come from the line of Steven Fisher from UBS. Please ask your question. Your line is opened.
Oh, thanks. Good morning and congrats on the progress here. Really standout performance in cash flow, seems like you're moving on from the ERP costs and you have the benefit of Section 174 R&D expensing. I suppose that leaves M&A and cash drag and really just execution. Maybe you can just give us a sense of how to think about any cash drag from M&A ahead and to what extent your execution focus can kind of keep cash flow at this healthy level.
You look at our leverage and our ratio to EBITDA at the moment, we're already back to the middle of the range that we've provided in our outlook. I think we are deliveraging very, very fast. I just mentioned to him that the pipeline of opportunities is healthy, and I continue to believe that this is part of our DNA to continue to have a strategy that combines strong organic growth, strong margin improvement, but also inorganic growth. Without providing any future guidance as to what may or may not happen in the second half and next year, we are extremely pleased now with our cash flow generation. I think you are right in saying that now 80%, more than 80% of our EBITDA has been converted on the ERP. We have significantly de-risked this program, and now I think the benefits are materializing.
Yeah, and if I could just add a few points. Strong performance this quarter, and Q1 too was strong on free cash flow. If you look at the last 12 months, it's roughly $1.5 billion of free cash flow we generated. Our conversion rate is now standing at about 1.9 times net earnings, so this is significantly above the typical conversion rate of 100%. We continue to push hard on working capital management, so I don't foresee any change in the cadence for the rest of the year, Q3, but most importantly, Q4, usually strong free cash flow quarter. In terms of drag, the only one to keep in mind is the Ricardo acquisition that will generate some payment most likely in Q4, but that's a positive. That's the way I would put it.
That's very helpful. In terms of organic growth, I mean, it seems like you might be more on track for the lower end of organic growth range for the year, but I guess to what extent is there still a path to the upper end of the range? Related to that, are there any extra work days in the second half to be aware of since that was a headwind in Q1?
Yeah, so feeling good overall, I think that that's the statement about the second half of the year. We have our largest region, Canada, U.S., U.K., you heard in our opening commentary, delivering high single-digit growth, which on balance, you could probably say that this is a bit higher than what we guided. There's some positive on that level. The regions that were creating a bit of a drag on our numbers, I think they're in a much better position now with a progressive return to growth. Obviously, that's where we stand. The various things to keep in mind is, yes, the billable days, we had to call that in Q1, especially in the U.S. We will see the reversal of that in Q4, at least for the most part. We need to keep in mind we had significant disaster recovery response revenue in Q4 last year in the U.S. Hurricane season, storm season is starting, so we shall see. For the time being, we remain confident for the rest of the year. We'll see how Q3 unfolds, and we'll reassess our guidance as we report on Q3 results.
Perfect. Thank you very much.
We are now going to proceed with our next question. The questions come from the line of Sabahat Khan from RBC. Please ask your question.
Great. Thanks and good morning. I just wanted to dig into some of the comments you made in the prepared remarks around some of the regions. I think the two most dynamic have been the U.K. and the U.S. with some of the elections, new policies, etc. Maybe you can just dig in and just walk us through some of the dynamics you're seeing on the ground. It does sound like your results were positively driven by those markets, but just curious on the puts and takes in those two markets and just the outlook ahead for those reasons. Thanks.
Yeah, good morning, Saba. It's more than just the U.K. and the U.S. If you look in the last 12 to 18 months, we had elections in New Zealand, we had elections in the U.K., we had elections in Australia, we had elections in Canada last quarter, we had elections in the U.S. We had Liberation Day. Despite all this turmoil, because when there's an election, there's a change of priorities, WSP continued to perform very well in those markets. Obviously, there's been a slowdown in Australia and New Zealand.
In my personal opinion, I would call this a near-term slowdown. I think New Zealand and Australia, we're seeing now the proposal activity level coming back. As Alain said, we are going to see progressive return to growth in that region. We're overall feeling very good. As it relates to the U.K. and the U.S., there's been a shift in some of the priorities from past governments. The good news is that even with the big, beautiful bill and the U.K. statement from government, infrastructure spending remains a top priority for those countries.
Great. One of the thematics that's obviously been picking up in the recent quarters and years, and we're really noticing it this quarter, is demand around data centers. It sounds like that was one of the drivers around just POWER Engineers acquisition, your involvement in that space. Maybe you could just dig into the demand environment today, how that compares to when you got into sort of the POWER Engineers acquisition, and maybe just dig into the opportunity ahead today relative to what you may have thought when you actually made that acquisition.
