AtkinsRéalis Group Inc.

Good morning, everyone, and thank you for joining the call. Our Q1 earnings announcement was released this morning and we have posted a corresponding slide presentation on the Investors section of our website.

The recording of today's call and its transcript will also be available on our website within 24 hours. With me today are Ian Edwards, President and Chief Executive Officer; and Jeff Bell, Executive Vice President and Chief Financial Officer.

Before we begin, I would like to ask everyone to limit themselves to one or two questions to ensure that analysts have an opportunity to participate. You are welcome to return to the queue for any follow-up questions.

I would like to draw your attention to slide two. Comments made on today's call may contain forward-looking information.

This information, by its nature, is subject to risks and uncertainties. And as such, actual results may differ materially from the views expressed today.

For further information on these risks and uncertainties, please consult the company's relevant filing on SEDAR. These documents are also available on our website.

Also during the call, we may refer to certain non-IFRS measures. These measures are defined and reconciled with comparable IFRS measures in our MD&A, which can be found on SEDAR and our website.

Management believes that these non-IFRS measures provide additional insight into the company's financial results and certain investors may use this information to evaluate the company's performance from period to period. Now, I'll pass the call over to Ian Edwards.

Ian?

Thanks Denis and good afternoon, everyone. First turning to slide four, while we were off to a good start in the year with a solid performance across all three segments of engineering services.

Engineering services generated revenues of $1.5 billion and segment adjusted EBITDA margin of 8.8%. Revenues are essentially on par with Q1 2020, while margins have rebounded to the traditional levels.

The backlog also remains robust with $1.7 billion in new bookings in the quarter. On SNCL projects, we continue to make good progress, reducing the LSTK backlog, bringing the total outstanding backlog down to $1.6 billion.

Overall, it was a really solid quarter. Turning to slide five and the Q1 results for EDPM.

EDPM had a strong quarter generating $81 million in segment adjusted EBIT. Margins increased year-over-year to 8.6%.

The strong performance was due to a combination of factors, which includes strong revenue growth in the UK in project management, transport, and defense; successful efforts to right size the business and reduce costs in the Middle East; and recovery in certain markets impacted by COVID in Q1 2020,. The backlog also wanting you to grow at a really impressive pace.

In Q1 EDPM added $1 billion in new wins, an increase of just over 10%. This is in addition to the nearly 9% growth in Q4 2020 and puts the EDPM and backlog at a three-year high of just under $3 billion.

New ones include rail, road, water projects in the core geographies of U.K., Canada and the U.S, this include includes an engineering services for the U.S. state of Georgia Department of Transport and the long-term renewal of a master services agreement with Intel for project and program management.

Looking ahead the pipeline remained strong at $27 billion. And we remain optimistic across our core markets, as governments look to invest in infrastructure to support the twin goals of economic recovery and carbon Net Zero targets.

Turning to slide six, on the Nuclear Segment, Nuclear revenues were broadly in line with last year, where the EBIT in line with expectations, albeit lower year-on-year due to a lower contribution from our Canadian refurbishment works. We continue to see good demand for reactor engineering for field service work, waste management, as well as for our proprietary tools and technologies, including Robotics and Digital Trends.

Having completed our work on the first reactor at Darlington, we've now ramped up and are progressing well on the second unit. And we're moving into 2021, with several really significant opportunities and growth catalysts on the horizon.

These include, continued demand for reactor support and decommissioning, intensified tendering by the U.S. Department of Energy for environmental management work, across a number of nuclear sites and continued momentum in the U.K., with the Hinkley Power Station, and the proposed New Nuclear Science Point C Project.

Moving to slide seven an infrastructure services, the segment, had a solid quarter, and a segment adjusted EBIT margin ratio of 5.8%, an increase compared to Q1 2020, resulting from improved profitability and increased activity and health services. Infrastructure services won a number of new mandates in the quarter, including a first of its current contract to retrofit 100 year old dam in Pennsylvania, with three hydroelectric power stations to generate renewable energy.

