Heady days for the industry – but storm clouds gather in the east

Highlights from the quarterly earnings reports of industry-leading firms and early takes on how the effects of war in Ukraine could impact the industry in 2022.

By Morrissey Goodale March 7, 2022
Courtesy: CFE Media & Technology

Last month, there was a flurry of quarterly earnings reports from prominent publicly traded AE and environmental firms. The results added to what we already knew—that 2021 was yet another remarkable year of expansion and profitability for the industry. The CEOs of these leading firms reported on record fiscal years and robust fourth quarters and expressed optimism about the prospects for 2022 and beyond. However, it’s doubtful any of these forecasts had a land war in Europe factored in.

Here are some of the highlights from the quarterly earnings reports of these industry-leading firms. And here are also some early takes on how the first- and second-order effects of war in Ukraine could impact the industry in 2022.

1. It’s called the Sunshine State for a reason: Last Monday, Dickerson Wright, CEO of NV5 (Hollywood, FL) (ENR #27), reported that the firm “delivered another record year of revenues and profitability in 2021, including significant growth in net income, adjusted EBITDA (Year-over-Year (YoY) increase of 26%), adjusted EBITDA margins, and earnings per share (EPS) ($3.22 compared to $1.65 in 2020).” He saw the firm entering 2022 “well-positioned to capture growing client investments in infrastructure, utility reliability and safety, water and natural resources, and clean energy.” NV5 completed eight acquisitions in 2021 that expanded its marine geospatial offering, strengthened its energy efficiency and clean energy businesses, grew its environmental transactions services, and allowed it to enter the high-growth data center market in the Middle East and Asia.

2. Environmental markets are humming: Last Monday also saw Montrose Environmental (Little Rock, AR) report its fourth-quarter and full-year 2021 results including record full-year revenue (YoY increase of 65%), organic growth, earnings (adjusted EBITDA increased 42.5% YoY), and cash flow. The firm made six acquisitions in 2021 funded almost entirely by operating cash flows. Per President and CEO, Vijay Manthripragada, “[2021]… ended up being a record-breaking year for Montrose with lots of continued positive momentum into 2022.” He added, “We are arguably more optimistic than we were before, and our longer-term outlook has not changed.”

3. Positivity from north of the border: Earlier last month, Stantec (Edmonton, Canada) (ENR #10) reported record earnings for 2021. Adjusted EBITDA from continuing operations was CAN$573.8 million, increasing as a percentage of net revenue by 10 basis points to a record 15.8%. Stantec made six acquisitions in 2021, expanding the firm’s presence in environmental services and energy transition. The firm reported record contract backlog of $5.1 billion—a 17.3% increase YoY. It’s not surprising management was bullish on 2022. Per Gord Johnston, president and CEO, “Looking forward, we see a strong multi-year cycle ahead for the industry which will support expansion of our record 2021 adjusted EBITDA margin and earnings.”

4. A view from (very, very close to) the top: February also saw industry icon AECOM (Dallas, TX) (ENR #2) release its fiscal year 2022 first-quarter results. Management reported a fourth consecutive quarter of positive organic net service revenue growth, consistent with expectations, and an increase in adjusted EBITDA of 10%. Backlog grew 5%, reflecting market-share gains and execution on strategic priorities. Per CEO Troy Rudd, “Our strong first-quarter results exceeded our expectations on every key metric, which supports our confidence in raising our full-year adjusted EPS guidance.” Lara Poloni, the firm’s President, said, “Importantly, this momentum is before the expected benefits from the bipartisan infrastructure law in the U.S.”