On the back of last year, obviously, we saw very, very strong demand on that segment. I would say in the first half, there was a bit of a cooling off. I can tell you that over the last months and what we are foreseeing in our pipeline in the next six months and the remainder of the year, we are starting to see again very, very strong demand for that segment. I think it bodes well in the short term, the medium term, but also in the long term. I think the POWER acquisition was, I've said it before, I'll say it again, was not a good to have or a good to do. For us, it was a must-do deal. I'm extremely pleased that we completed this acquisition. It's very, very strategic for our platform.
Great. Thanks very much.
Thank you.
Thanks, Saba.
We are now going to proceed with our next question. The questions come from the line of Krista Frison from CIBC. Please ask your question.
Hi, thanks for taking my question. I was wondering if we could just dig in a little bit on the 50 bps hit from restructuring. Was that largely APAC, or was that a little bit more broad?
Largely APAC.
It's in line, Krista, with what we discussed in Q1, right? We had said that we had done a fair share of bringing our business more to a fit-for-purpose level in Q1, and we had announced that we would still do a bit of work in Q2, which is what happened. It's in line, and as Alex said, the biggest chunk is in APAC.
Again, for the sake of repeating ourselves, we absorbed those costs, and despite that, we've increased, we have now visibility on the higher end of our range from a bottom-line point of view.
Right. Maybe if you can just comment on, are you seeing any changes in the conversations with your customers south of the border just as a result of all the various legislative changes we've seen over the last couple of months here?
I think that the market is still very, very dynamic. Of course, there's some questions asked. I think the intent of the new administration is to expedite and facilitate investment. There's been some shift in priorities, for instance, away from renewable, maybe more in fossil fuel, and a few other matters. I think the real intent is really to facilitate and expedite investment. In some ways, we have not seen much disruption at this point. We're quite pleased with the way the market and our clients have behaved and operated in the current environment.
Okay, great. Thank you. I'll jump back in the queue.
Thanks, Krista.
We are now going to proceed with our next question. The questions come from the line of Benoît Poirier from Desjardins. Please go ahead and answer if you want.
Thank you very much. Good morning, everyone, and congrats for the solid quarter. Just on the acquisition of Ricardo, could you provide more details about the opportunities to bring margins to WSP levels down the road, but also what we could or should expect from a net revenue EBITDA as you're looking to divest some businesses once that deal is closed? Thank you.
Yeah, we haven't closed the transaction, Benoit, so we're not going to comment just yet on the impact that this will have on the numbers going forward. I can tell you that we're highly confident that we are going to bring up the Ricardo margins to our level. We've done it on numerous occasions in the past. You look at the POWER Engineers, obviously, we're not disclosing margins level by acquisition, but I can tell you that at this point, six months into the year and six months after closing, I should say eight to nine months after closing, we have seen a huge shift up in the margin level of POWER Engineers. I am highly confident that we are going to achieve that, and I think we are going to achieve it very quickly.
Yeah, and Benoit, more to come on all of this. In terms of status, we have the AGM where the transaction was voted in favor, 99+%, so that's good news. From a regulatory review standpoint, things are progressing well. We expect a closing in Q4, and we don't control and know exactly how it's going to turn out, but if I would have to bet based on past experience, this should be closed in the earlier part of Q4 rather than the later part of the quarter.
That's great. For POWER Engineers, obviously, we see a lot of, you see a lot of revenue synergies with this acquisition. You announced Stuart McLaren, Head of Nuclear. I'm just wondering about the potential synergies we might see and what kind of area of expertise it could add to POWER Engineers right now.
POWER Engineers is one, if not the leading firm in transmission, which is a very high-value proposition for our clients. We continue to develop our expertise and continue to grow our expertise in distribution on the electric side. POWER Gen is something that POWER Engineers has been very busy growing this year. We see tremendous growth on power generation. In terms of sources of energy, I think we are doing great work right now, like I said, on the electric side. We are also doing, and it's not something we talk a lot about typically, a lot of work on the nuclear side here in Canada, more in the U.K., and obviously in the U.S. with all of the SMR projects that are currently being designed. All in all, I'm feeling very bullish around this acquisition and very bullish around this sector.
Thank you for the time.
Thank you.
As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We are now going to proceed with our next question. The questions come from the line of Frédéric Bastien from Raymond James Limited. Please ask your question.
Good morning, guys. I wanted to go back to these comments you made around the data center and the 300+ new assignments that you were able to secure that were related to that. Presumably, you had a lot of that growth coming from POWER Engineers, and I think that business has been growing 15+% organically year to date. Could you sort of tease out or parse out the growth that you experienced between end markets? Is data center the bulk of the growth, the bulk of what led the growth, or were there other end markets that you would point out?
You mean with POWER Engineers, Frederic, or you mean?
Yes, yes, specifically for Power.
It is clearly more than that. I mean, we work with most, if not all, of the major utilities in the U.S. At the moment, I would say we work with the existing blue chip client list that POWER Engineers had. What's great now is that we are able to bring POWER Engineers on our public sector clients. We are able to bring them on our property and building sector clients. I think that's why we're seeing this acquisition to be so dynamic for us at this point.