It also won an additional five year renewal of a logistics and project management program in Canada. Just over $7 billion backlog remained strong, on the score in both the long-term and essential nature of infrastructure services.

Looking ahead, we see a number of opportunities in Canada and the U.S. and rail and transit and social infrastructure.

Major projects will be a key focus, as we pursue new collaborative liability kept contracting models like, the East West Rail Project in the U.K. that we were awarded in February.

We also see a strong pipeline of opportunities for Linxon and transportation and offshore wind. Turning to slide eight and the capital segment, the segment continued to be impacted by the lockdown in Ontario, which has resulted in reduced traffic volume, on the Highway 407 ETR.

As a result, there was no dividend payment in the quarter. Our other concessions continue to perform well.

Looking ahead, we see an interesting pipeline of new, Public- Private Partnership opportunities, where we can leverage our engineer and O&M capabilities. These include, several PPPs in Canada and the U.K., in the sewage and water treatment and hospital space.

Moving to slide nine, an Infrastructure EBC projects, we continue to make good progress, reducing the LSTK construction backlog, by over $200 million in the quarter. The LSTK backlog, which is comprised of the three remaining Canadian LRT projects is $1.5 billion at the end of March.

The segment recorded a negative adjusted EBIT for the quarter of $11 million. Turning to Slide 10, and the Resources Segment.

We continue to target completion of the sale of our Oil & Gas business in Q2. Our M&M services business is performing well.

We're seeing growth in revenue and profitability, which is really being driven by increased demand for the materials used in clean energy storage, including electric vehicles. Moving to Slide 11, as you can – as you may have seen earlier today, we released our ESG targets and commitments, including a commitment to reaching carbon net zero by 2030.

We've developed a detailed plan to achieve this ambitious target, which brings a low carbon lends to everything we do, from our travel policy and electric vehicle leasing to reduced energy consumption within our real estate footprint. To reach our goal, we have set annual targets that will be verified by third parties and published to the carbon disclosure project.

Overall, we've identified 12 ESG priority areas, including protecting and enhancing human rights, corporate integrity and diversity and inclusion. With regard to ED&I specifically, we've set clear targets to increase the representation of women at all levels of the company.

And as you can tell from our commitments, we see ESG as an integral part of the company's future growth and sustainability. With that, I'll now turn the call over to Jeff.

Thank you, Ian, and good afternoon, everyone. Turning to Slide 13, total revenues for the quarter amounted to $1.8 billion, which is slightly lower than the corresponding quarter in 2020.

SNCL Engineering Services revenue was lower by 1.3% and at the low end of our outlook range for the quarter, as the COVID-19 pandemic, did not significantly impact Q1 2020. Segment adjusted EBIT for the quarter was $143 million, which included a segment adjusted EBIT of $133 million for SNCL Engineering Services, $19 million for capital, and negative $8 million for SNCL projects.

This ladder negative EBIT was mainly due to the Infrastructure EPC Projects Segment, which had a reduction in gross margin, as the first quarter of 2021 included costs and closing out certain projects nearing completion, and the impacts of COVID-19, partially offset by a reduction in overhead expenses. Corporate SG&A expenses totaled $16 million in Q1 2021, compared to $37 million in the first quarter of 2020.

This quarter included a revision to certain estimates and cost accruals that reduce the expense in the quarter, while Q1 2020 included a $10 million additional provision adjustment for the Pyrrhotite litigation. The adjusted net income from PS&PM in Q1 2021, amounted to $83 million, or $0.48 per diluted share, representing a 37% increase compared with Q1 2020.

Both periods benefited from a lower than normal effective quarterly tax rate. Q1 2021s low tax rate was primarily driven by the reversal of certain provisions for tax liabilities, which had an impact of $0.07 per share.

Backlog ended the quarter at $13.9 billion at the same time last year. The decrease was primarily due to the continued run off of the SNCL projects backlog related to LSTK projects, which decreased by $824 million.

