TSE:CGY Calian Group Q3 2023 Earnings Report C$47.59 +1.88 (+4.11%) As of 04/25/2025 04:00 PM Eastern Earnings HistoryForecast Calian Group EPS ResultsActual EPSC$0.71Consensus EPS C$1.03Beat/MissMissed by -C$0.32One Year Ago EPSN/ACalian Group Revenue ResultsActual Revenue$166.55 millionExpected Revenue$165.95 millionBeat/MissBeat by +$600.00 thousandYoY Revenue GrowthN/ACalian Group Announcement DetailsQuarterQ3 2023Date8/10/2023TimeN/AConference Call DateFriday, August 11, 2023Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress ReleaseEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Calian Group Q3 2023 Earnings Call TranscriptProvided by QuartrAugust 11, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Day, and welcome to the Cajun Group Q3 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to turn the call over To Jennifer McKay, Director of Investor Relations, you may begin. Speaker 100:00:20Thank you, Michelle, and good morning, everyone. Thank you for joining us for Talion's Q3 2023 Conference Call. Presenting this morning are Kevin Ford, Chief Executive Officer And Patrick Houston, Chief Financial Officer. As noted on Slide 2, please be advised that certain information discussed Today is forward looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results. Speaker 100:00:51As a reminder, all amounts are expressed in Canadian dollars except as otherwise specified. With that, let me turn the call over to Kevin. Speaker 200:01:01Thank you, Jennifer. And let me start right away with an overview of our Q3 results. After many years of meeting or exceeding expectations We did not meet our expectations this quarter on some of our key performance indicators. This is unusual for us and we do not take it lightly. I would qualify our Q3 results as mixed. Speaker 200:01:23We had some positives and we had some negatives, but we understand where we need to adjust to get back on track and confident we will do so quickly. On the positive side, we generated strong revenue growth of 11% as a result of strong organic momentum. Our Health segments rebounded nicely and posted its best quarter since the days of COVID-nineteen and our Advanced Tech and Learning segments continue to show momentum from Q2. We also continue to drive gross margin performance above 30% for 5th consecutive quarter, showing our ability to adopt and deliver consistent performance Despite the challenging macro environment. However, adjusted EBITDA and related margin decreased due to various investments we made coming out of our last fiscal year. Speaker 200:02:07We have prided ourselves on profitable growth over the last 6 years and restoring the business to double digit EBITDA margin is our top priority. We believe it can be done and have already, as of this call, taken steps to deliver on this. We have underwent A complete review of our delivery capacity and overhead costs and initiated cost reductions in targeted areas to rebalance our investment levels. These measures are expected to generate annualized savings, cost savings of approximately $8,000,000 with the objective of driving a more optimal level of growth and profitability. Remember that we are trying to build a double digit growth company. Speaker 200:02:46That comes with some level of risk as we need to push more aggressive in terms of investments ahead of demand. As we push forward, there will inevitably be some bumps along the way. The important thing is to make adjustments quickly and move on. Our business is still strong despite the temporary setback. Our customers still want Cali by their side and our expansion initiatives are still just getting going. Speaker 200:03:09What gives me great confidence is that the top line is there. The organic growth is there. The new contract signings are there. The backlog is there. It's the efficiency in certain areas that's not there and that's what we're fixing. Speaker 200:03:22Following the end of the quarter, we announced 2 key events. The first being the closing of the Hawaii Pacific Teleport acquisition effective August 1. I welcome that team to the Callion family and believe they will be key contributors in the years to come. I would just like to take a moment to express our condolences to the families of those who lost loved ones in the wildfires in Hawaii. We're relieved to hear that the new members of the Calient team and their families were unharmed. Speaker 200:03:49Our HPT operations are located on the island of Oahu, Therefore, it was not directly perfected. We will be donating $10,000 to the Maui Strong, which will support wildfire relief and recovery efforts in the affected communities. The second announcement was the expansion of our credit facility to give us assets of up to $250,000,000 in liquidity. This is a sign of our commitment to the continued deployment of our capital and our M and A agenda in the years to come. Before I give you an update on the 4 segments, I'd like to acknowledge our team. Speaker 200:04:22Reducing staff is always difficult, but believe it was necessary to do so at this time to put us in a better position to continue to invest and grow our business in the years to come. With that, let's begin with IT and Cyber. ITCS had a difficult quarter. Revenues decreased by 6% to $46,000,000 The short term revenue shortfall was primarily due to lower shipments in our product retail business based in the U. S. Speaker 200:04:48The nature of this business can be lumpy as it depends on customer spend cycles as well as demand for infrastructure upgrades. We benefited during the quarter We benefited during the last few quarters due to pent up demand and some supply chain relief post pandemic. Recall that we've been working very hard in the last 12 months to address customer backlog, resulting from the ongoing supply chain issues and we were able to do that successfully. With that behind us, we did see a momentary pause in order intake And deliveries midway through the quarter, which affected profitability. The good news is that towards the end of the quarter, we ramped up new signings and we believe this sets us up In fact, gross contract signings were $53,000,000 in Q3 outpacing revenues. Speaker 200:05:31This is an indication that bookings continue to be healthy and this quarterly miss is just a bump in the road. However, this revenue shortfall flowed straight to the bottom line. Gross margins fell to 34% from 40% in the same period last year and this gross profit mix combined with our accelerated investments And sales and delivery capacity resulted in our EBITDA dropping by more than 50% to 3,400,000 Part of our restructuring plan implemented subsequent to the quarter end, will aim to realign our sales and marketing delivery capacity with the run rate level of business. Looking forward, macro conditions are neutral with a hint of conservatism from customers due to recession fears. Realistically, we will not be able to make up the short In the Q4, especially since we were already expecting lower Q4 than last year, giving significant deliveries in the final weeks of the quarter last year. Speaker 200:06:22But we do expect to return to more than Raleigh's level EBITDA in the coming quarters. Turning to our Health segment. In the Q3, our whole segment rebounded and posted its highest revenue since the Q3 of 2021 and the peak of the pandemic. Revenue increased 23 percent to $49,000,000 primarily driven by existing customers increasing their requirements for healthcare services as well as new programs being launched across Canada. We have now built a run rate business of approximately $200,000,000 in reoccurring revenues. Speaker 200:06:52Similar gross margins and EBITDA margins increased to 27% 18% respectively, as our recent investments in recruiting and Outreach initiatives have helped us address customer needs across our portfolio. Our ability to fulfill contracts at higher utilization levels and lower turnover were key in achieving higher gross margins. In the quarter, we signed new contracts valued at $27,000,000 Amongst these new signings was our 1st Software as a Service customer under the Nexi solution. For the Q4, we expect continued momentum in the business. We see continued strong demand signals for our existing customers for our pharmaceutical CRO services that are gaining increased traction. Speaker 200:07:32Turning to our Advanced Technology segment. In the Q3, we continued our momentum from Q2. Revenue increased 14% to $45,000,000 primarily driven by stronger telecom product sales With existing customers and