5. The hits keep comin’: Tetra Tech (Pasadena, CA) (ENR #4) announced its first-quarter results at the beginning of February, and there was plenty of good news to report, such as: Revenue of $859 million, up 12% YoY; net revenue of $679 million, up 12% YoY; EPS of $1.25, up 30% YoY; adjusted EPS of $1.19, up 24% YoY; and cash flow from operations of $82 million, up 148% YoY. The firm achieved record first-quarter results in revenue, net revenue, earnings, cash flow, and backlog. Indeed, backlog at the end of the quarter was $3.45 billion, up 8% YoY. Per Chairman and CEO Dan Batrack, “Given the strength of our performance, as well as achieving a record high first-quarter backlog, we are increasing our guidance outlook for both net revenue and EPS for fiscal 2022.”

6. Cybersecurity moves to center stage: Last month, Parsons Corporation (Centreville, VA) (ENR #11) announced its financial results for the fourth-quarter and year ended December 31, 2021. All metrics were at or above full-year 2021 guidance mid-point ranges. Total backlog stood at $8.3 billion, a 3% YoY increase. Per President & CEO Carey Smith, “We had a strong finish to the year and achieved our fourth-quarter and full-year 2021 objectives.” Smith went on, “Geopolitical tensions are escalating, and our Federal Solutions business is supporting our customers in critical areas of national security including cyber, space, missile defense, and C5ISR.” Of note, BlackHorse Solutions (Herndon, VA), a company Parsons acquired in the third-quarter of 2021, was awarded expanded scope on a single-award contract that the company expects to have an approximate value of $100 million. This award includes customers from the Department of Defense, intelligence community, and civilian organizations that span cybersecurity, electronic warfare, technical operations, readiness, and analytics. For a deeper dive on cybersecurity, see Mark Goodale’s article in this week’s Word on the Street.

7. Eurovision: And finally last month, global player Arcadis (Amsterdam, Netherlands) reported that in 2021 the firm saw organic net revenue growth of 3.5% to €2.6 billion, improvement in operating EBITA margin to 9.6%, organic backlog growth YoY of 5.1%, and record backlog of €2.2 billion. As they say in the Netherlands, “Alles is goed!”

8. What could possibly go wrong? The results of the most recent industry business sentiment surveys by the AIA and the ACEC Research Institute showed firm leaders to be overwhelmingly positive about the outlook for their firms in 2022. However, if the last two years have taught us anything, it’s that volatility on a massive scale is the order of the decade. Heading into 2020, no AE or environmental firm had a strategic plan with a scenario titled “Global pandemic immediately followed by a land war in Europe with never-before seen business and financial sanctions.” They may have forecasted or prepared for one of these, but definitely not both. (To all my strategic planning clients, I’m sorry I was not cynical enough about the world to model such a scenario for you.) The terrible events in Europe will have impacts on the domestic AE and environmental industry.

9. First-order effects: The unprecedented financial and economic sanctions being imposed on Russia and its client nations will impact business operations for designers that do business with these countries. The number of U.S. firms doing business in Russia, Ukraine, and Belarus is relatively small – less than 50 according to ENR. This is because the market for complex infrastructure projects or high-end residential, corporate, cultural or mixed-use developments in Russia and Eastern Europe has traditionally been owned by European-based designers and engineering firms. So the exposure of the U.S. industry is minimal and limited to the largest engineering/environmental firms and iconic architectural designers. These firms will of course have to cease operations in Ukraine. They will also either see their work in Russia and Belarus shut down due to sanctions or they will choose to stop working in both countries (as many European designers have already done). Either way there will be direct economic effects on these firms. Depending on how far-reaching the sanctions are, developments and projects tied to Russian funding or for certain Russian individuals here in the U.S. may be stopped or paused impacting smaller, domestic designers.

10. Second-order effects: With the price of oil rising fast, U.S. producers will step up production domestically. This will create opportunities for AE firms serving the oil and gas sector. Larger firms serving federal military agencies will see increased demand for services. The relative security, transparency, and reliability of U.S. markets for investors and for AE firms to do business will be reaffirmed. This will spur more acquisitions of U.S. AE and environmental firms by overseas buyers eager to invest their capital in the North American market and build a business here.


This article originally appeared on Morrissey Goodale’s websiteMorrissey Goodale is a CFE Media content partner.