Stantec Inc. (STN) Q2 2014 Earnings Report, Transcript and Summary

Welcome to Stantec Inc. Second Quarter 2014 Earnings Results Conference Call. With us today from Stantec management are Bob Gomes, President and Chief Executive Officer; and Dan Lefaivre, Chief Financial Officer. [Operator Instructions] As a reminder, today is August 7, 2014, and this conference call is being recorded, as well as broadcast live over the Internet. It will be archived for future reference at stantec.com, under the Investors section. Therefore, any members of the media who are joining the call today in a listen-only mode and who wish to quote anyone other than Mr. Gomes or Mr. Lefaivre are asked to please request permission to do so from the individual concerned. The Stantec management would like to caution you that this call might include forward-looking statements and forward-looking information within the meaning of applicable U.S. and Canadian securities laws. By their very nature, forward-looking statements require Stantec management to make assumptions and are subject to inherent risks and uncertainties. In addition, Stantec management will be mentioning additional and non-IFRS measures. I would now like to introduce your host, Bob Gomes. Please go ahead, sir.

Thank you, John. Good afternoon, everyone, and welcome to our 2014 second quarter results conference call. Dan will provide a brief summary of our financial results for the quarter, and I will follow with an outline of our market outlook. We will then address individual questions. Today, we released the results of Stantec's operations for the second quarter of 2014. Overall, we are very pleased as we move into the second half of the year. Stantec's performance continues to meet our expectations and deliver solid results. This positive performance is a result of the sustained activity throughout the organization and organic growth in our Energy & Resources and Infrastructure business operating units. Dan will now provide a review of our second quarter financial results. Dan?

Thank you, Bob. Good afternoon, everyone. Overall, Q2 '14 was a good quarter for Stantec. Our gross revenue increased 11.8% to $633.8 million, compared to $566.7 million in Q2 '13. Of that increase in Q2 '14, 3.7% was organic revenue growth, demonstrating over 2 years of sustained organic growth, with 4.7% year-to-date. Q2 '14 was mainly -- growth was mainly due to strength in our Oil & Gas, Community Development and water sectors. As expected and previously indicated, the level of organic growth in our Oil & Gas sector has stabilized and is growing at a slower pace. We achieved an 18.1% increase in EBITDA to $78.2 million from $66.2 million in Q2 '13 as a result of slightly higher gross margins in our Buildings and Infrastructure building -- business units and slightly lower SG&A, both of which still fall within our normal targeted ranges, as we outlined in Q4 2013. Our net income increased 22.4% to $44.3 million, compared to $36.2 million in Q2 '13. Diluted earnings per share increased 20.5% to $0.94 from $0.78 in Q2 '13, and our backlog grew 12.5% to approximately $1.8 billion at the end of Q2 '14 from $1.6 billion at the end of Q1. This increase in backlog is mainly as a result of recent project wins and acquisitions completed in Q2 '14. Lastly, the company declared a quarterly dividend of $0.185 per share on October 16, 2014 to shareholders of record at September 26, 2014. Overall, we are very pleased with our performance in Q2 '14 and look forward to the remainder of the year. Bob?

