WSP Global Inc

TSX:WSP

Earnings Call Analysis

Company Shows Strong Growth and Reaffirms 2023 Outlook

In Q3, the company's revenues hit $3.6 billion with a 24% increase compared to Q3 2022. Organic net revenue grew by 6.7%, with backlog robust at $14.3 billion, marking a 7.2% organic growth in 9 months. Adjusted EBITDA soared by 28% to $522 million, with the margin increasing by 50 basis points to 19.1%. The 9-month adjusted EBITDA margin grew by 30 basis points to 17.2%. With these improvements, the company aims to enhance EBITDA margin annually by 30 to 50 basis points. The 2023 financial outlook remains solid as previously stated, with acquisition and integration costs revised to $95-$105 million.

Financial Outlook and EBITDA Growth

WSP's leadership is proud of the robust financial outcomes achieved this year, aligning with an optimistic financial outlook. In August, the company raised its adjusted EBITDA guidance by a significant margin, now expecting in excess of $1.9 billion for the year, reflecting an increase of more than $100 million. A key element of success includes a steadfast commitment to margin expansion, with the adjusted EBITDA margin now at 19.1%, showcasing a 50 basis point improvement from the same quarter in the previous year.

Organic Growth and Backlog Strength

The company saw solid organic growth in net revenue across all segments, with a healthy backlog reaching about 12 months of revenue and organic growth in the backlog itself marked at 7.2% for the first nine months of 2023. This advancement is underscored by substantial growth in regions like Canada, Australia, the UK, and New Zealand, fueled by stimulus programs and demand for expertise in energy transition and decarbonization, leading to substantial contracts and strong order intake across the Americas and EMEA.

U.S. Soft Backlog Increase

Providing extra insights into the soft backlog—contracts pending funding confirmation—the company reported a significant growth of 50% year-on-year and 30% since the beginning of the year in the U.S. This evidence of resilient demand spans across WSP's core sectors and underscores the firm's robust position in the market.

Progress Toward Long-Term Margin Goals

Progressing steadily, WSP is on course to achieve its long-term vision of a 20% EBITDA margin. This ambition is propelled by a focused strategy that continues to yield positive outcomes.

Executive Transition and Integration Success

Addressing corporate leadership, the upcoming retirement of executive Lou Cornell in 2024 has initiated a search for a successor. Furthermore, the strategic acquisition of Wood E&I has been proceeding as planned, enhancing capabilities notably in the Earth & Environment sector.

Industry Recognition and Achievements

WSP has been recognized for its exceptional performance, solidifying its rank as the top International Design Firm for the third consecutive year. The company's dedication to innovation and sustainability has also led it to feature on Times Magazine's list of the world's best companies in 2023 and Fortune Magazine's Change the World list, highlighting WSP's influence and prestige in the engineering sector.

Growth in EV Infrastructure and Renewable Energy Projects

WSP is experiencing a surge in electric vehicle (EV)-related activities, with North America's energy layout forecasting investments of $12 trillion in renewable and grid infrastructure by 2050. WSP's established expertise in the full EV battery supply chain, reinforced by significant project wins in 2023, places the firm in a strong position to continue amplifying its revenue sources within this sector. Additionally, the company's involvement in clean energy projects, such as the Mersey Tidal, is anticipated to power up to a million homes, create a plethora of green jobs, and advance regional economies towards excellence in sustainability.

Leadership in Sustainable Solutions

WSP's commitment to sustainability extends to tackling the healthcare sector's carbon footprint, almost 5% of global emissions. By uniting global teams to chart out decarbonization journeys for healthcare systems, WSP demonstrates its leading role in confronting pressing environmental challenges. The firm's work on resilience projects, like the remediation efforts for New Zealand's North Auckland Line after cyclone Gabrielle, reflects WSP's dedication to supporting communities through expertise in sustainability and climate resilience.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, everyone. Welcome to WSP's Third Quarter 2023 Results Conference Call. I would now like to turn the meeting over to Quentin Weber, Investor Relations. Please go ahead, Mr. Weber.

[Quentin Weber, executive]

Thank you, and good morning. We hope that you're all doing well, and thank you for joining the call today. We will be discussing our Q3 2023 performance followed by a Q&A session. Joining us this morning are Alex L'Heureux, our President and CEO; and Alain Michaud, our CFO. Please note that this call is also accessible on our website via webcast.

During the call, we will be making some 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 our MD&A for the quarter that ended September 30, 2023, which can be found on SEDAR and on our website.