Okay, thanks. I keep remaining quite impressed with the performance in Canada. The region continues to lead the way with organic growth, 9%, and you had the highest margins at almost 24%. Clearly, this company is standing out. Sorry, the region is standing out. I remember, Alex, you made some comments about the potential for all the other regions to effectively catch up to where Canada is right now. How strongly do you feel about this and any idea of sort of what type of timeframe you'd be looking at to bring the other regions up to Canada's standard? Thank you.
For the others to catch up, Canada will have to slow down a little bit. They're too good. You are right in commending our home country. I'm extremely pleased with our performance, standing out performance for many quarters now. I expect continued performance for Canada. The goal, as we discuss and unveil our plan in February, our three-year plan, Frederic, we now have our eyes set on more than 20% on aggregate for the company. I can tell you that the U.S. business is providing stellar numbers as well, and they're continuing to improve the margin profile. You will recall where we were in the U.K. back in, for instance, 2015, 2016, and where we are today. Stellar performance of our U.K. business. I could pinpoint to Australia.
I understand that we are not disclosing margin profile by country, but I can tell you that we have increased our margin profile in Australia by a couple of hundred basis points. Same thing with New Zealand. That is well above 20%. To your point around bringing up everybody, I think what's great is when you experience success in many parts of the world, you want to leverage best practices across the group, and that's what we've been doing. It's been really paying off for us. Extremely pleased with this 80 basis point increase in the quarter. We're not afraid, and you know us, we're not afraid to rightsize businesses when we see fit. Without that, it would have been 130 basis points in the quarter. It's quite extraordinary. I feel that all the countries right now are headed in the same direction, which is up.
Awesome. Thanks, Alex. Appreciate it.
We are now going to proceed with our next question. The questions come from the line of Chris Murray from ATB Capital Markets. Please ask your question.
Yeah, thanks, folks. Just following up maybe on that question about margins a little bit. You know, the 80 basis points that you saw today, it sounds like there's a lot of things that are going right. I was wondering, in the commentary, you said that it was mainly driven by productivity. Is there anything else to be thinking about in terms of any other benefits you're seeing, or is it just basically having better absorption and utilization supporting the margin growth at this point?
No, it's not just a utilization game. I think we are seeing actually our operating margins going up, gross margin, and we are seeing our, and this is a function not just of utilization, but also pricing. We're feeling quite good about that. Also, Alain and the team are working very hard to continue to optimize our platform and leverage best practices. We have seen, I would tell you, we have seen improvement in our margin profile pretty much across the value chain. I expect that to continue.
As we build our brand, you know I've talked about that many times over. Now, clients are recognizing the expertise that we bring to the table, the technical excellence that we are bringing to the table. It allows us to be more selective in the projects that we undertake, but it also allows us to charge for the great work that our engineers are doing. Overall, I feel that we are seeing improvement across the patch at the moment.
Okay, that's helpful. Thank you. Maybe turning back to APAC and maybe trying to frame this appropriately. You know, hearing with what I'm hearing, it feels like I think you said that you're starting to see the region kind of fit for purpose. You also mentioned you're starting to see signs of recovery, and I think you called out particularly Australia and New Zealand. I'm just wondering, is APAC going to be pretty much just Australia and New Zealand on a go-forward basis? How do we think about, given we've had the weak front end and the updated guidance, it almost implies that you're kind of at a more stable position today on a go-forward basis. Just any thoughts around, because APAC's got a lot of moving parts to it, just any thoughts about how you see the APAC business evolving from this point forward?
We're a big fan of our Asia-Pacific business. Through peaks and valleys, we've always been committed to Australia and New Zealand, and we'll continue to be highly committed to New Zealand and Australia. At the moment, Canada is more than twice the size of our Australian business. If we see opportunities to continue to grow our Aussie business, we will. At the end of the day, when you look at the government data, the government data that was published, for instance, in New Zealand, we signed 2024 a reduction by the new government of 20% in investment in 2024 alone, and another further 4% or 5% in 2025. Not because New Zealand doesn't have a good balance sheet. Actually, they have one of the best balance sheets, but because the new government wanted to reprioritize the infrastructure spending in other areas of the country.
As I said before, and I said earlier on in my address, for us, this is just a near-term bump, and we expect those countries to go back to growth in the near term, progressive growth in the near term. When you talk about Asia and Asia-Pacific as a whole, you are right in saying that right now our focus area has been New Zealand and Australia because Asia right now represents such a small part of our business going forward. I would argue that there, too, most of the work has been done. We're feeling good going forward, essentially.
All right. I'll leave it there. Thanks, folks.