Thanks, Dan. As Dan just outlined, our results demonstrate a solid performance for our second quarter and a positive first half of the year. We are on track to meet our expectations for 2014, and our backlog remains strong. Our company closed on 4 acquisitions in the second quarter, successfully executing our consistent, disciplined acquisition strategy. We added JBR Environmental Consultants, Inc.; SHW Group; Wiley Engineering, Inc.; and USKH Inc. With these new additions to the Stantec family, we've added over 580 employees in the quarter, bringing our total to over 1,100 new employees through acquisitions year-to-date. Our acquisition strategy has enhanced our depth of services and market reach across the United States, including establishing a presence in Alaska. Our strengthened platform has increased our company's capacity to deliver results, now with more than 14,000 employees in over 230 locations across North America and internationally. Looking at our performance across our business operating units, I would like to provide you with some highlights from the second quarter. In our Buildings business operating unit, with our ability to work in many different sectors and global recognition of our expertise in a number of these sectors, we secured projects and increased our backlog as the market slowly recovers. As an example, this quarter, we secured work to perform architecture and engineering design in support of the build-out of a facility for a top-tier biotech client in the San Francisco Bay Area. In our Energy & Resources business operating unit, on a year-to-date basis, we have experienced growth in all of our sectors, especially in Oil & Gas, although the pace of organic growth in this sector has tempered, consistent with our expectations. We continue to benefit from our reputation as a top integrated provider of midstream services, a market that remains very active in Canada and presents opportunities as it emerges in the United States. In our Infrastructure business operating unit, growth in our water sector remains strong as we continue to provide services in the municipal infrastructure sectors, as well as capitalize on energy and resource-driven opportunities in Canada. In the United States, we continue to benefit from the ongoing demand for our services due to rehabilitation required on aging infrastructure and regulatory requirements. For example, we secured work on the city of Atlanta's Raw Water Delivery System project. This is a project that we are proud to be involved in, as it is one of the largest design-build tunnels ever designed in North America. In our Transportation sector, Canada remains stable, and despite retraction in the United States, we saw organic growth in the U.S. West due to our ability to secure projects resulting from stable infrastructure spending. We also continue to secure work in alternative project delivery. One such project is the Regional Transportation District of Denver's North Metro Corridor, where we will be leading the engineering team for Phase 1 of the project. Now I would like to comment briefly on potential market conditions going forward. Our overall outlook for 2014 is a moderate to strong increase in organic revenue, with a target of approximately 5%. We increased this target in the first quarter slightly from our original projection. Our outlook for our Canadian operations is moderate to strong organic growth in 2014. This is mainly due to ongoing strength in the private sector, a stable public sector and continued activity in the energy market. In our U.S. operations, we're expecting moderate organic growth in 2014. We anticipate the private sector will continue to strengthen, especially in regions supported by resource activity, and that investments by clients will proceed at a moderate rate. The United States remains a very large market, one in which we continue to strengthen our capacity to capitalize on emerging opportunities. We expect our performance in the U.S. to continue to improve gradually throughout the second half of 2014. In our international operations, we are expecting strong organic growth in 2014. We revised this outlook from our original moderate growth due to the increased activity in the Middle East as a result of recent project awards in health care and education. Looking at our individual business operating units, we expect the following as we move through 2014. We believe our Buildings business operating unit will recover over the second half of 2014 and remain stable in 2014 compared to 2013. We continue to manage this business effectively. However, overall, some Buildings sectors remain cautious. Looking forward, we see positive signs that are translating to projects, recognizing the ramp-up time to revenue generation may come slowly. We continue to anticipate strong performance in our Energy & Resources business operating unit for 2014, mainly due to activity in energy and resource-related work. We expect activity in the midstream oil and gas market in Canada to continue for the balance of the year, benefiting our midstream pipelines and facilities business. However, we expect a slowdown in our midstream terminal work due to the completion of projects and delays in new project awards. We see mining companies continuing to slow down on major projects and exploration due to the soft market. We expect moderate organic revenue growth in our Infrastructure business operating unit over the remainder of the year. Our strength in flood management activities and the need to rehabilitate aging infrastructure will further drive the requirement of our water, urban development and transportation services. In addition, with the recent acquisitions, such as ProU and USKH, we believe that opportunities exist to cross-sell services in the United States and the North. Our business objective is to be a top 10 global design firm. Our strategy continues to successfully support this objective, in everything from our acquisition strategy to our client relationships and to our engagement with the communities we serve. As we move forward into the second half of 2014, we are confident in our ability to achieve growth and deliver consistent value to our shareholders. This concludes our comments for today. Dan and I are now available to answer any questions you may have. Conference call operator, John, will explain the question procedure. John?