In addition, during the call, we may refer to certain non-IFRS measures. These measures are also defined in our MD&A for the quarter that had ended September 30, 2023. 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 key 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 as reported by other issuers and accordingly, may not be comparable. These measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS.

I will now turn the call over to Alex L'Heureux.

[Alexandre L'Heureux, executive]

Thank you, Quentin, and good morning, everyone. Let me start by saying that I'm proud of the strong results we continue to deliver this year. These results are in line with our improved financial outlook issued in August, which, as a reminder, increase our adjusted EBITDA guidance by more than $100 million, representing over $1.9 billion for the full year.

I would like to emphasize the following 3 highlights: First, we generated solid organic growth in net revenues across all of our reportable segments. Second, our backlog remains healthy at a record level with approximately 12-months of revenues and a backlog organic growth of 7.2% in the first 9-months of 2023. And lastly, we are staying through to our margin expansion strategy and delivering an adjusted EBITDA margin of 19.1%, which represents a 50 basis point increase when compared to the same quarter last year.

More specifically on organic growth in net revenues, the momentum continued to be positive and was more pronounced in Canada, Australia, the United Kingdom and New Zealand. As for backlog and order intake, we benefit from the various stimulus programs being deployed across our key geographies as well as global trends such as energy transition and decarbonization which continue to require a strategic expertise.

Significant contracts were awarded in Canada, and our order intake was strong in the Americas and EMEA. I will be sharing a couple of examples in a few moments.

During the last quarter, we provided additional visibility on our U.S. soft backlog and the upward trend we were witnessing has persisted. As a reminder, sub-backlog represent contract awards not yet included in our reported backlog, mainly because of pending funding confirmation. Our sub-backlog in the U.S. grew by approximately 50% year-on-year and 30% since the beginning of 2023.

This positive dynamic applies in all our core sectors. There is a notable increase in demand for our market-leading expertise in data centers, sustainable infrastructure and renewable projects and awards across multiple WSP verticals and disciplines.

On margin expansion, more specifically, we are making great progress, which is the direct result of a focused strategy. We are, therefore, making notable headway towards attaining our stated long-term vision of delivering a 20% EBITDA margin.

Before I go over our recent events and recognitions for the third quarter, I would like to take a moment to discuss the leadership announcement we made yesterday. After a career spanning nearly 35-years, Lou Cornell has decided to retire from executive life in 2024 to enjoy quality time with this family. I thank Lou for his contribution to WSP and wish him a gratifying next chapter in his life. We have initiated the search process for Lou's successor.

Going back to Q3, it was marked by the first anniversary since our acquisition of Wood E&I, which significantly increased our capacity in the Earth & Environment segment. Integration is on plan, and we continue to find opportunities to scale our service offerings even further.

WSP's leadership in this sector is well acknowledged, and I wanted to take a moment to share 3 prestigious recognitions we recently received. The first was by the Engineering News-Record known as ENR annual survey. We ranked first amongst the top 225 International Design Firms for the third consecutive year. It is an honor to have once again secured a top spot in this esteemed list.

Our strong overall performance is a great testament to our unwavering commitment to innovation, sustainability and addressing today's pressing global challenges. We also made Times Magazine's list of the world's best companies in 2023. We are only 1 of -- we are -- sorry, one of only four Canadian-based companies on this year's list and the only one in the engineering sector. This recognition takes into consideration employee satisfaction, revenue growth, ESG data, disclosures and impact.

Lastly, we were recognized by Fortune Magazine and granted a place on the Fortune's Change the World list. This honor serves to recognize WSP for leading positive change through our activities and business strategies. We are extremely proud to be the only firm in our space to have been granted this distinction.

Such recognitions are only attainable, thanks to the collective effort of our teams around the world. I'm proud of their accomplishments, and it is a privilege to work in an industry that is at the forefront of the energy transition and global trends.

Let me begin by focusing on the EV transition as an example. We are feeling a rapid acceleration of EV-related activity and growing opportunities. In fact, this year's energy outlook, North America forecast projected that the U.S. and Canada are expected to invest $12 trillion in renewables and grid infrastructure by 2050. We also see similar investment globally.

We know that the robust electric vehicle market in North America and the substantial increase in government funding for the EV battery market in Canada are motivating global clients to choose Ontario and Quebec for their facilities. WSP has expertise in place to support the full EV battery supply chain. We are also already providing a range of services including site selection, environmental permitting, due diligence, engineering design and project management support for the manufacturing of battery parts and battery assembly plants, as well as electric vehicle assembly plants.