increased demand for GNS S products. In fact, GNS products generated double digit growth again at 22% this quarter and our book to bill ratio so far exceeds 2 times. This growth comes from new large scale customers as well as increased demand from existing customers as they include our products into more During the quarter, we continue to make progress on orders and projects that were delayed to supply chain issues. Speaker 200:08:11We continue to see delays in certain products, but the delays We are optimistic that we can make further progress in the Q4 as we chip away at our product backlog. Gross margins improved from 29% to 35% due to a better mix of higher margin business. The contribution of more Calium products will continue to This gross profit margin improvement flowed to EBITDA online with EBITDA margins increasing from 14% to 16%. In the quarter, we signed new contracts valued at $50,000,000 outpacing our revenues. Key wins included upwards of $15,000,000 for GNSS antennas, as well as some significant deals for defense and space products. Speaker 200:08:54We're also selected by the Canadian Space Agency to receive $500,000 in funding To further develop RF over IP technology, RF over IP is the ability to digitize and transport RF signals over an IP network without data loss. This technology will be a key enabler for the introduction of virtualized satellite ground systems. For the Q4, we expect to continue on this momentum given the continued easing Supply chain restrictions, delivery of ground system projects for the same loan and strong demand for our GNSS products. Turning to our Learning segment. In the Q3, top line continued its year over year revenue growth momentum displayed in the last few years. Speaker 200:09:34Revenue increased 20 percent to $27,000,000 driven by recent investments in technology and geographical diversification as we take advantage of strong demand in the military training market due to geopolitical issues and renewed focus on Readiness. Gross margins temporarily decreased to 25% as the cost of our delivery increased in advance Contractual rate increases with customers. Predetermined increase intervals are set to take place in Q1 2024. Similarly, EBITDA margins went down to 14% as we invest to support growth in new area of countries in Europe. The Learning segment is a perfect example where we don't want to hit the exit button in investments. Speaker 200:10:11The issue is that the demand signals from military training in Canada and Europe continues to be high. The procurement process is challenged to keep up. Global defense takes time. Our strong position with our legacy contracts allowed us to continue to grow Revenues while we wait for procurement activities to catch up. We made the conscious decision to continue to invest in our assets to position in the market because we see significant global opportunity down the road. Speaker 200:10:38For example, we are seeing positive growth signs in our SIM front software assets and are investing in R and D to get more features and functionality to be able to address a wider customer set in the future. In the quarter, we continued the expansion of our training globally with projects in Poland, Germany, the Netherlands, Australia and Switzerland. This is a strong indication of our pedigree and ability to be a global training partner in defense. We also diversified inside of defense and signed contracts with academic clients, including the University of Guelph For the Q4, we anticipate continuing on the same momentum. As a result, we believe we are on track to break the $100,000,000 revenue mark in learning for the first time ever. Speaker 200:11:21This continued growth is giving us more confidence to continue to invest To discuss cash flow, balance sheet and our guidance. Patrick? Speaker 300:11:36Thank you, Kevin, and good morning. In the Q3, we generated $3,000,000 of cash flow from operations compared to $20,000,000 for the same period last year. The main variance this quarter is explained by a temporary increase in working capital. More specifically, working capital was negative $12,000,000 in Q3, which puts us at negative $6,000,000 on a year to date basis. We expect to return deposit working capital in Q4 and depending on the timing of some larger collection, we could end the year with working capital increase in the double digit range. Speaker 300:12:07Operating free cash flow was $11,000,000,000 this quarter and represented a 78% conversion from adjusted EBITDA. In the Q3, besides funding working capital, we used our cash to pay dividends and invest in CapEx. We do expect over $50,000,000 in cash flow on our M and A agenda in the Q4. The first of these being the closing of the acquisition of Hawaii Pacific Telfort On August 1 for about $38,000,000 as well as the scheduled earn out payments related to the acquisitions of DeepAssoci Security as well as Alio Health for approximately $17,000,000 Recall that these earnout amounts are recorded in full on our balance sheet at the end of this quarter. We have a robust pipeline of acquisitions and are looking to continue our strategy of capital deployment going into FY 2024. Speaker 300:12:53We maintained our dividend rate at $0.28 per share. We continue to see dividend as an important part of our balanced capital deployment strategy. We will reevaluate the size of the dividend in future quarters. We invested $3,000,000 CapEx in the quarter and continue to manage our spend Within our target of $7,000,000 to $8,000,000 for this year. At June 30, 2023, our $80,000,000 credit facility unused and we had $41,000,000 of cash on hand. Speaker 300:13:19As a result, we ended the quarter with a net cash position once again. So To the end of the quarter, on July 24, we extended and expanded our credit facility to a committed amount of 180,000,000 With an accordion taking up to $250,000,000 This new 3 year term will give us the access to additional liquidity to fuel our growth strategy. Our cash on hand combined with the new expanded credit facility provides us with $221,000,000 of net liquidity at the end of the quarter. Given our strong cash flow generating ability and liquidity position, we are operating from a position of strength as we continue to execute both our organic growth plans Let's take a look at our guidance for FY 'twenty three. In light of our Q3 results, we are updating our FY 'twenty three guidance. Speaker 300:14:08Note that this guidance has been updated to include the impact of the acquisition of Hawaii Pacific Teleports starting on August 1, The benefits from the restructuring plan for the final month of the quarter excludes the one time restructuring charge of approximately $2,000,000 to be recorded in our Q4. We have not made any changes to our revenue guidance. We expect revenues in the range of $630,000,000 to $680,000,000 At the midpoint, this reflects revenue growth of approximately 13%. At the end of Q3, our trailing 12 month revenue was 643,000,000 Turning to EBITDA. We expect EBITDA in the range of $60,000,000 to $65,000,000 down from our previous range of $70,000,000 to 75,000,000 With 1 quarter left to go, this range may seem a bit wide. Speaker 300:14:54Although we have a strong backlog for Q4 of $151,000,000 the range reflects the timing of deliveries of The objective of our cost reduction measures is to restore EBITDA in line with recent performance levels as we enter FY 2024. And finally, we expect adjusted net income in the range of $36,000,000 to $40,000,000 I must caution that revenues and profitably realized are ultimately dependent on the extent and timing of future contract awards, customer realization of existing contract vehicles And potential recessionary pressures. Our guidance does not incorporate any additional M and A activity. And should we close any new opportunities, their contributions would be incremental. Please see our press release and MD and A for a detailed reconciliation of our guidance. Speaker 300:15:40I'll now turn the call back over to Kevin to conclude our prepared remarks. Speaker 200:15:45Thank you, Patrick. To sum up, our top line organic growth was a positive, but our efficiency in doing so in certain areas was below our expectations. We have acted quickly and decisively to adjust our business and believe we will be back in the double digit EBITDA range in the short term. This should be seen as a minor setback and not the start of a trend. We will still end fiscal 2023 With the 6th consecutive year of record revenues and gross profit, the cost