[Operator Instructions] Your first question today will come from Sara O'Brien with RBC.

Bob, can you comment on the Buildings practice? As it does start to recover in the back half of the year, does that really improve utilization rates in those employees? And could you see some significant improvement in margin on that front?

From a margin perspective, no. They've already actually are getting very good margins, but definitely, the utilization of that group will improve. We went through a rationalization of staff in the first half of the year. We don't anticipate that continuing any further. There's been lots of project awards. We're really happy with that. It's just sometimes, there's a delay between project awards and actually revenue generation. But certainly, by the end of the year, we see that definitely turning around. Utilization is up and project awards are up. So we're pretty confident that we've definitely seen the bottom of the Buildings retraction, and I think we see that recovering.

Okay. And can you comment just about the chunkiness of bidding operations? Like how much of the staff time has gone into, let's say, significant alternative financing projects or P3s, relative to normal? And would that have been an impact on SG&A in the first half of the year?

It doesn't have an impact to SG&A because those costs would actually go towards the business operating units, but they certainly do have an impact, especially in the alternative project delivery projects. During an RFQ stage, you are doing that at your own cost. That's a relatively minor investment. It's basically promotion. And then if you get selected, then you then move into an RFP stage. At that point, we are getting paid, so that is not free work, but you are getting paid at a lower margin. And then if you're successful, we get a success fee, and the margin is then adjusted. So if you are bidding on a lot of P3s and design builds at the same point in time, that may have an impact on the margins within those business operating units, and that has been an issue for us in the first half of the year in some of our businesses.

And the other thing, Sara, one other thing in the Buildings segment, that's where we did see the award of a project where we were given the success fee. It just normalizes the margin of that project for the life of the project.

; Okay. And then just in terms of the drivers of gross margin gains in the U.S. and Canada, I just wondered if that was specifically mix-related, or are you being more selective in the projects you're going after? Does it have to do with the size of projects and lump-sum work that you're doing?

All of the above. All those things are -- I mean, it's certainly not one specific area. It is being more selective. And you want to bid on projects you're going to win, that you have a good opportunity of getting a good margin at. We never buy work, so certainly, you'd be selective on that. And certainly, choosing lump-sum projects that you can then get an opportunity for margin increases, they look at strategies. Larger projects definitely then will have an impact, too. So all those things do have an impact on your gross margin from quarter to quarter, year to year.

Okay. And then just lastly on the backlog build, impressive quarter-over-quarter build. Are there larger projects that are accounting for that and which practice areas, in particular?

No, in fact, there isn't. It's just a number of projects. It's well distributed throughout the group. We're happy to see Buildings group has got a good, strong increase in backlog, but no significant project that would stand above the others. It's just a long, steady range of midsize projects.

Your next question will come from Michael Tupholme with TD Securities.

Just to follow up on the last question on the backlog, can you provide a breakdown for how much of the growth we saw sequentially in Q2, how much of that came from the acquisitions you made versus new project wins on an organic basis?

Sure. I can give you a bit more color, Michael. Sequentially, Q2 versus Q1, we actually had a retraction due to the change in FX, so the foreign exchange rate, but that was offset by -- about 2/3 of that growth was approximately organic and about 1/3 was through acquisitions. So as Bob said, a lot of project awards helped grow the backlog in Q2 over Q1.

Okay, perfect. And just sorry, just to clarify on that, you had a retraction as a result of FX despite the fact that, I think, you benefited from an FX move as far as your actual revenues went. Is that...

Well, on a quarter-to-date basis, no. The Canadian dollar actually weakened, I guess, we did. But compared to year end, there's really been an immaterial impact as a result of FX on a year-to-date basis.

On a year-to-date basis, it's basically a wash.

Yes.