Project wins to date in 2023 have been robust and we are well positioned to continue increasing our revenue stream in this sector.

Another transition that is important to highlight is water and clean energy. This is a sector benefiting from a strong market momentum and in which we are well positioned to deliver. WSP was recently selected to design the Mersey Tidal in the U.K. This is a barrage with an expected capacity of at least 1 gigawatt and is the largest publicly led renewable project in the country. Mersey Tidal will likely generate enough power for up to 1 million homes, create thousands of local jobs in the green economy and make the regions a worldwide center of excellence.

In addition to clean energy, the barrage is expected to provide protection against sea level rise and help create an enhanced natural habitat. Additionally, we constantly make efforts to attract the best professionals in our fields of expertise and enable our talent to work on fascinating and complex projects. We continue to leverage our internal global network of professionals and one recent project I was impressed with was when our healthcare teams from around the globe joined forces to chart the decarbonization journeys of nine healthcare systems across six continents.

Decarbonization is a preoccupation for all of us, and at WSP, we firmly believe in the power of uniting to tackle the biggest challenges. Members of our team across our platform work together to propose solutions aimed at reducing the healthcare sectors' carbon footprint, which represent almost 5% of global carbon emissions.

I want to also underscore the work WSP is completing on the New Zealand North Auckland Line. This critical route was severely damaged after cyclone Gabrielle. Because we take great pride in assisting clients in all facets of sustainability and climate resilience, our geotechnical and stormwater teams were thrilled to be selected to had the remediation work. They work relentlessly to provide a resilient railway line and embankment stability for future extreme weather events and operational surface water drainages.

Our world continues to be impacted by natural disasters, and I firmly believe WSP has an important role to play to support communities. With close to 150,000 active projects per year in a multiple of sectors, we are committed to executing work that supports a sustainable and [ reliable ] society taking pride in our leadership role to contribute to a low-carbon world and expedite the green transition.

On that note, let me turn over to Alain, who will go over our strong Q3 results in more detail.

[Alain Michaud, executive]

Thank you, Alex. For the first quarter, revenues and net revenues reached $3.6 billion and $2.7 billion, respectively, both up 24% compared to the third quarter of 2022. We delivered solid net revenue organic growth of 6.7% in the quarter, attributable to all reportable segments.

Our backlog as of September 30 remained robust and stood at $14.3 billion, representing 12.1 months of revenue with a 7.2% organic growth in the first 9 months of 2023. Organic order intake in the third quarter alone reached $4 billion.

Adjusted EBITDA in the quarter stood at $522 million compared to $407 million in the third quarter of 2022, a 28% increase. Adjusted EBITDA margin increased by 50 basis points to 19.1% compared to 18.6% in the second quarter of 2022, attributable to our ongoing margin enhancement initiatives. In the 9-month period ended December 30, adjusted EBITDA margin increased by 30 basis points to 17.2%. Our capacity to improve our margin profile provides us with the confidence to achieve the strategic planned target to increase adjusted EBITDA margin annually by 30 to 50 basis points.

For the quarter, adjusted net earnings stood at $246 million or $1.98 per share. This is an increase of $53 million or $0.39 per share, respectively, compared to the third quarter of 2022. Cash inflows from operating activities reached $210 million in the 9-month ended September 30 compared to $207 million in the first 9 months of 2022. Free cash outflow reached $177 million for the 9-month period that ended September 30, we aim for a 100% conversion of free cash flow to net earnings for 2023 when excluding the continued impact of changes in tax regulation in the U.S. relating to research and development.

In regards to guidance, our financial outlook for 2023 issued in the Q2 2023 press release is reaffirmed. And from a modeling perspective, acquisition and integration costs are now expected to range between $95 million and $105 million given recent acquisitions and further identified opportunity. In conclusion, I'm very pleased with our financial performance as we delivered yet another solid quarter. On that, back to you, Alex.

[Alexandre L'Heureux, executive]

Thank you, Alain. I will conclude by reiterating that I am pleased with our performance. Overall, we benefited from positive market dynamics and continue to believe in the strength of our unique global and diversified platform. We remain steadfast in our ability to deliver as per expectations.

Our pipeline of projects remains robust, and we are well positioned to keep growing and capturing market share. As I mentioned in the introduction, we significantly increased our financial outlook in August. And as of today, we remain confident and committed to this guidance.

While the macroeconomic and geopolitical environments are fluid, our business is well diversified and resilient, and we remain vigilant, disciplined and focused. I trust our ability to navigate with agility while focusing on diligently executing our strategic ambition. I have confidence in our strategy, our platform and our people.