reduction measures we have taken will restore EBITDA levels in line with recent performance levels as we enter FY20 And our trend of over 20 years of profitable execution remains. Speaker 200:16:27When I look ahead, I'm very enthusiastic about the future. Since January, I've been traveling across Canada, the U. S. And Europe visiting our customers. What I found is that our solutions continue to resonate with our customers and what we do for them remains mission critical. Speaker 200:16:42Customers do choose Calum when they cannot fail. Looking to FY 2024, we see the opportunity for another record year. While we only provide official FY 2024 guidance next quarter, There are a few factors that I'd like to highlight that I believe will positively impact the new year. Expected cost savings of $8,000,000 from the restructuring plan to restore Our EBITDA margins the full year impact from the acquisition of Hawaii Pacific Teleport, which is characterized by high margins and recurring revenue streams Continued organic growth momentum driven by a solid demand in our 4 operating segments, a robust backlog of 1,100,000,000 strong contract signings of $568,000,000 in the last 12 months. And a strong pipeline of acquisitions supported by pristine balance sheet and Available liquidity north of $200,000,000 Finally, I want to thank our team. Speaker 200:17:37First, we said goodbye to some of our team members. I'd like to thank them for their hard work and dedication as they make Calient a better place to work. For employees who continue with Calient, I know we can count on you to deliver on our mission to help the world communicate, innovate, learn and lead safe and healthy lives. At the end of the day, we are very confident that our Q3 miss was a bump in the road and over the next quarters will unwind And we will be back to double digit growth margins and continue our growth momentum on our journey to $1,000,000,000 And with that, Michelle, I'd like to now open the call to questions. Thank Operator00:18:25Our first question comes from Maxim Matuszewski With RBC, your line is open. Speaker 400:18:32Yes, good morning. I just wanted to touch on the cost reductions. Can you maybe just give A bit more color in terms of how this came about, why now and maybe what parts of the business will be impacted the most? Speaker 200:18:50Yes. Thanks, Damon. I think, Rick, a few questions there. I think from the why now and how it came about, we obviously monitor monthly, quarterly, in real time those times, The performance of the company and I'll take the hit with regard to agreement investments at the beginning of last year That I thought we're going to put us in a position to continue our growth momentum in certain areas. And some of those are not coming to fruition. Speaker 200:19:18There's some macro conditions we're dealing with. So why now is that I felt that, I don't see some areas the macro conditions changing dramatically, and I thought it was prudent To make those changes now and do so quickly and do so decisively, so that our staff, our team, our customers know this is a blip And it is something we're moving on from. So right now, it was the right time. I felt it does position us to continue the growth momentum and the profitable growth momentum. And frankly, at this time, I think it was prudent to do so to ensure we align our capacity to the Performance areas that we see growth opportunities. Speaker 200:19:58So that's the why now. Please continue with your other questions. Speaker 400:20:06Just in terms of maybe what parts of the business this will impact maybe if there's any particular segment? Speaker 300:20:15Yes, we tried to be when we looked at the performance, certainly some of the segments were performing quite well and some of the divisions within them and other ones, The efficiency wasn't where we wanted. So we tried to target the reductions in those areas. So I think there was reductions in all the segments, but We tried to be targeted so that it wouldn't impact the revenue as much given that there are areas where we thought either capacity was too high or the efficiency wasn't there. Speaker 400:20:43Okay. And then just on the lower product resale shipments, Is that is there any portion of that that lost to competitors or maybe customers deciding not Upgrade or refresh the technology for a while? Or do you have confidence that that's all just timing issues? Yes. Speaker 300:21:05I think it was more timing than not given that we saw some of the signings come back on. You saw the signings in the quarter were still good and they came in towards the end of So I think when we reviewed it with the team, I think it was more timing than loss to any particular person. Certainly, Our bar business is very diversified. We're in 7 or 8 different verticals with a lot of customers. Yes, we're diversified there. Speaker 300:21:30We did see a bit of a slowdown, but it picked back up. So I think it's more timing than anything more Speaker 400:21:40And just final one for me. Just in terms of the profit margins in that ITCS Business, they seem to be significantly lower than at least in the past few quarters. Is that all from the lower product resales? Is there something else Impacting margins, was that the investments that you were referring to earlier? Speaker 300:22:00No, it was really almost entirely on that. Our recurring revenues were stable, similar to prior quarters and then our on demand business is also stable. So it's really of our business and given we've got some fixed costs there when we didn't Gross margin from that, it slowed down to the EBITDA, which is why you saw the lower profit margins. Some of the reductions we made obviously kind of reduced some of the capacity there and we're expecting to see better demand in the coming quarters. So I think it Normalize, as Kevin said, back to kind of performance we've seen in the last couple of quarters. Speaker 400:22:35Okay, great. I'll pass the line. Thanks. Speaker 200:22:37Thanks, Manchin. Operator00:22:39Thank you. Our next question comes from Doug Taylor with Canaccord Genuity. Your line is open. Speaker 500:22:47Yes. Thank you. Good morning. You speak to reducing the cost to optimize the balance of growth and profitability. I think the cost side Pretty well articulated and understood here. Speaker 500:23:00Maybe I could get you to expand upon what you think the Related growth impact is that you're trying to offset on the other side of that and maybe put that in the context of your 5% organic plus 5% Acquisitive growth model that you've established at various points in recent years? Speaker 200:23:21Yes. Thanks, Doug. So I think it's important to recognize that the fundamentals haven't changed as far as our philosophy or approach. The 5 and 5 is Still very much intact. You see the organic growth momentum that we've had right now across 3 of the 4 segments is actually in double digits, so very strong. Speaker 200:23:39It also demonstrates the value of the diversity frankly that we've got with regard to one segment hitting some headwinds, but the others. And frankly, I think the performance was slightly overshadowed in the context of the overall EBITDA performance. But again, 3 segments, double digit organic growth. M and A, we just finished up with Hawaii Pacific Teleport, very busy M and A pipeline right now as well. And then again, seeing the Progress in areas such as health and advanced technologies and learning. Speaker 200:24:07So I'm confident, Doug, that the fundamentals of what we've put in place and what I've been talking to market I've taken on this too, I haven't changed at all. And I was I really want to reiterate that. This is a bump. This is not a trend. And this is not something that Takes us off our game in any way. Speaker 200:24:22We continue, we've made the adjustments and we move forward. Speaker 500:24:27Okay. So Let's talk about then the M and A pipeline. You at certain points, I think, hinted at the prospects of additional meaningful M and A beyond HPT by the end For this fiscal year, I mean looking at the date here and in light of some of your comments, are you signaling much change at all in that outlook or potentially A change in your focus areas as in which sectors might be most attractive in light of some of the challenges facing ITCS, for example? Speaker 300:24:57Yes. We're pretty active, Doug, on the M and A side. We've got multiple processes going, so we're optimistic on a few of them that we can Guess where we want to be. Realistically, I don't think those close before