Sorry. I was thinking year-over-year in terms of the business. Sorry about that. My next question is just on the Energy & Resources business operating unit. So we saw organic growth slow this quarter, and I guess you mentioned in part due to the winding down of some -- certain terminal project, recognizing you've had extremely strong growth in that area and it's not possible to keep that up on an ongoing basis. But given the winding down of those projects, but at the same time, you sound like you're still fairly upbeat about pipeline opportunities and possibly some opportunities in the U.S., how should we think about growth from here? I mean, are we in a situation where it sort of stays at this level given what's in front of you? Or is there a possibility of a re-acceleration of that growth given what's in front of you?

No, you love to be optimistic, but I think at this point in time, if we maintain this level or even slightly less, we're still going to end up with what we said to be, which is strong organic growth at the end of the year. But we're now comparing quarter-over-quarter to a much stronger year last year as well, so it's going to continue to be more difficult as we go forward to maintain that. So unlikely to see it rise back to double-digit organic growth. You never say never, because we're always bidding on projects, and you always like to be optimistic. But based on what we see in front of us, I think we're more comfortable saying we'll maintain this rate at this point in time.

Okay. And if we think about offsets, I guess, to that -- your growth in that area coming down, the key things to focus on would be the improvement in the Buildings and -- would be one area, I suppose. And then, I guess, what about Infrastructure?

Well, Infrastructure's had a -- was another area of good growth, and we don't see that turning around. We see that continuing. So Infrastructure, especially water -- well, all 3 of them, water, Transportation and Community Development, all 3 of those areas have seen improvements as the year goes on, so we're looking for a positive second half. So all of those would certainly offset any potential stabilization or slowing down of the rate of growth in the Oil & Gas and Energy & Resources group.

Your next question will come from Tahira Afzal with KeyBanc.

I guess my first question is -- and you've touched on this a bit earlier, but you carved out, really, the midstream terminal side as slowing down, while you still seem to be upbeat on the rest. So I would love to have a bit of an explanation or color around that, if possible, to begin with.

Just the difference between -- the terminal work is -- they're larger projects, and there is a delay between doing a fee design, the front-end engineering design and the detailed design. So that's some of the lag we're seeing. But the terminal project, that was a major one that we're coming off of, and that just hasn't been replenished at this point. But we are seeing still lots of pipeline projects in both the fee and in detailed design. So we're not overly concerned. There is just a bit of a lag in there between, sometimes, the front-end design and detailed design, and that's what we're seeing right now.

Bob, there are some fairly large terminal projects being proposed in the U.S. Are those also in your pipeline or on your list?

No. We'd like to say that they are, but for us to bid on those projects, we need to increase our -- more of our local presence in the United States in that area. And certainly, with ProU, we're starting to get some inroads, but in those large terminal projects, at this point in time, no.

Got it. Okay. And a final question from me. You've just seen 2 of your U.S. peers, which are fairly large, announce consolidation. I would love to get your thoughts on the competitive environment a consolidation like that would create for you guys.

Well, it certainly was -- I think it's proposed, I guess at this point in time, a large transaction. I guess what it means is there's one less competitor for us. But in fact, it is 2 very large, very strong competitors getting together. I don't know if it changes the landscape that significantly. On the short-term basis, no. On the long-term basis, depending on how they execute the strategy, how they execute the integration, it may. But both firms were very large firms and very large competitors in themselves. So together, I don't know if it makes them -- it makes them bigger, but I don't know if it actually changes the landscape significantly.

Your next question will come from John Rogers with D.A. Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: A couple of things. First of all, just in terms of the cash flow in the quarter, this year, you've stepped up the spending on acquisition activity. I'm guessing you're going to say your pipeline's still full or -- as always. I mean, do you feel like you can keep this pace up if the opportunities are there?

So I'll let Dan answer the capital side of that, if we can keep that pace up, which I think is a pretty obvious question. It's yes.

Definitive yes.