On that note, we will now begin the Q&A session. Thank you.

[Operator]

[Operator Instructions] We'll now take our first question. First question is from the line of Jacob Bout from CIBC.

[Jacob Bout, analyst]

Seeing a solid organic growth in almost all areas. But the [ MDA ] is calling it -- difficult market conditions in China. Can you remind us what your exposure is to China right now? And have things improved there or got worse? And are there any other areas that you could be seeing some softness right now?

[Alexandre L'Heureux, executive]

Jacob. Look, China, we have minimal exposure and has been reducing over the last 12 months. So if you look at Mainland China, it's less than 500 people that we have now in China, so it's really de minimis. So for us, I think it's -- of course, we -- our Chinese business has suffered from what's happening in the real estate market in China. But having said all that, Hong Kong, Singapore and Southeast Asia has remained quite good. And that we're feeling good about the future prospect in the region.

[Jacob Bout, analyst]

And any other areas that you could be seeing any weakness or?

[Alexandre L'Heureux, executive]

I'm sorry, I missed that.

[Jacob Bout, analyst]

Any other areas that you're seeing any type of softness?

[Alexandre L'Heureux, executive]

You mean globally?

[Jacob Bout, analyst]

Globally.

[Alexandre L'Heureux, executive]

I think -- yes, no, I'd say that at the moment, some of you have already expressed this. I think we're -- I continue to be very impressed with the way our EMEA region has been performing over the course of the first 9 months of the year. It's been very, very resilient. Thank you, I guess, or thanks to our diversified platform.

But so far, if I look at the Nordics, look at our performance in Central Europe, in the U.K., it's been quite resilient and actually, to a certain extent, quite robust. North America has been a very good market for us and Australia and New Zealand continue to perform. So overall, we're -- that's the reason why we've had strong results in Q3 and strong results year-to-date.

[Jacob Bout, analyst]

Okay. That's helpful. And then maybe just as a second question here, you have pretty significant use of working capital during the quarter. Was this a timing issue? And how do you think about DSO levels trending ahead?

[Alain Michaud, executive]

Yes. Jacob, so the -- our target for end of year, Jacob, is still to be in the range that we've announced. We're currently in DSO 77 days, target is 70 to 75 days. So we have experienced a bit of a delay in Canada on billing as a result of the new system we put in place. This is now under control. It's just a result of having a new system, learning new ways of working. So that has impacted Q3 DSO, but we expect to catch up in Q4.

We're committed to do that 100%, cash conversion. And with the exception of the Canadian situation, the rest of our free cash flow is according to plan. Obviously, we've discussed the Section 174, this tax regulation in the U.S. that came into force about 2 years ago. We need to keep in mind that this is about a $100 million headwind in our free cash flow year-to-date versus last year.

So when you compare that to a $600 billion free cash flow business, this is significant. But the rest of the business is doing quite well. We're continuing to be quite focused on cash collection. Our clients are committed. We don't see any softness in delays in payment terms and things like that. So it's going well. We expect to be within our range by the end of the year.

[Operator]

We'll now move to our next question. And this is from the line of Chris Murray from ATB Capital Markets.

[Chris Murray, analyst]

Just turning back to the conversation around soft backlog and backlog conversion. I guess your order intake has been very, very strong, and we're starting to see that in the months to work, creep up a little bit. But thinking about what's required to start converting some of that soft backlog, I think you talked about -- there were some funding issues and I know there's some different discussions in the U.S. around that.

Can you maybe give us a bit more color on when you think you're going to start converting some of that? And I guess, more importantly, what that will look like as we move into '24 and '25 as that converts?

[Alexandre L'Heureux, executive]

Yes. First of all, I just want to clarify a point you just made. I mean we're not talking about funding issues. The nuance here is very important. We're talking about funding confirmation, which is slightly different here. We need to remember that -- you take the U.S., for instance, they have three distinct funding mechanism and one of them, we're talking about $1 trillion. And so far, of that $1 trillion, probably around $270 billion has been allocated already over 36,000 projects.

So there are some delays to be expected when you are trying to deploy such a big number, obviously, over so many different projects. So I think it's just a normal course of business at this point in time. But I think on the positive note, we are seeing projects being awarded and our win rate has been very robust and very strong. I think now it's just a matter of getting confirmation around the funding and be able to start the projects.