Thanks, Chris.
As a final reminder, if you wish to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one if you have any questions. Thank you. We are now going to proceed with our next question. The questions come from the line of Jonathan Kuhlman from Scotiabank. Please ask your question.
Hi, good morning, team. Thanks for taking my questions. Most of them have been asked already, but Alex, maybe you could, can you share your thoughts on the Bill C5 in Canada, how that may impact your business? Is the timing of that, I guess, more medium to longer term, or just how do you think about any opportunities from that flowing through?
I think overall, there's a number of important bills that will come into effect, and we're feeling actually very good around the state of the country and the direction that the new government is going to take. Overall, I'm feeling very good about it.
Thanks for the filler. I guess maybe one on the DSO. I mean, a pretty impressive performance and all-time low. Can we think about that level as being sustainable? Obviously, there's the historical seasonality in the business, but can you maybe talk about some of the drivers that you do put in that performance?
Sure. I'll let Alain answer that question.
Yeah. We're standing at a very good level for Q2 at 69 days. Our guidance for the full year is between 67 and 73. We have to remember what has driven our DSO to be a bit higher in the past few years. There were two elements that impacted us. One is the initial rollout of our system, which, in my opinion, is now behind us. Things are working much better. The second headwind we had was that 174 overall on free cash flow, which has now been reversed through the One Big Beautiful Bill Act in the U.S. We expect tailwind on free cash flow for Section 174 this year. As it relates to DSO, I would say we're back to be leading again on that front, which we've been leading for many, many, many years.
It's part of the DNA, right, focus on productivity, but cash as well is a big area of focus for us. I expect to continue to see good performance in the coming quarter, especially that we're entering Q3, but most importantly, Q4 and big collection quarter. I'm cautiously optimistic, I would put it that way, for continued good trajectory on the DSO level for the rest of the year.
Okay, great. Thanks for taking my question.
Thanks, Jonathan.
We are now going to take our last question. The last questions come from the line of Ian Gillies from City Hall. Please ask your question.
Morning, everyone.
Good morning, Ian.
As you think about the aspirational EBITDA margin target of 22%, and when you're putting that together, I guess how much impact did you anticipate in that from the AI tools and productivity gains that are going into place? I know this is a bit of a challenging question. At what point do you think you'll be able to start more closely identifying the impact it's having on margins and productivity?
You are right in saying it's a tricky one. Look, I can tell you that we are very, very active in that space. We are working very closely with Microsoft, and the strategic alliance that we formed together is extremely helpful in that regard. I can tell you, for instance, I'll give you an example. In our bidding group, and I'm careful about saying that, but we believe that very soon we will be able to reduce some of our human output by close to 80%. That's not de minimis because we have bidding groups across each and every segment and across each and every country. That's an example of where we feel we can make tremendous improvement and reduce human intervention. It's not just about AI. It's about what we have been able to achieve over the last decade.
If you take our revenue per employee over the course of the last decade, you will see constant growth over the years of fee per employee. That's a testament of what we have been able to achieve. In other words, doing more with less. You will see that our revenue at the moment is growing much faster than our headcount if you track that very carefully. That's why today, unlike perhaps five, six, seven years ago, I am not talking as much about headcount than we used to. To me, it's becoming more irrelevant than it was five, six years ago. I hope I'm answering that question, but certainly, I mean, in terms of human intervention in all of our corporate function, but also in operation, we are seeing tremendous opportunities at the moment.
No, that's very helpful. Maybe on a separate note, backlog growth year to date obviously is expected to pick up. Can you talk a bit about the impacts environmental has on that backlog growth? Because if I recall correctly, the churn is usually a little quicker, and I believe backlog typically grows in that business in 4Q.
Yeah. The backlog has continued to grow. That's good. We have a very dynamic sector for us in Canada. It also has been very dynamic in the U.S. In the short term, I think this year, for reasons I can't explain, you know, with definitive statements, the fieldwork has been a little bit more quiet than perhaps what we have seen in the last two or three years, especially in the U.S. I don't believe it's related to anything that has been discussed in the press or the changes that the administration are looking to make. In terms of activity level, in terms of market dynamics, we're feeling very good about it. Remember also that there was a strike in the province of Quebec by engineers. That too impacted a little bit of our Canadian business this summer. I think these are moments in time as opposed to structural issues in the marketplace.
Understood. Thanks very much. I'll turn it back over.
Thank you.
Thanks, Ian.
We have no further questions at the moment, so I'll hand back to you for closing remarks. Thank you.
Thank you very much. Again, we're extremely pleased with the quarter, the strong performance of our large hubs, our margin improvement, and especially our cash flow generation. M&A pipeline is great, and we look forward to updating you over the course of the next few quarters. Thank you very much and have a great day.
This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you and have a good day.