SNCL Engineering Services backlog, on the other hand, increased by 1% during the same period, with an increase 10% year-over-year and EDPM for $2.9 billion. In Nuclear, backlog decreased by 17% over the last 12 months, mainly due to the progress on the company's major long term refurbishment contracts in Canada.

The business continued to be awarded extensions to ongoing contracts in Canada and other long term contracts in the US and UK regions. As for infrastructure services, the backlog remained solid at $7 billion, in line with the end of March 2020, mainly due to strong contract wins over the 12 month period.

Turning now to slide 14. Our days sales outstanding, reached 61 days at the end of the quarter for EDPM, a 12 days improvement as compared to Q1 2020.

This improvement is mainly the result of our continued focus on cash collection, and early government payment program related to COVID-19. For full year 2021, the strong operating cash flow attributes of SNCL Engineering Services are expected to be partially offset by our return to a more normalized DSO level later in the year.

At the end of March 2021, the company had $703 million of cash. The recourse debt decreased by $175 million, compared with December 2020, as we repaid in full the Series 3 Debentures, which reached maturity during the quarter.

The company's net recourse debt to EBITDA ratio on the revolver credit facility, calculated in accordance with the terms of the company's credit agreement was 1.8 times, well below the required covenant level of 3.75 times. Moving on to slide 15.

Net cash generated from operating activities with $6 million in Q1 2021, compared to $23 million in the same period last year. SNCL Engineering Services continued to generate strong cash flow from operations with $118 million in the quarter, due to strong EBIT conversion and a low DSO in the EDPM segment, while capital generated $21 million.

After cash taxes, interest and corporate items, you can see that we generated $97 million of operating cash flow in the quarter, which was offset by $124 million cash usage from SNCL Projects. Note that the cash profile of SNCL projects can be very lumpy during a year, depending on the progress and specific milestones achieved for each project, compared to the more consistent quarterly cash flow profile and engineering services.

And we don't consider SNCL projects cash flow usage in Q1, representative of the remaining quarters in the year. For 2021, we continue to expect the company's operating cash flow to be largely breakeven, as a result of a return to a more normal DSO profile and engineering services by the end of the year, and a usage of cash and SNCL projects.

And finally, turning to slide 16. The company is maintaining its SNCL Engineering Services revenue growth, and segment adjusted EBIT to revenue ratio outlook.

We also continue to target the same long term EBIT margin percentage for each segment. This concludes my presentation, I'll hand it back to you Ian.

Thanks, Jeff. Turning slide 18, I'd like to conclude my remarks with a few key takeaways.

We're really encouraged by the strong start to the year. We continue to make important progress on our two main priorities, which are to derisk the business and accelerate growth in engineering services.

And we're seeing a strong pipeline of new business opportunities across all our core markets, as governments invest in new infrastructure and green initiatives. We're doing our part, both as a company, and as a partner to governments -- governments and private clients through our Engineering Net Zero offering, which provides a broad range of sustainable solutions in energy, transport and infrastructure.

We see this as an integral part to our future growth. We look forward to sharing more about those growth opportunities at our Investor Day in September.

Thank you. I'll now open the call to questions.

Good afternoon.

Hi. Hi.

Hi, Jacob.

A question on your engineering service, the low single-digit revenue growth guidance. Given that revenue was down just 1% in Q1 and would point out it appears that you've performed your peers on an organic revenue growth perspective.

Are you building in a level of conservatism? And, I guess, secondly, how back end loaded is this guidance for the year?

Well, I don’t think we're building in an extra level of conservatism. I mean, clearly, we are being prudent, because we still see that.

Although, we've had a very strong book-to-bill in Q4 and Q1, we're still in the pandemic. So, we're also seeing very, very strong indications of, kind of, future commitment.

And we really expect those to kind of hit the revenues, probably more in 2022 than 2021. So we didn't -- we've looked at it, obviously.

I mean, we've thought about this and we've looked at the pipeline, and we felt keeping the guidance outlook the same, where it was prudent at this time. But, obviously, we'll keep, kind of, looking at that as we progress through the year.