September 30, but to the extent we're able To follow through on some of the ones that are very active right now, they would be likely in Q1 or early in Q1. So we're optimistic there. Speaker 300:25:20We've got the liquidity in place. We're spending a lot of time on the M and A agenda. I think our priorities hasn't really changed. We're we've got strong Strategic initiatives in each of the 4 segments and we're trying to find M and A that fits that. So I think it's continuing on there and we're optimistic about Keeping pace on capital deployment here going into FY 2024. Speaker 500:25:45Perhaps one last one then for me. You mentioned your intention to review your dividend again at some point in the near term. It's something I think you've talked Increasingly, perhaps I can get you to potentially expand on what you think an appropriate framework might be for how you balance So that dividend against your need for capital for M and A in the current interest rate and debt environment and all that, Could you just expand a little on your thoughts there? Thank you. Speaker 300:26:15Yes, absolutely. We've always said to try to get the payout down Kind of 30% of our free cash flows. We're kind of in that range now, which is why we've kind of gotten to where we wanted to be. It took us a couple of years as we just grew the business. So we're kind of in that range now. Speaker 300:26:29To your point, we've been prioritizing the deployment of capital on M and A because the return has been good and we've been getting Really good results there. So that's been our top priority. So I think going into next year, we keep watching it as long as the M and A targets are there. We likely hold a dividend, but we're always looking into the extent that that 30% starts to reduce as we continue to grow, then I think we look at it more seriously. So I think that's Our short term outlook on the dividend. Speaker 500:26:57Thanks for that color. I'll pass the line. Speaker 200:26:58Thanks, Ken. Appreciate the questions. Operator00:27:02Thank you. Our next question comes from Benoit Poirier with Desjardins. Your line is open. Speaker 600:27:09Yes. Good morning, Kevin. Good morning, Patrick. With respect to the shortfall in EBITDA, you're calling almost a €10,000,000 reduction in fiscal year 2023, but on the back of the restructuring plan that will bring about €8,000,000 of benefits, How should we be thinking about the EBITDA for fiscal year 2024? Speaker 300:27:34Yes. Good morning, Benoit. If you remember, last quarter, we said we thought we'd get at the bottom of the range on the guidance. And if you take the midpoint of our new guidance that we spoke to this morning, we're $7,000,000 to $8,000,000 off and that's why We feel with the reductions we've made, it kind of puts us back to where we thought we would be, which I think is what we wanted going into FY 2024. And then it's really Looking to the elements Kevin pointed to the M and A, we just closed the organic growth and the pipeline, which puts us back to The growth position is going into next year. Speaker 300:28:08So I think that was the purpose of the restructuring and the size, and then that's why I kind of realigned our business. Speaker 600:28:15Okay. That's great color. And when you're looking at your backlog was down 8% sequentially, it looks like booking Was software for health and learning? Could you provide some color about the what you're seeing out there in terms of booking activity, Bidding pipeline and any slowdown in demand? Speaker 300:28:37Yes. Actually, the demand has been going up. Obviously, a lot of our core contracts don't come up for renewal a lot. We've been using those and the customers have been using them to a greater extent. But we do see pretty strong pipeline. Speaker 300:28:50So we're expecting strong signings here going into next year in health Good morning, Kevin. Speaker 200:28:56Yes, I think so. And I think actually just to comment on health, we're seeing Benoit very high demand on our core health services contract with Defense, Probably you're talking about the high silvers we've seen in a while. So I think that's also contributing just to the backlog, bringing that out Quicker than normal. On the learning side, really what we're seeing is, again, with my travels now between NATO and Europe, Canada, There is strong demand right now on our current contracts for sure and then lots of procurement activity. But as I mentioned in the past, It's just timing. Speaker 200:29:31The government procurement cycles are complex, and they take time. So we're still confident there's A few opportunities for us. We have a good pipeline of opportunities. It's just the ability for the customer to get it to the street. And as we know, the customer is under significant stress right now with regard to The reductions in capacity, the lack of capacity in the military as well as the operational tempo. Speaker 200:29:51So we're trying to work with them as best we can to optimize the And then obviously, we'll be ready to respond for these new procurements as they come out. We expect that's going to unwind over the next 2, 3 quarters. Speaker 600:30:04Okay. Okay. That's great color, Kevin and Patrick. If we look at the net cash, it ended at €41,000,000 And looking at Q4, There is the upfront payment for HPT with the share issuance. And if I'm right, there is still $15,000,000 of earnouts So I'm just wondering if my calculation for cash outflow is okay in Q4? Speaker 300:30:31Yes, Phil. We've got HPT as well as the 2 earn outs that's outflows of a little over 50,000,000 I think we're going to have some positive working capital impact. We've the collections have been stronger here starting in the quarter and our AP payments were a bit higher in Q3. So I think we'll see some pause So we likely have some debt at the end of Q4 just because we need some cash on hand to run the business, but we're certainly start to already between The free cash flow as well as positive working capital before we should start clawing back some of the payments we made on the M and A. Speaker 600:31:05Okay. And in terms of working capital reversal, do you still feel comfortable about an overall 20,000,000 Positive working cap reversal for the full year, Patrick? Speaker 300:31:18I think we might miss that a bit right now. We're negative 6 On a year to date basis, I think Q4 will be positive. So depending on some of the collections, we could get over $10,000,000 by the end of Q4, but I think it would be dependent on the timing right towards the end of The quarter end collections. Speaker 600:31:33Okay. Would you say $10,000,000 for the year or $10,000,000 positive just for Okay, perfect. That's great color. And any color about the or comments about the Buyback these days, given the valuation multiple? Speaker 300:31:55Yes, it's a good question. It's always something that we look at. But right now, our main priority is just continue to deploy the capital on Agenda, we're seeing good momentum there. So I think that's our top priority and we're just going to focus on that. Obviously, if anything would change drastically on the shares or We continue to see misalignment between the growth we're driving in the stock price. Speaker 300:32:18I think we'll look at it more seriously. But right now, we're focused on our operational plans. Speaker 600:32:24Okay. Thank you very much for the time. Speaker 400:32:28Thanks, Benoit. Thanks, Benoit. Operator00:32:30Thank you. Our next question It comes from Amar Zat with Industrial Alliance. Your line is open. Speaker 700:32:37Good morning, Kevin. Good morning, Patrick. On the IT side, I just wonder, did the weakness in the quarter, both on the top line and the margin performance, Kind of a surprise to you, or could you start to see that like last quarter in Q2 when you guys were circling like probably to lower ends Of the guidance range. Then do you feel like this weakness is due to the macro environment or part of it This is also due to the leadership transition in IT. Speaker 200:33:14Yes. No, thanks. Thanks, Amber. Nice to hear from you. The maybe I'll start with your last question first. Speaker 200:33:20I don't In any way, I believe this is related to the transition team we have in place with the IT group. They're strong in meeting with them. They're As of yesterday, we continue to look at every opportunity in pipeline and they reassured me this is a flip. And as we saw, there are strong signs in the end of the quarter that we expect to pick up. So I believe it's a blip and it doesn't in