[Chris Murray, analyst]

All right. Just maybe following up to that. One of the things, I guess, as we're watching kind of months of backlog kind of creeping into the low 12s, it's not the highest you've ever been. But thinking about this additional work coming, with the changes in the environment that we've seen, how are you finding the ability to recruit and add employees in this marketplace? Has it started to shift a little bit with some of the economic softness? Or is it still a fairly tight market for talent?

[Alexandre L'Heureux, executive]

Well this year, we welcome in excess of 10,000 newcomers within the company, which is a testament of our ability to recruit talent within the company globally. And also, we have seen a sharp reduction in turnover and now back to close to historical level. So when you combine our ability to recruit and a reduction in turnover, I'd say that now, I think we're obviously feeling better than perhaps where we were 18 months ago as a result of it.

[Operator]

We'll now take our next question. And this is from the line of Michael Doumet from Scotiabank.

[Michael Doumet, analyst]

Just a follow up on the last question. So you commented on the sharply lower turnover. So I'm just trying to think about the relationship with lower turnover to productivity. And does the benefit of lower turnover have a real-time impact to productivity in your opinion? Or does it lag? Just trying to think of that dynamic.

[Alexandre L'Heureux, executive]

Well, obviously, turnover is quite expensive. So you are right in mentioning that, that is going to have a positive impact on our productivity, but also recruitment is where you -- when you recruit, you have to train, so you lose some efficiencies. So that's why by reducing your turnover, you are in a position just naturally to increase your productivity. So I think without saying it's a real, real direct impact of 1 for 1. It's almost direct effectively.

[Michael Doumet, analyst]

That's helpful. And if I caught the prepared remarks correctly, I think you highlighted higher anticipated M&A costs for the year. And I think that was due to, I think, what you called further identified opportunities. Can you comment on that a little bit? Just wondering, given the higher rate environment, just wondering if that's not challenging M&A at all?

[Alain Michaud, executive]

Yes. Good start, Michael. The higher cost that we anticipate is explained by 2 things. First, we've completed 4 acquisitions since the beginning of the year. So that was obviously not part of our initial guidance that we've issued at the beginning of 2023. So that's one part.

The second part, which is a good news story. It's -- we're identifying more opportunities in our acquisition of 2022, namely Wood E&I. So that drives a little bit more integration costs. But you've got on the flip side, the benefit of increased synergies. So that's -- those are essentially the two reasons for increased costs. And also, we've confirmed the disposal of the LBS business back in Q3. So that too added a bit of cost related to that disposal.

[Operator]

We'll now take our next question. This is from the line of Jonathan Lamers from Laurentian Bank Securities.

[Jonathan Lamers, analyst]

On the Wood E&I integration, is that complete now? And how do you feel the overall WSP is positioned for next acquisition?

[Alexandre L'Heureux, executive]

Yes. Look, the -- it's a 1-year anniversary. So we are very pleased with the way the Wood E&I performance have gone so far, but also on the integration front. Obviously, this was -- in terms of numbers, the largest acquisition we had completed in our history. So there's still obviously some, I would say, some stream of activities that we continue to complete and must complete to have like a full integration completed.

However, I feel that we are in a very, very good position at this point in time. When you look back on the effort and what we were able to achieve over the last 12 months. So I think that if your question more specifically is that a road block to future acquisitions? Then the answer is absolutely not.

[Jonathan Lamers, analyst]

I'd like to just clarify a point on the Americas segment. Your organic growth was a bit slower than some other markets for the quarter. I recognize there is a large soft backlog and I appreciate your comments on funding. Do you believe the U.S. business is capturing as much of a benefit from the infrastructure funding as you would expect at this point?

[Alexandre L'Heureux, executive]

Yes. The answer like a quick answer to your question is yes, absolutely. Our win rate is up compared to a year or 2 ago. So we feel that we are gaining market share in the U.S. So we essentially, in other words, winning more than our share at this point in time, and we're feeling good about it. So the answer is yes.

[Operator]

We'll now take our next question. And this is from Frederic Bastien from Raymond James.

[Frederic Bastien, analyst]

I would like to go back to the M&A discussion here. Are you feeling better about M&A opportunities today than you were maybe 12, 18 months ago? You've got higher interest rates, slowing industry activity quite a bit here, but there are probably fewer players in the sandbox right now, which could play to your advantage. So wondering if you could just expand on that, please?

[Alexandre L'Heureux, executive]

Well, I think you're right. I think that I've said it in the past, Frederic, and you heard me saying that in the past. In good markets, I feel WSP has opportunities to be opportunistic, but equally in tougher markets, if you have a strong balance sheet, and you have a well-run organization that is running a tight ship. Good players will also have an opportunities to be opportunistic. So my feelings in the current environment have not changed, if that makes sense.