On the side of whether we can continue the pace of finding, acquiring, closing on transactions, yes. The sizes of these transactions make it a bit easier for us to integrate them into our enterprise. When you're doing a number of them at the same time, certainly, that stresses you. But you try to plan those and stage them in such a way where you can manage it. And so far, we've done 6 to date. We feel we can continue that pace for the rest of the year. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then just as it relates to the cash flow from operations, I mean, came down year-over-year. Is that mainly in the working capital, Dan?

No, it's primarily in the cash paid to suppliers, John. As we acquire these firms, they have payables, and we have to pay out any of those payables. So if you just look at the cash flow statement, the cash paid to suppliers increased significantly more on a year-to-date basis than, say, the growth in our revenue. So that would be the primary driver. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. I'll go back and look at that. And then just following up on Tahira's question relative to the acquisitions, among competitors. Is it your experience that this frees up people and clients when you see these types of transaction? Or does it -- or do you end up seeing just a much more competitive environment as people try to hang on to those clients?

Whatever answer we give is going to be a pretty generalized answer. It's really going to be depending... John B. Rogers - D.A. Davidson & Co., Research Division: You don't have to.

No, it's going to depend on how they execute on that. If you execute any transaction well, focus on the people, focus on really showing what the value of the transaction is so the staff understand it, you won't lose any people. They'll be engaged and looking forward to the opportunities. If you don't do a good job of that, then the staff get somewhat disillusioned, and then they look for other things to do. So it really will come down to how you integrate the transaction and really continue to drive what the value is, not only to clients, but what the value is to employees. John B. Rogers - D.A. Davidson & Co., Research Division: And your sense of what the customers are saying on these, are they encouraging these types of transactions as projects get bigger or...?

I can say that from our perspective, clients encourage us to expand the capabilities we have. If we have a client that we do a certain aspect of their business and they have other aspects of their business that they would like us to do, they will encourage us to do that. I would have to say that both those companies were of a size that they could probably have handled any project size out there themselves. So whether together it places them in a different position, I'm not really sure. But that local business is still an absolute key to what we do in our business. Whether you're a 100-person firm or a 100,000-person firm, it's how strong are you with that local business connections and those local relationships. So no matter what size you are, you still have to focus at that level.

Your next question comes from Mona Nazir with Laurentian Bank Securities.

I'm just wondering if you could talk about ProU in the U.S. and the integration of such and if it's meeting your expectations. And then comment on additional opportunities in the oil and gas space in the U.S. or how you're taking your position as a top provider of midstream services in Canada and capturing a greater percentage of the market in the U.S.?

Well, a general statement how ProU is going, it's well. It's going as we expected. I think every acquisition you do has a different strategy of how you're going to integrate them, at what speed and what you're going to focus on. ProU is a type of company that needs to maintain their business at very high utilization rates, and that's more of the industrial type of market. To do that, then you have to be very careful how you integrate them, because the last thing you want them to do is destroy their current client relationships or affect their current projects that they're working on. So that strategy is one that takes a little bit longer because of the fact that you need to respect the fact that they are very busy. But it's going well. We have, at a high level, have taken the capabilities on the road to show what now ProU can do for their clients, utilizing some of the Canadian capabilities, and as well, talking to new clients to introduce the fact that the combined company now has capabilities together that we didn't have separately. So those activities are underway. It's still early days, and I don't think anybody should be led to believe that it happens overnight. We're very -- we tend to be very focused on clients. No matter where we do, it's the one -- we took a look at their largest client and tried to focus initial efforts on that, to cross-sell services to that client. But it takes time, but we're very happy with our progress to date.

Okay. And just going into your acquisition strategy, it's always been pretty straightforward, and you've communicated it well. I mean, you find something that's performing well, a good client base and most importantly, there needs to be a good cultural fit. I'm just wondering, with increased consolidation and maybe purchase price multiples escalating some, would you consider looking at something that's, perhaps, a little bit more distressed or a firm that's gone through some challenges with significantly lower margins, with the end goal of you guys, perhaps, expanding those margins to your 13%, 15% level? Is there a change in your strategy, or are you pretty consistent?