any way limit my or Do I worry about that transition team? Speaker 200:33:50They're very strong. They're committed and I'm confident that they're going to turn this around. And with regard to the With regards to the beginning of the quarter, we started to see some slowdown clearly in the resale elements and work with the team cooperatively And capacity, looking where the opportunities were and we saw in the last month of the quarter a turnaround. So I just want to reiterate that this isn't Something we just wait for the end of the quarter and hope results happen. We're monitoring this all the time. Speaker 200:34:19So we were actually working within the quarter Looking at the opportunity funnel and saw a strong pickup again in the last month of the quarter, obviously not enough to reflect in the Q4. So we're confident to look. I have total confidence in that team. And there are macro trends, clarity on recession and that, I don't believe that it's going to negatively affect us longer term here. So our IT business will be back and running. Speaker 200:34:44It's also important to recognize that our cyber business It was very strong, continues to be very strong and the recurring revenues continue to be very strong. So it does More on our resales and our cyber. Cyber is very strong. Our government business continues to see new wins. So it's really a piece of our IT business. Speaker 200:35:02I don't know what the whole IT business characterize that Somehow it's having some issues here. I expect this will come back in the quarter. Speaker 700:35:11That's great color, Kevin. Then I guess what I'm thinking about Q4 for this business line, last year, we had a very large quarter. Can you maybe remind us how to think about seasonality in IT and Cyber? Speaker 300:35:29I think there's less seasonality more than just it's a bit lumpy like you saw last year, obviously, when we were unwinding some backlog because of supply chain issues, we were on The positive side of the lumpiness, I think this quarter we were on the other end. I think the performance you saw kind of in Q1 and Q2 were kind of more normalized levels, and I think We're trying to get back to you here in the coming quarters. Speaker 700:35:52Okay. Then I just wonder on The cost savings initiative, I sort of, I guess from your prepared remarks, I thought the implied methods Was that what targets, ITC, but it seems like it targets like more than one area. I just wonder how it impacts your delivery capacity At all? Speaker 200:36:18Yes, great question. It was important and it's important for people to realize that when we looked at this, this wasn't in any way Blank reduction, this was targeted reduction working with each of my senior leadership team members to find areas either We had additional capacity or it just wasn't aligned to market reality. So it was targeted. It was not just IT, it was across our business in certain areas In corporate support services, learning, healthcare, IT, the whole business we looked at with regard to where we needed to make Those are tough decisions. So, in no way, the important thing is areas that we have seen Great demand and good growth, they were basically left untouched. Speaker 200:37:02And we wanted to make sure that in this process, we did not impact Our ability to meet our customer requirements or ability to meet our growth objectives. So it was very surgical. It was it's never fun to go through those, but it was necessary. It's done and we move forward. Speaker 700:37:18Then maybe one last one. On Health, I appreciate your comments on The growth visibility going forward, so I understand the investments you are making. But just wondering on the gross margin side, A nice jump in the quarter. Are these levels sustainable? Or how do we think about that going forward? Speaker 300:37:41Yes, we're seeing good demand. We had some new contracts come online in the second half year. So I think that helps the margin. I think we'll see a little bit of They come back off and normalize a bit, but I think we are seeing as some of these new contracts come on, we're able to generate a bit Higher margins than we had in our legacy business. So not a huge increase, but I think we're slowly trying to Getting better there. Speaker 300:38:06And I think as we've crossed this kind of $200,000,000 run rate business in health, which is a new level for us, I think we're seeing better efficiencies as So I think Derek has been doing a good job about looking at the business and building a more efficient Speaker 200:38:21Yes. And I just want to jump in on that, Emery, because I want to echo what Patrick says. Derek has been here just almost 6 months now And really been impressed by his ability Speaker 300:38:30to take a look at Speaker 200:38:30what we have in the truck. We've reorganized some of the healthcare digital assets we're seeing in IT under HisWatch. We now have a healthcare digital team. We're seeing lots of progress there. As I mentioned in my results summary, we've got our first Nexi sale. Speaker 200:38:45So very, very optimistic. He's got a great vision and the team is aligned to that vision. So I think we're going to continue to see good things from our health business. Speaker 700:38:54Thanks. Thanks for the color. I'll pass the link. Speaker 200:38:57No, that's great, Amit. Thanks for the questions. Operator00:39:05Our next question is a follow-up from Benoit Poirier with Desjardins. Your line is open. Speaker 600:39:10Yes. In the press release, there are some mentions around the timing of deliveries of products for Advanced Tech and IT segment. So could you Maybe provide more color about those comments. And is there any relation to issues at the ViaSat? Speaker 300:39:29No, right now, Benoit, it's really just we've got we had some good findings. We saw in both ICTS and AT and T in Q3. We do turn those around and deliver in Q4. So it's really going to come down to the timing in the last month and how much of that we can shift. So I think that's why those certainly have higher margin and impact on EBITDA. Speaker 300:39:49So that's why we're going to be bigger going to that. The good thing is the business is there. We've got the order Speaker 600:39:58Okay. And last one for me, Kevin, could you give us an update on the President's Search for ITCS and what you're looking for in terms of key attributes for the new President? Yes. Speaker 200:40:13Thanks, Benoit. So we've been a couple of months into this. Frankly, we're almost over 100 applicants. So we've worked down to the last few. We're in finalizing interviews now with those candidates. Speaker 200:40:29And my goal is still to have a new President in place in time for the beginning of our new fiscal year And sooner if I can, but we're not going to rush the process. We want to make sure we get it right. The attributes clearly are continuing to look at Our IT and Cyber business, how we position that in the marketplace with regard to increased cyber demands, cloud, cloud migration, The ability to continue to generate and increase our recurring revenue streams with our team, the global expansion that we see, obviously North America focused initially, but obviously going to Europe. I'm looking for somebody that can bring positive energy to a track record on transforming and continue the transformation of our IT business And that's somebody that can work across Callion with our cross business unit updates with regard to cross sell opportunities. So We're getting there and I think we'll be close soon to announcing who that will be. Speaker 600:41:26That's great. Okay. Thanks for the time. Speaker 200:41:29Thanks, Manuel. Speaker 600:41:30Good night. Operator00:41:32Thank you. There are no further questions at this time. I'd like to turn the call back over to Kevin Ford for any closing remarks. Speaker 200:41:39Thank you, Michelle. I think it's important for me to restate my confidence that this is a blip, My confidence that we're on track for another record year as we had as I start looking ahead to 2024, summarize The $8,000,000 restructuring is done. It's not something we're planning on doing, it's done. We do have HBT and L on the team and excited by that. We do have the organic growth momentum. Speaker 200:42:06We saw that in the quarter. We have the backlog still over $1,000,000,000 over $568,000,000 in signings. And now with our M and A pipeline strong and our balance sheet, I do want the market to understand, I believe this is a look and in no way a trend. Our team is committed to working through this. It's