And then, I guess, my second question here, just about the rapid rise in material costs. Maybe, is this changing client behavior at all?

Yes. That's a good question.

I mean, I think the answer is no. I mean, the activity that we see in our core markets and in our, kind of, call, end markets as well as geographies, commitment is still there.

And I mean, I think the supply chain and the flow of materials and demand could be short term, once we get back to normal, post COVID. But absolutely not, we're not seeing any kind of downtime from that.

Okay. That's my two.

Thank you.

Thank you.

Good quarter, guys. Ian, wondering how you're feeling with regards to looking to pivot more to growth and when do you think SNC would be ready to do that, especially, as it pertains to potential acquisitions like a lot of your peers are involved?

Thanks, Yuri. I mean, we still are very aware, we have two priorities here.

I mean, we still have the LSTK backlog to work our way through, which we're highly focused to do that successfully. However, we've spent a lot of time in the last few months looking at a strategic plan and building on the decisions that we've already made.

And you've seen the decisions we've made around -- our core geographies, around the focus, around our end markets. Geographies being; US, Canada and UK, our end markets being; transport infrastructure, social infrastructure and nuclear.

And we're really focused on how do we grow those? What are the growth drivers?

Where do we put the energy both organically and in organically? What is our -- capital allocation looked like over a longer period of time?

And we're going to share all of that in the Investor Day in September, I mean, the exercises is somewhat ongoing still, but we'll be pretty fixed on it and give you quite a bit more detail then.

Okay. And my second question is for Jeff.

I guess, if I had to nitpick on the quarter, it looks like much lower than expected SG&A. Certainly, didn't hurt the EBITDA.

Can you explain in a little more detail what drove that? And then is there anything that, that you can do to make that line item a little more predictable going forward because it's, you have to admit it's kind of all over the place quarter-to-quarter?

Yes. So, I think, my first observation would, there were a few items in there.

Now to be fair. It's particularly with our investment in digital transformation, which we're holding as a central cost.

So we can keep an eye on that and deploy it most appropriately. You know that that does give us a run rate per quarter of probably in the $25 million range.

So it doesn't take much in one given quarter, a few million, one way or the other, just in terms of timing or in the case of -- the first quarter this year, as we looked at some of our -- look further at some of the provisions that we had there were some true ups to that which in the quarter were a credit. So it would -- I wouldn't, it's more – it’s essentially one-off, it's not something we would expect to repeat -- as part of that cleanup.

But, yes, you're right it was about $7 million or $8 million, therefore lower than what we think the kind of normal run rate would be for this year.

I will hand over. Thanks.

Thank you.

Thanks, guys. Just a couple quick ones here.

First of all, just with the close of the oil and gas sale. Anything that we should be expecting that will change I know you indicated that we'll probably see some one time gains in Q2 just to clean that all up, but any other color or update you can provide would be great?

Well, certainly on the timing, we are focused on trying to get this done in Q2, highly motivated buyer and we're highly motivated to get it done. These things obviously you know, somewhat getting consensus approvals, depends on some third parties.

So it wouldn't be beyond the bounds of possibility that sets into Q3, but no red flags. I mean, just on the financials, the mechanics of the deal itself.

Jeff, do you want to just talk to that.

Yes. I would say nothing material has changed at all.

We still expect a significant non-cash revaluation of the currency translation account in particular. But, the rest of the kind of net assets in our view of the businesses, it is largely the same as it was a few months ago.

Okay. That's helpful.

Thank you. And then, I don't know.

Who wants to take this one, but one of the questions I've been getting asked a lot is, as we've been transitioning away from being constructors of assets and being more designers of assets, is the thought process around the Capital Group. And I know you've got some good assets there and we've talked about the 407 Impasse just being a good use of capital.

But just the question is about, creating additional assets and I guess the non-407 capital business. How do you think about that fitting into the company on a go forward basis?