[Frederic Bastien, analyst]

That makes a lot of sense. I think you probably have to answer that question every couple of conference calls. But anything keeping you up at night?

[Alexandre L'Heureux, executive]

Well, look, I think it'd be -- it wouldn't be transparent to ignore what's happening in the world right now. I think we have not mentioned -- we don't talk about geopolitics much on our conference call because this is not our business. And we are busy delivering services to our clients. We're busy delivering to our -- and creating an exciting work environment for employees.

But obviously, I mean, there's a lot going on. But at the same time, I look at the year that we are delivering right now. I'm very pleased with our performance. We are in the middle of our budgetary process right now for 2024. And with what we know today, I think I don't expect the market condition in 2024 to be materially different to 2023. And therefore, I'm feeling actually cautiously optimistic about it.

So I think, yes, there's a lot happening. But when you look at the underlying trends of fueling our company, I'm feeling good about where we are today.

[Operator]

We'll now take our next question. This is from Michael Kypreos from Desjardins.

[Michael Kypreos, analyst]

Congrats on the strong result. Maybe circling back to your comment on the EV supply chain earlier in the call. Last week, Hydro-Quebec announced a pretty significant investment plan in both sides and scope among many others in the province. Can you maybe give a bit more details on WSP's expertise in the sector and your strategy in attacking the volume of capital that we'll be entering over the next decade?

[Alexandre L'Heureux, executive]

Yes. Look, we -- obviously, in the space, we have very strong expertise. We have been servicing that -- you talked about Hydro-Quebec. I don't want to talk about specific clients, but we have been working with Hydro-Quebec for many decades now. It's a great client. We have a great relationship, and we will obviously -- we believe that the plan is sound, and we received well what was announced by the new administration and by the CEO. And obviously, this is early days. But as I said, we feel we are very well positioned and WSP is a strong energy transition player around the world, not just in Canada. So I think it bodes well for the future.

[Operator]

We'll now take our next question. This is from the line of Maxim Sytchev from NBC.

[Maxim Sytchev, analyst]

Alex, I was wondering if you don't mind maybe commenting on how the scale of your Environmental and Water practice right now is spilling over into beneficial growth in other areas? Because, obviously, given your position there, that helps. I'm just wondering if you can just maybe comment a little bit more in detail on those fronts?

[Alexandre L'Heureux, executive]

You mentioned Water -- sorry, the line is not good this morning. So you said -- can you please repeat? I'm sorry, Max, I didn't hear.

[Maxim Sytchev, analyst]

For sure. Just in terms of how the scale of Environment and Water business is spilling over and helping you with other verticals at WSP in terms of whether win rates or capabilities or being sort of early over the client? Just maybe any color there.

[Alexandre L'Heureux, executive]

Well, this has been incredible. I mean, we've -- I think we -- as you know, we are transforming and have been transforming the organization and the company in recent years. If I just look back to 2018, when we announced that we wanted to build that sector. At the time, Environment and Water was representing less than 10% of our topline and today represent north of 30%.

We have in excess of 20,000 people working in that space. And we are clearly the leading player in the services, I would call soft Earth & Environmental services like permitting, social acceptability studies, planning. But then when you talk about the rehabilitate site -- or rehabilitating sites and remediation, I mean, we're clearly one, if not the leading player as well in the space. So we get into on-site or very, very early on in the planning of our projects. And oftentimes, this is giving us an opportunity to cross-sell our services.

I'm not in a position to talk about our project that -- there was a project that was just awarded to us. But in the next quarter or 2, I will be spending time explaining because I think this is a perfect example of the cross-collaboration that is happening right now within WSP. I mean we are in a position now to cross-sell environmental work with our building sector, with our transportation sector, our power sector and in the next quarter or 2, I'd like to use this project as an example to highlight our business model and actually what we intend to do going forward and how we intend to grow our company.

So yes, indeed, Max, I think this has been quite strategic for us to get early on, on sites and on projects and in the boardroom with clients and the planning phase of our projects and the social acceptability phase of our projects, and a permitting phase of a project, and be in a position to bring all of our expertise to this client. So yes, we're feeling very good about it.

[Maxim Sytchev, analyst]

Okay. Excellent. Super helpful. And then maybe just a follow-up question in terms of the funding dynamic in the U.S. If hypothetically, there was sort of any change in terms of the leadership because like a lot of those bills were supported by both parties. What are your thoughts in terms of visibility of seeing that funding not being changed? Maybe just any color that you can provide for the benefit of [indiscernible]?