been a very busy couple of weeks as you can imagine. Speaker 200:42:27And I've seen nothing but everyone putting their shoulder into this to make sure We right size on this EBITDA margin. So with that, I want to thank you all for the questions and attending today I look forward to providing an update on our next quarterly call. And with that, Michelle, we can close the call. Operator00:42:45Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCalian Group Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release Calian Group Earnings HeadlinesThe past three years for Calian Group (TSE:CGY) investors has not been profitableMarch 16, 2025 | finance.yahoo.comCalian Group's (TSE:CGY) Conservative Accounting Might Explain Soft EarningsFebruary 20, 2025 | finance.yahoo.comWhy Elon put $51 million into thisWhy Elon Musk Just Invested $51 Million Into Brand New “Miracle Metal” Developed by MIT ScientistsApril 26, 2025 | True Market Insiders (Ad)Public market insider buying at Calian Group (CGY)February 19, 2025 | theglobeandmail.comCalian Group targets $800M-$880M revenue in FY2025 with defense growth focusFebruary 13, 2025 | seekingalpha.comSerious Value: 3 TSX Stocks to Buy in the New YearFebruary 5, 2025 | ca.finance.yahoo.comSee More Calian Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Calian Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Calian Group and other key companies, straight to your email. Email Address About Calian GroupCalian Group (TSE:CGY) Ltd operates through four segments namely Advanced Technologies, Health, Learning, and Information Technology. It generates maximum revenue from the Health segment. The company serves health, defence, security, aerospace, engineering, AgTech, and IT industries. Its Health segment includes Clinical Services; Nursing Services; Psychological Services and Medical Property Management. 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There are 8 speakers on the call. Operator00:00:00Day, and welcome to the Cajun Group Q3 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to turn the call over To Jennifer McKay, Director of Investor Relations, you may begin. Speaker 100:00:20Thank you, Michelle, and good morning, everyone. Thank you for joining us for Talion's Q3 2023 Conference Call. Presenting this morning are Kevin Ford, Chief Executive Officer And Patrick Houston, Chief Financial Officer. As noted on Slide 2, please be advised that certain information discussed Today is forward looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results. Speaker 100:00:51As a reminder, all amounts are expressed in Canadian dollars except as otherwise specified. With that, let me turn the call over to Kevin. Speaker 200:01:01Thank you, Jennifer. And let me start right away with an overview of our Q3 results. After many years of meeting or exceeding expectations We did not meet our expectations this quarter on some of our key performance indicators. This is unusual for us and we do not take it lightly. I would qualify our Q3 results as mixed. Speaker 200:01:23We had some positives and we had some negatives, but we understand where we need to adjust to get back on track and confident we will do so quickly. On the positive side, we generated strong revenue growth of 11% as a result of strong organic momentum. Our Health segments rebounded nicely and posted its best quarter since the days of COVID-nineteen and our Advanced Tech and Learning segments continue to show momentum from Q2. We also continue to drive gross margin performance above 30% for 5th consecutive quarter, showing our ability to adopt and deliver consistent performance Despite the challenging macro environment. However, adjusted EBITDA and related margin decreased due to various investments we made coming out of our last fiscal year. Speaker 200:02:07We have prided ourselves on profitable growth over the last 6 years and restoring the business to double digit EBITDA margin is our top priority. We believe it can be done and have already, as of this call, taken steps to deliver on this. We have underwent A complete review of our delivery capacity and overhead costs and initiated cost reductions in targeted areas to rebalance our investment levels. These measures are expected to generate annualized savings, cost savings of approximately $8,000,000 with the objective of driving a more optimal level of growth and profitability. Remember that we are trying to build a double digit growth company. Speaker 200:02:46That comes with some level of risk as we need to push more aggressive in terms of investments ahead of demand. As we push forward, there will inevitably be some bumps along the way. The important thing is to make adjustments quickly and move on. Our business is still strong despite the temporary setback. Our customers still want Cali by their side and our expansion initiatives are still just getting going. Speaker 200:03:09What gives me great confidence is that the top line is there. The organic growth is there. The new contract signings are there. The backlog is there. It's the efficiency in certain areas that's not there and that's what we're fixing. Speaker 200:03:22Following the end of the quarter, we announced 2 key events. The first being the closing of the Hawaii Pacific Teleport acquisition effective August 1. I welcome that team to the Callion family and believe they will be key contributors in the years to come. I would just like to take a moment to express our condolences to the families of those who lost loved ones in the wildfires in Hawaii. We're relieved to hear that the new members of the Calient team and their families were unharmed. Speaker 200:03:49Our HPT operations are located on the island of Oahu, Therefore, it was not directly perfected. We will be donating $10,000 to the Maui Strong, which will support wildfire relief and recovery efforts in the affected communities. The second announcement was the expansion of our credit facility to give us assets of up to $250,000,000 in liquidity. This is a sign of our commitment to the continued deployment of our capital and our M and A agenda in the years to come. Before I give you an update on the 4 segments, I'd like to acknowledge our team. Speaker 200:04:22Reducing staff is always difficult, but believe it was necessary to do so at this time to put us in a better position to continue to invest and grow our business in the years to come. With that, let's begin with IT and Cyber. ITCS had a difficult quarter. Revenues decreased by 6% to $46,000,000 The short term revenue shortfall was primarily due to lower shipments in our product retail business based in the U. S. Speaker 200:04:48The nature of this business can be lumpy as it depends on customer spend cycles as well as demand for infrastructure upgrades. We benefited during the quarter We benefited during the last few quarters due to pent up demand and some supply chain relief post pandemic. Recall that we've been working very hard in the last 12 months to address customer backlog, resulting from the ongoing supply chain issues and we were able to do that successfully. With that behind us, we did see a momentary pause in order intake And deliveries midway through the quarter, which affected profitability. The good news is that towards the end of the quarter, we ramped up new signings and we believe this sets us up In fact, gross contract signings were $53,000,000 in Q3 outpacing revenues. Speaker 200:05:31This is an indication that bookings continue to be healthy and this quarterly miss is just a bump in the road. However, this revenue shortfall flowed straight to the bottom line. Gross margins fell to 34% from 40% in the same period last year and this gross profit mix combined with our accelerated investments And sales and delivery capacity resulted in our EBITDA dropping by more than 50% to 3,400,000 Part of our restructuring plan implemented subsequent to the quarter end, will aim to realign our sales and marketing delivery capacity with the run rate level of business. Looking forward, macro conditions are neutral with a hint of conservatism from customers due to recession fears. Realistically, we will not be able to make up the short In the Q4, especially since we were already expecting lower Q4 than last year, giving significant deliveries in the final weeks of the quarter last year. Speaker 200:06:22But we do expect to return to more than Raleigh's level EBITDA in the coming quarters. Turning to our Health segment. In the Q3, our whole segment rebounded and posted its highest revenue since the