Yes, that's a really good question, Chris, and hopefully I can help. I mean, certainly we see ourselves as partners of customers to deliver an asset.

So, that means to me, designing the asset. It means consulting and advising on what assets should look like.

It means overseeing the construction of an asset and it means operating an asset as well. So all of those capabilities, as you know, have historically been very strong in SNC-Lavalin and we're not about to stop doing those things.

We don't do lump sum construction anymore, but we do all the other things to help our customers realize that they can have aspirations to deliver efficient assets. So, interestingly the kind of PPP market is changing a little bit.

What we're seeing in the middle portion of the construction element, in some countries, the more collaborative contracts even. And if we see that, then for sure, we're going to leverage our capital capability, and invest in assets so that we can obtain the design project management oversight and operation work from it.

Here in Canada, for example, we're now partnering with construction companies, so that we can be the designer and the operator, and we can hold part of the concession as an investor and obviously, leverage again all the capability that we've built over many years, actually been pretty good at financial engineering these things and delivering the whole project. So, there was sort of out of that quite a bit since we exit on our LSTK.

So it's a good question.

Okay. Thanks.

That’s helpful.

Thank you.

Yes. Thank you very much and a good quarter.

Just on the nuclear side, there's been a lot of discussion around nuclear energy in the context of the green transition. Could you talk about the pipeline of opportunities in front of you across key geographies?

Yes. Yes.

Thanks, Benoit. I can.

I think the first thing I'd say is our strategy on nuclear, doesn't see new nuclear is kind of the focal point of the strategy. I mean, if that happens, that's a plus.

And perhaps, I'll come back to that. Because, where we play, obviously is in support to CANDU reactors around the world, that's an important part of the business.

Extending the life of reactors, such as Darlington and Bruce, but also in decommissioning and waste cleanup and actually, where we see the biggest kind of short term growth -- short term, three years is in actually the waste and environmental management, environmental cleanup of nuclear waste particularly in the US. The Department of Energy is really, you know, pumping a lot of funds into that with some very, very big programs to clean that up, but we're also seeing that particular in the UK, where decommissioning of the ageing fleet and waste cleanup put their Sellafield plant in the north of England is pretty big also.

So, the real goal is plan that we've got, the biggest driver I would say is in naturally waste remediation and cleanup. Now, if and I think it's an issue as you said, the question marks out there, if nuclear becomes an acceptable form of clean energy in the global forum, then we will be absolutely there to sell our services and potentially even so we can do technology.

But I think that's -- I think that's a little off yet.

Okay, okay, perfect. And specifically on LSTK project, could you talk in particular if there's any key elements to monitor, especially as you run down the resource backlog?

No, I mean I think the jobs -- the 3 jobs we've got; Eglinton, Trillium and REM. The jobs are going well, but that’s still being impacted by COVID.

I mean, you know, we were assessing that -- we're going to be out of COVID round about the summer. If you remember in the updates from previous quarters, we're still optimistic about that, you know what we're hoping the vaccines in Canada will bring us back to normality and we can get people to the projects and you know reduce social distancing and reduce the kind of number of outbreaks on the projects where we have to isolate part of the project.

But certainly, what we're seeing so far in Q2, obviously the impact is ongoing. And but apart from that, we continue to negotiate with our customers to try and resolve the whole settlement around COVID, no real update there.

It's going to take some time. No red flag, but it just take -- these things take time that to kind of preserve.

Okay. Thank you very much for the time.

Thank you.

Thanks. Maybe just picking up on that last question and answer regarding LSTK and how you had planned for resumption of activity more closely aligned with what you would have historically seen as it relates to COVID.

To what extent do you think you will then need to take additional provisions if this does get extended?

Well, obviously there's a few unknowns and a few things to play out here. I mean, first of all, we kind of got to see what happens this summer in terms of productivity and we assessed that going into the summer.

So, no, no, no, no issue right now, but we need to see what happens in the summer. I mean I would say that from a productivity perspective.

