STANTEC INC

Project Margin

Project marginis calculated as net revenue minus direct payroll costs. Direct payroll costs include salaries and related fringe benefits for labor hours directly associated with completing projects. Labor costs and related fringe benefits for labor hours not directly associated with completing projects are included in administrative and marketing expenses.

In general, project margin fluctuations depend on the particular mix of projects in progress and on project execution. The fluctuations reflect our business model, which is based on providing services across diverse geographic locations, business operating units, and all phases of the infrastructure and facilities project life cycle.

Project margin increased $451.0 million, or 16.4%, and as a percentage of net revenue, project margin increased 30 basis points to 54.5%. Net revenue growth driven by robust public and private investment contributed to the project margin increases. As a percentage of net revenue, strong project execution and favorable project mix contributed to strong project margin.

In Canada, project margin increased $89.3 million to $756.7 million, and as a percentage of net revenue, project margin decreased 60 basis points. A shift in project mix, particularly in Energy & Resources and Infrastructure, as well as the wind down of several higher margin projects in Environmental Services contributed to project margin decreases.

Project margin in the United States increased $211.0 million, and as a percentage of net revenue, increased 50 basis points to 55.5%. Margin increases were primarily due to favorable project mix and solid project execution across all of our business operating units, particularly in Water. Certain project recoveries in Buildings also contributed to margin increases.

Project margin in our Global operations increased $150.7 million to $752.9 million and as a percentage of net revenue increased 80 basis points to 53.8% due to strong volume on higher margin work in Buildings and solid project performance in Water.

Administrative and Marketing Expenses

Administrative and marketing expenses fluctuate year to year due to the amount of staff time charged to marketing and administrative labor, which is influenced by the mix of projects in progress during the period, business development activities, and integration activities resulting from acquisitions. In the months after completing an acquisition, staff time charged to administration and marketing is generally higher as a result of integration activities, including orienting newly acquired staff. Our operations generally incur higher administrative and marketing expenses in the first and fourth quarters as a result of the holiday season and seasonal weather conditions in the northern hemisphere, which, in turn, result in lower staff utilization.

Administrative and marketing expenses were $2,286.1 million in 2024 compared to $1,965.3 million in 2023 and increased as a percentage of net revenue to 39.0% from 38.8%. The impact of the LTIP revaluation due to the movement of our share price was a $3.8 million expense in 2024 compared to $34.1 million in 2023. In 2024, we entered into a total return swap agreement for a proportion of our performance share units to manage the volatility of our share price impact on our LTIP costs.

Excluding the impacts of the LTIP revaluation, administrative and marketing expenses as a percentage of net revenue increased primarily due to the impact of claim provision estimates increasing to historically normal levels compared to 2023 and higher onerous contract charges related to lease impairments. As well, administrative labor increased due to higher training and integration costs associated with integrating Morrison Hershfield onto our ERP platform and slightly lower utilization from staff transitioning mid-year from certain major projects that had wound down to new projects.

Partly offsetting these increases was the impact of the retrospective change in accounting policy related to the treatment of deferred payments from our historical acquisitions, which resulted in an increase to administrative and marketing expenses of $6.6 million in 2024 compared to $19.5 million in 2023.