Q3 of 2021 and the peak of the pandemic. Revenue increased 23 percent to $49,000,000 primarily driven by existing customers increasing their requirements for healthcare services as well as new programs being launched across Canada. We have now built a run rate business of approximately $200,000,000 in reoccurring revenues. Speaker 200:06:52Similar gross margins and EBITDA margins increased to 27% 18% respectively, as our recent investments in recruiting and Outreach initiatives have helped us address customer needs across our portfolio. Our ability to fulfill contracts at higher utilization levels and lower turnover were key in achieving higher gross margins. In the quarter, we signed new contracts valued at $27,000,000 Amongst these new signings was our 1st Software as a Service customer under the Nexi solution. For the Q4, we expect continued momentum in the business. We see continued strong demand signals for our existing customers for our pharmaceutical CRO services that are gaining increased traction. Speaker 200:07:32Turning to our Advanced Technology segment. In the Q3, we continued our momentum from Q2. Revenue increased 14% to $45,000,000 primarily driven by stronger telecom product sales With existing customers and increased demand for GNS S products. In fact, GNS products generated double digit growth again at 22% this quarter and our book to bill ratio so far exceeds 2 times. This growth comes from new large scale customers as well as increased demand from existing customers as they include our products into more During the quarter, we continue to make progress on orders and projects that were delayed to supply chain issues. Speaker 200:08:11We continue to see delays in certain products, but the delays We are optimistic that we can make further progress in the Q4 as we chip away at our product backlog. Gross margins improved from 29% to 35% due to a better mix of higher margin business. The contribution of more Calium products will continue to This gross profit margin improvement flowed to EBITDA online with EBITDA margins increasing from 14% to 16%. In the quarter, we signed new contracts valued at $50,000,000 outpacing our revenues. Key wins included upwards of $15,000,000 for GNSS antennas, as well as some significant deals for defense and space products. Speaker 200:08:54We're also selected by the Canadian Space Agency to receive $500,000 in funding To further develop RF over IP technology, RF over IP is the ability to digitize and transport RF signals over an IP network without data loss. This technology will be a key enabler for the introduction of virtualized satellite ground systems. For the Q4, we expect to continue on this momentum given the continued easing Supply chain restrictions, delivery of ground system projects for the same loan and strong demand for our GNSS products. Turning to our Learning segment. In the Q3, top line continued its year over year revenue growth momentum displayed in the last few years. Speaker 200:09:34Revenue increased 20 percent to $27,000,000 driven by recent investments in technology and geographical diversification as we take advantage of strong demand in the military training market due to geopolitical issues and renewed focus on Readiness. Gross margins temporarily decreased to 25% as the cost of our delivery increased in advance Contractual rate increases with customers. Predetermined increase intervals are set to take place in Q1 2024. Similarly, EBITDA margins went down to 14% as we invest to support growth in new area of countries in Europe. The Learning segment is a perfect example where we don't want to hit the exit button in investments. Speaker 200:10:11The issue is that the demand signals from military training in Canada and Europe continues to be high. The procurement process is challenged to keep up. Global defense takes time. Our strong position with our legacy contracts allowed us to continue to grow Revenues while we wait for procurement activities to catch up. We made the conscious decision to continue to invest in our assets to position in the market because we see significant global opportunity down the road. Speaker 200:10:38For example, we are seeing positive growth signs in our SIM front software assets and are investing in R and D to get more features and functionality to be able to address a wider customer set in the future. In the quarter, we continued the expansion of our training globally with projects in Poland, Germany, the Netherlands, Australia and Switzerland. This is a strong indication of our pedigree and ability to be a global training partner in defense. We also diversified inside of defense and signed contracts with academic clients, including the University of Guelph For the Q4, we anticipate continuing on the same momentum. As a result, we believe we are on track to break the $100,000,000 revenue mark in learning for the first time ever. Speaker 200:11:21This continued growth is giving us more confidence to continue to invest To discuss cash flow, balance sheet and our guidance. Patrick? Speaker 300:11:36Thank you, Kevin, and good morning. In the Q3, we generated $3,000,000 of cash flow from operations compared to $20,000,000 for the same period last year. The main variance this quarter is explained by a temporary increase in working capital. More specifically, working capital was negative $12,000,000 in Q3, which puts us at negative $6,000,000 on a year to date basis. We expect to return deposit working capital in Q4 and depending on the timing of some larger collection, we could end the year with working capital increase in the double digit range. Speaker 300:12:07Operating free cash flow was $11,000,000,000 this quarter and represented a 78% conversion from adjusted EBITDA. In the Q3, besides funding working capital, we used our cash to pay dividends and invest in CapEx. We do expect over $50,000,000 in cash flow on our M and A agenda in the Q4. The first of these being the closing of the acquisition of Hawaii Pacific Telfort On August 1 for about $38,000,000 as well as the scheduled earn out payments related to the acquisitions of DeepAssoci Security as well as Alio Health for approximately $17,000,000 Recall that these earnout amounts are recorded in full on our balance sheet at the end of this quarter. We have a robust pipeline of acquisitions and are looking to continue our strategy of capital deployment going into FY 2024. Speaker 300:12:53We maintained our dividend rate at $0.28 per share. We continue to see dividend as an important part of our balanced capital deployment strategy. We will reevaluate the size of the dividend in future quarters. We invested $3,000,000 CapEx in the quarter and continue to manage our spend Within our target of $7,000,000 to $8,000,000 for this year. At June 30, 2023, our $80,000,000 credit facility unused and we had $41,000,000 of cash on hand. Speaker 300:13:19As a result, we ended the quarter with a net cash position once again. So To the end of the quarter, on July 24, we extended and expanded our credit facility to a committed amount of 180,000,000 With an accordion taking up to $250,000,000 This new 3 year term will give us the access to additional liquidity to fuel our growth strategy. Our cash on hand combined with the new expanded credit facility provides us with $221,000,000 of net liquidity at the end of the quarter. Given our strong cash flow generating ability and liquidity position, we are operating from a position of strength as we continue to execute both our organic growth plans Let's take a look at our guidance for FY 'twenty three. In light of our Q3 results, we are updating our FY 'twenty three guidance. Speaker 300:14:08Note that this guidance has been updated to include the impact of the acquisition of Hawaii Pacific Teleports starting on August 1, The benefits from the restructuring plan for the final month of the quarter excludes the one time restructuring charge of approximately $2,000,000 to be recorded in our Q4. We have not made any changes to our revenue guidance. We expect revenues in the range of $630,000,000 to $680,000,000 At the midpoint, this reflects revenue growth of approximately 13%. At the end of Q3, our trailing 12 month revenue was 643,000,000 Turning to EBITDA. We expect EBITDA in the range of $60,000,000 to $65,000,000 down from our previous range of $70,000,000 to 75,000,000 With 1 quarter left to go, this range may seem a bit wide. Speaker 300:14:54Although we have a strong backlog for Q4 of $151,000,000 the range reflects the timing of deliveries of The