And then there's the recovery of loss from our customers. As you know, we've taken a very prudent view to that recovery.

We're absolutely confident we're entitled to recover that loss. We know it takes time.

I mean, this is quite complex and the proof of losses on ourselves, the burden of proof is on us, so we've got to kind of made sure that we pursue that and demonstrate the loss. So we don't expect it to kind of take weeks, it's more of a month exercise, but if we start seeing some resolution there then that could be a positive.

So there's a few moving parts there, but no concerns right now.

Okay. That's helpful.

Thank you. Second question is regarding the backlog in the EDPM segment, obviously, very strong backlog growth, year-over-year up 10%.

Can you talk about the composition of that backlog and has the duration of that backlog extended because that's obviously very strong year-over-year growth and thinking about the fact that you're guiding to sort of low single-digit top line growth and EDPM for the year as well as the other parts of SNCL Engineering Services. Just wondering how we should think about the backlog and the composition?

Yes, I mean -- so for sure, we're seeing the UK is a strong market, with some wins, some good wins. And we're seeing the US is a strong market, and some good wins in the US.

We -- I think if you remember we kind of adjusted our view of what we would be able to win in the Middle East going back to Q1 last year. Actually the Middle East is doing quite well now also.

But I think the majority of what you're seeing there is very strong backlog. At this time will be the UK and the US.

And this -- the US business is up without the bias on investment, I mean it's up just be year-over-year in terms of volume in our specific end market. I mean, we're pretty focused on transport infrastructure in the US.

And we see that as being quite strong. I think that -- those, I mean, those are the key areas.

Right. Okay.

Perfect. And maybe just to clarify just -- to your answer there, Ian, the work you've been adding, does that stretch over a longer period of time in terms of sort of months of backlog relative to maybe what you've historically seen.

Are these larger projects that will occur over a longer periods of time?

Not really. I mean, the mix of business, our EDPM business is a pretty even mix between consultancy, design, and kind of project management.

And most of those project durations less than a year and we've seen something similar to that. I mean, not specifically, no.

Okay. That's all.

Thank you.

Thank you.

Hi. Thanks and good afternoon.

You made a comment earlier around or thinking about how to grow in the future or kind of quarters and years in some of your core markets, while others the geographies or the end markets you're in. What are your thoughts, I guess, on potentially considering some end markets the ones where you may not have a presence through M&A has focused really on kind of focusing on things that you already have a good presence.

And if there's something I think that's part of the strategic plan or just longer-term?

Well, I mean I can give you a flavor of how we think about it rather than perhaps lot of detail, but we will come to some more detail in September. I mean, we spent a lot of time simplifying our business and derisking it from low profitable business lines and loss making business lines, frankly, and that's been a high part of our focus over the last 18 months to two years.

Where we find ourselves, primarily is three core geographies, UK, Canada, US, highly focused on nuclear, social infrastructure, transport infrastructure, and government clients. And we think the decisions we've made to get down to those are the right decisions because that's where we see, growth from the market size, but also growth from SNCL level and market share.

I mean, if you take -- even if you take the US, our market share is quite small and we've developed a pretty detailed plan on how we're going to build our market share there. If we even think about Canada, this period that we've been through to not take on our LSTK work -- has reduced our other services slightly, so we've got runway to go back there.

So, I think, for our focus. I think we got the right focus.

Do we need more capacity through inorganic growth? Yes, and we're absolutely looking at that.

But it's more of what we've already got I would say at this time rather than looking at alternative markets and capabilities.

Great. Thanks.

And then just a second question, while your peers have been talking about the outlook for growing demand and the need to ramp up hirings, just want to understand how the approach you're making on that front and your plans to grow your workforce as demand picks up?

Yeah, really good question. Because in the strategic planning that we're doing.

The talent plan and the capacity plan is very, very important to the growth plan and to the strategy growth. So we think about it in three ways.

And we think about it in terms of growing the talent. What talent do we need?