[Alexandre L'Heureux, executive]

Yes. Look, I'm not a political -- U.S. political expert, obviously, Max. But look, we need to remember that these were all bipartisan infrastructure funding. So I think both sides of the aisles, both the Republicans and the Democrats were in favor of the Infrastructure Law and Inflation, Reduction Act, the CHIP act. So I don't think that much of that will be impacted by the new leadership at Congress.

Obviously, I think it's in the best interest of the country to continue to create jobs and fund projects and fund the various states. As I said before, already $270 billion of the Bipartisan Infrastructure Law Act has been deployed over 36,000 projects. And I think that's a boat that is now sailing. So I think it should continue going forward.

[Maxim Sytchev, analyst]

Okay. Absolutely. Great to hear. And last question for Alain, if I may. Is it possible to have a bit more color in terms of sort of the pacing of sort of the CRM rollout because I think you were doing these things sort of in stages, just maybe a bit of an update there?

[Alain Michaud, executive]

Yes. So CRM, you mean the sales. So our ERP, Max, there's multiple -- the module that we're implementing and sales is part of it. Our rollout plan is based by country. So now we've done Canada and Canada has all the functionality, including the CRM. Next, we're going to U.S. and U.K., which is planned for H1 2024, and they will get CRM. So the CRM will become available in each country in our new system as we roll out per country.

That being said, it's not like we don't currently have those systems in place. We'll have a better system, but we have various CRM in place in each of our countries. So we do have the ability, obviously, to track our success in our pipeline across the patch.

[Operator]

[Operator Instructions] We'll now take the next question. Next question from the line of Ian Gillies from Stifel.

[Ian Gillies, analyst]

I'm just curious, when I look at year-to-date revenue, let's call it, 54-ish percent public sector, is the backlog materially more weighted to, call it, public sector clients given the amount of spending going on in that part of the market?

[Alexandre L'Heureux, executive]

No. I'd say that it's relatively stable at this point.

[Ian Gillies, analyst]

And the follow-on with respect to the public sector work, I suppose, is when you think about your employees and bidding for work, is there any material difference in how you bid for work depending on whether it's a public sector or private sector client? Or are there any nuances there that are worth highlighting?

[Alexandre L'Heureux, executive]

Well, the procurement process is typically different, obviously. Also the private sector tend to be -- how can I use the word that I'd like to use probably a bit more dynamic and perhaps quicker in the way work is being procured. In the public sector there are no numerous steps that you need to go through before our projects is being awarded. But clearly, I think other than that, I think we -- it's a pretty fluid process. So whether you look at the public sector or the private sector.

[Operator]

We'll now take the next question. This is from the line of Sabahat Khan from RBC Capital Markets.

[Sabahat Khan, analyst]

You provided a bit of color on the directional topline outlook over the next few years. I was hoping to get a better perspective on the margin progression. And it doesn't have to be anything specific on '24. But as you look across over the next 1, 2, 3 years, can you maybe talk about what you expect are going to be the largest contributors to EBITDA margin improvement across operating leverage, regional mix, maybe more better utilization? Just trying to get a perspective on as we think about the next 1, 2, 3 years, what the bigger drivers would be of margin improvement in your outlook?

[Alexandre L'Heureux, executive]

Yes, I think I mentioned that in a few occasions in the past, running a professional services firms entails us to look at a number of different levers. It's not one single lever that is going to increase your margin profile. Obviously, you need to operate in good markets. Supply-demand dynamics is very, very important. I do indeed believe we operate in very good markets, north of 90% of our EBITDA is generated in OECD countries. And I've said that in the past, and I'm repeating it again, I feel that, that's our sweet spot for WSP. We'll continue to operate in those markets, number one.

Number two, you talked about productivity. Clearly, it's a very important component of our work.

Third, digitalization of our services and technology, I mean, leveraging technology in our platform. I think I've mentioned that in the past. I think if you look over the last decade, we have been able to do a lot more with a lot less. In other words, we are -- our charge-out rate per employees per FTE has increased by, I believe, 50%. So that's, I think, a testament of how we have been able to become more efficient, use technology and increase our rate -- our charge-off rate.

And thirdly, and that's something that is not often times being discussed, but the brand of the company is also important. I feel that the brand awareness around the world of WSP has gone up. And I think clients are coming and knocking our door to -- and wanting to work with WSP. And I just look at the quality of the client base that we have today and the strong relationship that we have been able to build with our clients, that too has an impact on our margin profile.