No, I don't think our strategy was exclusive to top performing companies and top sectors. We'll look at every opportunity, and we have seen through our history, albeit that's a much less number than the positively performing companies, but we have acquired some companies that, I would say, weren't performing at a level we expected they should or could, and we've acquired them and used the strategy of either dealing with leadership or how they dealt with their business, to improve that. So certainly, that has always been part of our strategy. You just got to be a lot more selective when you're doing that, but we certainly see that opportunity continuing. You're always looking for a company that, for whatever reason, has had some difficulties. If we determine what that reason is, clearly see how we could fix that reason, we will certainly still close on those transactions. And we've been quite successful, actually, on the ones that we have chosen to do. As I said, you just got to be much more selective and really determine and answer that question of why are they not performing well. If you got clarity to that and clarity around how you would fix it, we will certainly close on transactions like that.

Okay. And just a last follow-up to that. Are you still focusing on the North American marketplace for now? And maybe your thoughts on getting a more solid, larger international footprint sooner rather than later. I know your international operations that you do have are doing really well, and your goal is to become a top 10 design firm globally. So still a couple of years out, or couldn't that change?

Still a couple of years out, but that can always change. You can never say never because the opportunities that you're presented with sometimes, you can't control the timing of those, and you have to then deal with them in the time that they're presented to you. But from a strategic perspective, we are certainly still focused in North America. That's where the firms we're sourcing, the firms we're looking for and talking to, will be there. And that will continue for the next couple of years. Yes, so that focus will remain. But if a good opportunity popped up in the international marketplace that made sense, you never want to take and ignore good opportunities just because they don't fit today. So eventually, we will be there, and eventually, that strategy will be articulated to the industry better. But today, clearly, the strategy is to stay focused in North America for the next few years.

Your next question will come from Benoit Poirier with Desjardins Securities.

Just to come back on the M&A. Of the companies you're talking to, mostly in North America, where do they tend to be and typically in which sectors?

Typically, they're everywhere, and typically, they're in every sector. So seriously, when you look at the United States, especially, there probably isn't a sector that we feel we couldn't acquire a firm to increase our presence. And from a geography perspective, many geographies still in the United States that we don't have what are we call mature presence in all our various sectors. But if you're going to put some priorities, certainly our priorities would be in the areas like Texas, even California, the Pacific Northwest, the Midwest. We've got a strong presence in the U.S. in Northeast, so that would probably be the lower priority. But again, you look at the opportunities as they come up, and you determine how it fits into the company. So you never want to exclude anything. From a sectorial perspective, yes, we'd love to be stronger in the oil and gas market in the United States. At the same time, sometimes the best time to invest in the acquisitions is when you're not doing as well as you want to. So we're not -- we've done a transaction in our Buildings group in the United States already this year, and we're looking at hopefully doing more, because that's an area that we want to grow that business. And we want to grow that business at the right time, and we feel now is the right time. So many different sectors, many different geographies.

Okay. That's very good color. And just on the Infrastructure side, obviously, very strong organic growth, 7% in the quarter. You mentioned housing, water sectors and also Transportation. I was just wondering if you could elaborate a little bit on the margin profile of these projects.

Within water and in Transportation, if those projects are for municipalities, Departments of Transportations, those margins are at the lower side. Those public sector projects tend to be rather competitive. In the United States, transportation projects are quite prescribed with regards to the fees and the rates you can use. So certainly, they are, even some cases, time and materials are cost-plus, that then again, have certain amount of certainty in your margin, but constraints on your growth you can have in your margin. So I'd have to say in the water and Transportation side on the public side, lower margins. Community Development, much higher margins. That business is almost exclusively for the private sector, although we do a lot of work for the public sector, but that public work is less competitive. So again, the overall, the Community Development margins tend to be higher. When you get into the P3 or design-build market in Transportation and water, though, you can drive higher margins, because then you are working for a contractor, you are working usually on a lump-sum basis. If you've got a good partner, you've got a good strategy and you execute well, your margins can be higher. So the answer gives you a pretty wide variety of where your margins can be. It really depends on the mix of the business at that point in time.