How do we attract more talent? And obviously, we've done a lot of work on our culture, done a lot of work on our purpose and we've done a lot of work to improve the employee experience within the business and that's paid off for us both in not losing employees, but also being able to attract employees.

But we also think about it in terms of building capacity through the move to digital tools and automated design and increasing our capacity from our digital transformation. So that's been an interesting journey over the last few years as well.

And then lastly, we have been quite successful in building a very, very capable. Global Technology Centre out of India, which supports our businesses globally from a design and a 3D and a modeling perspective.

So we think the answer is, not just more people we think that it's actually digital tools, offshoring, and doing things more efficient as well as more people.

If I could just sneak in one I guess, this is a follow up to your comment. I think in your ESG announcement this morning, you indicated that rationalizing buildings and facilities as part of the strategy there.

Is that a review you're doing right now though should expect an update on, or how far along are you there?

Real estate is that?

The real estate, yeah.

Yeah, yeah for sure. Yeah, I mean, I mean we started before COVID.

I mean we were moving to a more flexible work arrangement and higher density in our offices before COVID. In fact, two of our biggest offices in the UK have already transitioned to that more flexibility and more density.

So like all companies, I mean COVID accelerated remote working and we are going to continue to increase density in our offices and look to work in offices that have got a greener footprint and to reduce our running costs and the overall carbon footprint in the business.

Thank you.

Alright, thanks. So just a couple of cash flow questions maybe for Jeff.

First, I believe there was a favorable resolution to a claim in the legacy, oil and gas Division during Q1, I just don't understand did SNC get to retain that benefit or that payment get transferred to the buyer as part of, we'll say the working capital adjustments, when the transaction closes?

Yeah. So that's -- that benefit stays with us as the -- as kind of the owner, the current owner of the business.

So it was good to see that. We did have -- that was partially offset by some continued true ups in the in the remaining legacy oil and gas business.

But yes, you're right, we did have a positive settlement to that project and that benefit stays with us.

Okay. Okay.

Good to hear. Okay.

And then another one. Last quarter you talked about, roughly $115 million cash flow headwind from DSOs and in EDPM normalizing and the payment of deferred taxes and I think you mentioned, Q1 we saw DSOs move even lower from where they were in Q4.

Just how should we think about that cash flow headwind now versus when you guys reported Q4?

Yeah. So I think we would continue to see it largely similar to how we saw it in Q4.

You're right, ended up in a good position at Q1. I would say even slightly better than our expectations and a lot of that continues to be the strong focus on cash flow and cash flow management that we've been driving into the business.

But we will see whether it's the that reversal, which is more in the remaining nine months of the year, and the natural expectation of seeing some of that DSO unwind back into, we do think it would end up back in the in the low-70s roughly. Therefore, we think that headwind is still largely the same as it was at -- that we talked about at the end of the year.

Obviously, we'll need to see how the quarters continuing to go forward and how governments react, but I think that would be our view currently.

Okay. Thanks.

I'll turn it over.

Thank you.

Hi. Good afternoon guys.

Yeah. Hi, Mark.

Nice to see all the hard work. May on the -- so just a few follow-up questions actually.

On the sell the oil & gas business. I guess, I'm less concerned about timeline, but I'm just curious, is there any significant hurdles or risk or milestones that we need to be aware of before this gets done?

No. It's Jeff here, maybe I'll add a bit of color to that.

I think our view on that is no. As Ian was alluding to earlier and what – in terms of what we said back in February 9 as well.

There are clearly a number of hurdles, regulatory wise and filing wise in particular, not to mention the actual operational work that we do to carve the business out, but I think our view would be all of that remains on track. And while it's a lot of work we haven't seen any particular red flag or issue that that we hadn't anticipated before, so I think it's mostly about the amount of time and we continue to target the end of Q2, but as Ian said, a part of that in terms of those regulatory filings aren't completely within our – within our gift.

So to the extent that because of COVID or otherwise, it takes a little longer, you know, that could slip, but we're – we and the buyer are highly focused on trying to do this, you know, during the quarter.