People are willing to pay for quality services and they are willing to pay for deep expertise. And I believe that when you look at the evolution of the firm, that's what you have seen over the last few years. So -- and that's something that should not be neglected and that we're working extremely hard on.

[Sabahat Khan, analyst]

Great. And then you talked a little bit about some of the IIJ money and other funding that's coming through. As you look ahead to sort of the pipeline stuff that's not quite in your backlog over the next 12 to 15-months, which end markets are those projects concentrated? And are they -- how well aligned are they with your sort of end market mix? I'm just trying to get an understanding of where the initial money is going versus the money that may come 24, 36 months out by end market?

[Alexandre L'Heureux, executive]

Well, it's something that is well understood. But when you look at the funding, we tend to talk a lot about Water. We tend to talk a lot about Power and Grid, and we tend to talk about EV and things like that. But when you stop and really take the time to reflect and study how -- what's the plan and the strategy and how money is going to be deployed, we need to remind our investors and prospective investors that the vast majority of the capital will be deployed in growth, bridges and transportation projects.

And that's not something that is typically discussed. And you know that WSP is the #1 transportation franchise around the world. So I think we are very well positioned and uniquely positioned to take advantage of that in years to come.

[Operator]

We'll now take the next question. Next question from the line of Michael Tupholme from TD Securities.

[Michael Tupholme, analyst]

Maybe one more -- sort of start at a margin-related question here. I know you just -- to an extent you just addressed this, Alex, mentioning that there are many levers to margin improvement over time. But just looking at the third quarter, obviously, a very nice increase year-over-year in terms of up 50 basis points on Adjusted EBITDA margins.

That -- regionally, that was primarily driven by the Canada segment. I guess I'm just wondering, as we look forward regionally, are there -- is the expectation that you should be able to continue to see gains sort of across the board? Or do you see greater opportunities relatively speaking, in certain specific regions for the margin improvement going forward?

[Alexandre L'Heureux, executive]

First of all, Michael, always cautious investors or analysts to look at 1 quarter and draw any conclusions. I think I'd rather you look at the long-term trends over 12 months at the very least. And I'd say that, generally speaking, perhaps with the exception of China, which I mentioned is more challenging at this point in time, we should expect and we clearly have the aspiration to make improvement pretty much everywhere in our group at this point in time.

So that's the goal, that's the aspiration, that's the objective. And looking and going into 2024, I'm not sure I'm relieving any secret at this point in time, but we are clearly hoping for margin improvement next year.

[Michael Tupholme, analyst]

That's perfect. Alex. Fair point, I'm sure you're working hard on driving margin improvement for next year and beyond. Anyway that just -- maybe feeds into the second question here. When you unveiled your last 3-year plan, you had talked a little bit about sort of a longer-term aspiration of seeing margins potentially rise over the 20% level EBITDA margin.

I know you didn't put a timeline on that or give a lot of details around that. But I'm just wondering internally how you're thinking about that now? Are you -- I mean, things been falling into place the way you would have hoped and you're on track for that still? Or any evolution you're thinking around kind of the longer-term opportunity?

[Alexandre L'Heureux, executive]

Well, we're laser-focused on that, Michael. So obviously, we are only in the second year of our 3-year plan. We -- what we had mentioned in the -- when we unveiled our plan in 2022 is that we wanted to generate EBITDA margin between 17.5% and 18.5% EBITDA margin in this cycle. I think we are confident that we're going to finish within the range.

And hopefully, we're going to finish in the higher end of that range. So we -- as I said, we have our eyes set on that target. And the reason why I mentioned it in the last plan, it's because it's an aspiration, but it's more than an aspiration. It's an objective. We have not put the timeline on it. Obviously, because it's extremely hard in the current market environment.

And if I look back in 2022 post-pandemic, to make long-term prediction, anything beyond 3-years, you know as well as I do, it's extremely difficult. Nobody has a crystal ball. But I can tell you that I'm feeling confident that we're going to reach that goal and it's not going to be in the long-term future if you -- if that makes sense.

[Operator]

And there are no further questions at this time. So I will hand back to the speakers for any closing remarks. Thank you.

[Alexandre L'Heureux, executive]

Well, thank you again for attending our Q3 conference call. I look forward to updating you in Q4. Thanks for your support and commitment, and we'll be in touch soon. Thank you.

[Operator]

Thank you. This does conclude the conference for today. Thank you for participating, and you may now disconnect.