Okay. And is there any seasonality of contract awards for these businesses?

Yes, I mean, all 3 of those businesses have a field component of the work, and then that field component would be affected by seasonality. I would say of the 3, Transportation would be the highest, but they all have various -- or all of them are impacted to some degree by seasonality.

Okay. And last question, just with respect to the new transportation funding bill in the U.S., any initial color from state level, of Department of Transportation clients?

Yes, I think everybody is just looking at it as basically a short extension of the current plan. So it really has little or no impact. The good news is it was an extension. The bad news is it really doesn't change the landscape a lot.

[Operator Instructions] Your next question will come from Bert Powell with BMO Capital Markets.

Bob, when you started the year, the outlook for Canada and the United States and international were moderate. Canada was brought up to moderate to strong in this quarter. International is strong in terms of your outlook. In the United States, still moderate, and I think generally, folks would have bet that the U.S. would've had the strong next to its label. And I'm wondering, what for you guys is the tipping point? Is it the private sector? You indicated in your outlook, you think it will strengthen. Is that enough for you guys to have a moderate to strong, strong outlook in the U.S., or do you need the public sector to be there as well, to have that outlook?

To maybe answer the last one, I think having the public sector stronger would certainly help the United States. Having a strong transportation bill, having a growth in the United States would assist. Growth in the United States means people buying house, people moving into new neighborhoods. Those are going to help our Community Development area, that's going to help our water group. That economy is still not there in the United States, and I think even the people in the United States are somewhat surprised that the economy hasn't been as strong. For us, the Buildings group has been the main reason for our holdback in the United States. Probably, of all the stuff that hasn't performed well for us, it's the Buildings group in the United States that had the retraction. So that's hurt the outlook for the U.S. But there are pockets of growth in the U.S. where we're seeing optimism. There are pockets of areas where things are very busy, so it's not -- I wouldn't say generalized across the board that nothing is moving in the U.S. There are certain areas where there is money being spent. In a lot of cases, this is regulatory-driven rather than economy-driven, but there is still money being spent in the U.S. But I think overall, the GDP outlooks have all been pulled back in the United States throughout the year, so there is just an overall, I think, disappointment regarding the economy in the United States being very sluggish. And that's something we pointed to, I think, at the beginning of the year. We didn't see a huge turnaround in the United States. A lot of people I think were, it was just optimism more than reality. It has not retracted significantly, but it hasn't grown significantly either.

Okay. And Dan, just a question for you just on the admin expense. The bad debt recoveries and decreased provisions, were those material in the quarter in terms of driving the percentage of net revenue to the low end of the range?

They had an impact, John, but I wouldn't consider them to be material. I think what we did is we collected on some bad debts in the quarter. We have a fairly conservative approach to managing our AR. And if it's not collected within a certain timeframe, we will record a bad debt. So we're pretty conservative there. But it does fluctuate. The other thing was our provision for claims, and that's based on actuarial estimates of our claims outstanding. So I wouldn't say they had a material impact, but they contributed to a slightly lower SG&A.

Okay. So nothing that you'd call out as being more anomalous?

No, no, not at all. It goes in cycles a little bit, but it wasn't big.

And it helps.

It helps.

We seem to have no further questions at this time. I'll turn the call back over to management for any closing comments.

Thanks, John. Since there are no more questions, I'd like to close our call by saying we're confident in our long-term strategy, one that allows us to achieve profitable growth and provides sustainable returns to our shareholders. We look forward to speaking to you again in the near future.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines, and have a great day.