Okay. In terms of the cash flow and appreciate the lumpiness within projects, but is there a period – period in time where these being uses of cash, or is it going to be quarter-to-quarter kind of this lumpiness?

Yes. I think, I mean I think it will continue a bit – a bit lumpy here, probably through, certainly through 2021.

Now obviously, the more we reduce the backlog, as more as effectively you know the remaining work narrows and gets lower and lower than naturally in a sense the lumpiness of the variability quarter-by-quarter is likely to narrow as well. I think Q1 was in our view, you know, at probably the extreme end of what we would normally see in terms of lumpiness and I think going forward, while it may remain lumpy.

I think we wouldn't consider Q1 to be typical of the variability to that extent. I think Q1 was a bit unique.

Maybe just on the real estate comments through the question, appreciate sort of the flexible work arrangement, but it just wasn't clear to me. Do you think there's going to be an opportunity to shrink your footprints in a material way or no?

Yeah, I mean we have a plan, I mean we have a definitive plan of moving our offices to a higher density. I mean, our model office for density is actually our London office in Victoria, and you know, it's a really good office.

You know, there’s flexible working and it's how – that’s skinning or so the seat kind of approach, and it works really well, the employees love it, because it's a lot more collaborative, it's a lot denser than and therefore, it's less expensive than the offices we've got around the world. Now, like I said, we've been at this for a couple of years, so it predates COVID.

And we've been executing on that plan as leases have come up. And as we've looked to, you know, renew leases and as we've looked to kind of replace offices, where we look to go to this model, where there's a lot higher density.

And in some extent, COVID is accelerated that. Now, you know, it obviously will have some impact on the – on the SG&A, but it's – in that whole scheme of things, you know, but it's not it's not like closely significant, I wouldn't put it that way, Jeff would you?

Sorry, I was on mute. No, I would agree with that.

I mean, we have seen savings, we’ll continue to see savings in 2021 and we would expect to see savings going forward in terms of the multi-year plan we have around our office footprint. So it's a good source of future cost savings, but as Ian said, it's not -- it's not earth shattering in inside.

The real benefit is the employee experience. We've got such positive feedback from our employees, and we're all going to have to compete for talent.

So, these things are really important.

Great. All right.

Thanks and congrats again.

Thank you.

Thanks.

Hi. Good afternoon, gentlemen.

Hi, Maxim.

Just a couple of quick cleanups for me if I may, I don’t know if in the past, we discussed the stopping, but like, obviously, the peers presents their revenue on a gross and net basis. And I'm just wondering if at some point, you guys thought about sort of harmonizing with that presentation, so that investors can actually see the implied kind of clean EBITDA margin for the business, or yeah maybe any thoughts on that front if it is possible?

Yeah. Maybe – Jeff, maybe I'll take that.

Max, we are -- and it is something we are aware of and it is something that we are looking at, we think the EBITDA gross revenue metric we have is a good one. Not the least of which is, we effectively take risk and profit risk on the gross cost of the project, not just the net cost and offence.

But however, we are looking at the net revenue to EBITDA number as well and again would potentially come back later in the day -- around the Investor Day might be the right time as we start to think about multi-year financial metrics and target, how that might play into it.

All right. Okay.

Because I think that will be obviously helpful because everybody's like talking about like 15%, 16%, so bit different ballpark. And one quick question on the free cash flow slide on page 15, the leases are -- are they in consolidated for cash flow or we have to adjust for those?

Well you have to, in a sense the kind of interest component is in the operating cash flow. The effectively the principal element is not, it's a financing cash flow and that's where we'd hold it.

All right. Yeah.

Okay. Now so it's not adjusted therefore for second part?

Yeah.

Okay, that's it for me. Thank you very much.

Thank you.

Thanks, Max.

Thank you very much everyone for joining us today. If you have any more questions, please don't hesitate to contact me.

I wish you a good afternoon, and then a very nice weekend and stay safe all. Thank you very much.

Bye-bye.