objective of our cost reduction measures is to restore EBITDA in line with recent performance levels as we enter FY 2024. And finally, we expect adjusted net income in the range of $36,000,000 to $40,000,000 I must caution that revenues and profitably realized are ultimately dependent on the extent and timing of future contract awards, customer realization of existing contract vehicles And potential recessionary pressures. Our guidance does not incorporate any additional M and A activity. And should we close any new opportunities, their contributions would be incremental. Please see our press release and MD and A for a detailed reconciliation of our guidance. Speaker 300:15:40I'll now turn the call back over to Kevin to conclude our prepared remarks. Speaker 200:15:45Thank you, Patrick. To sum up, our top line organic growth was a positive, but our efficiency in doing so in certain areas was below our expectations. We have acted quickly and decisively to adjust our business and believe we will be back in the double digit EBITDA range in the short term. This should be seen as a minor setback and not the start of a trend. We will still end fiscal 2023 With the 6th consecutive year of record revenues and gross profit, the cost reduction measures we have taken will restore EBITDA levels in line with recent performance levels as we enter FY20 And our trend of over 20 years of profitable execution remains. Speaker 200:16:27When I look ahead, I'm very enthusiastic about the future. Since January, I've been traveling across Canada, the U. S. And Europe visiting our customers. What I found is that our solutions continue to resonate with our customers and what we do for them remains mission critical. Speaker 200:16:42Customers do choose Calum when they cannot fail. Looking to FY 2024, we see the opportunity for another record year. While we only provide official FY 2024 guidance next quarter, There are a few factors that I'd like to highlight that I believe will positively impact the new year. Expected cost savings of $8,000,000 from the restructuring plan to restore Our EBITDA margins the full year impact from the acquisition of Hawaii Pacific Teleport, which is characterized by high margins and recurring revenue streams Continued organic growth momentum driven by a solid demand in our 4 operating segments, a robust backlog of 1,100,000,000 strong contract signings of $568,000,000 in the last 12 months. And a strong pipeline of acquisitions supported by pristine balance sheet and Available liquidity north of $200,000,000 Finally, I want to thank our team. Speaker 200:17:37First, we said goodbye to some of our team members. I'd like to thank them for their hard work and dedication as they make Calient a better place to work. For employees who continue with Calient, I know we can count on you to deliver on our mission to help the world communicate, innovate, learn and lead safe and healthy lives. At the end of the day, we are very confident that our Q3 miss was a bump in the road and over the next quarters will unwind And we will be back to double digit growth margins and continue our growth momentum on our journey to $1,000,000,000 And with that, Michelle, I'd like to now open the call to questions. Thank Operator00:18:25Our first question comes from Maxim Matuszewski With RBC, your line is open. Speaker 400:18:32Yes, good morning. I just wanted to touch on the cost reductions. Can you maybe just give A bit more color in terms of how this came about, why now and maybe what parts of the business will be impacted the most? Speaker 200:18:50Yes. Thanks, Damon. I think, Rick, a few questions there. I think from the why now and how it came about, we obviously monitor monthly, quarterly, in real time those times, The performance of the company and I'll take the hit with regard to agreement investments at the beginning of last year That I thought we're going to put us in a position to continue our growth momentum in certain areas. And some of those are not coming to fruition. Speaker 200:19:18There's some macro conditions we're dealing with. So why now is that I felt that, I don't see some areas the macro conditions changing dramatically, and I thought it was prudent To make those changes now and do so quickly and do so decisively, so that our staff, our team, our customers know this is a blip And it is something we're moving on from. So right now, it was the right time. I felt it does position us to continue the growth momentum and the profitable growth momentum. And frankly, at this time, I think it was prudent to do so to ensure we align our capacity to the Performance areas that we see growth opportunities. Speaker 200:19:58So that's the why now. Please continue with your other questions. Speaker 400:20:06Just in terms of maybe what parts of the business this will impact maybe if there's any particular segment? Speaker 300:20:15Yes, we tried to be when we looked at the performance, certainly some of the segments were performing quite well and some of the divisions within them and other ones, The efficiency wasn't where we wanted. So we tried to target the reductions in those areas. So I think there was reductions in all the segments, but We tried to be targeted so that it wouldn't impact the revenue as much given that there are areas where we thought either capacity was too high or the efficiency wasn't there. Speaker 400:20:43Okay. And then just on the lower product resale shipments, Is that is there any portion of that that lost to competitors or maybe customers deciding not Upgrade or refresh the technology for a while? Or do you have confidence that that's all just timing issues? Yes. Speaker 300:21:05I think it was more timing than not given that we saw some of the signings come back on. You saw the signings in the quarter were still good and they came in towards the end of So I think when we reviewed it with the team, I think it was more timing than loss to any particular person. Certainly, Our bar business is very diversified. We're in 7 or 8 different verticals with a lot of customers. Yes, we're diversified there. Speaker 300:21:30We did see a bit of a slowdown, but it picked back up. So I think it's more timing than anything more Speaker 400:21:40And just final one for me. Just in terms of the profit margins in that ITCS Business, they seem to be significantly lower than at least in the past few quarters. Is that all from the lower product resales? Is there something else Impacting margins, was that the investments that you were referring to earlier? Speaker 300:22:00No, it was really almost entirely on that. Our recurring revenues were stable, similar to prior quarters and then our on demand business is also stable. So it's really of our business and given we've got some fixed costs there when we didn't Gross margin from that, it slowed down to the EBITDA, which is why you saw the lower profit margins. Some of the reductions we made obviously kind of reduced some of the capacity there and we're expecting to see better demand in the coming quarters. So I think it Normalize, as Kevin said, back to kind of performance we've seen in the last couple of quarters. Speaker 400:22:35Okay, great. I'll pass the line. Thanks. Speaker 200:22:37Thanks, Manchin. Operator00:22:39Thank you. Our next question comes from Doug Taylor with Canaccord Genuity. Your line is open. Speaker 500:22:47Yes. Thank you. Good morning. You speak to reducing the cost to optimize the balance of growth and profitability. I think the cost side Pretty well articulated and understood here. Speaker 500:23:00Maybe I could get you to expand upon what you think the Related growth impact is that you're trying to offset on the other side of that and maybe put that in the context of your 5% organic plus 5% Acquisitive growth model that you've established at various points in recent years? Speaker 200:23:21Yes. Thanks, Doug. So I think it's important to recognize that the fundamentals haven't changed as far as our philosophy or approach. The 5 and 5 is Still very much intact. You see the organic growth momentum that we've had right now across 3 of the 4 segments is actually in double digits, so very strong. Speaker 200:23:39It also demonstrates the value of the diversity frankly that we've got with regard to one segment hitting some headwinds, but the others. And frankly, I think the performance was slightly overshadowed in the context of the overall EBITDA performance. But again, 3 segments, double digit organic growth. M and A, we just finished up with Hawaii Pacific Teleport, very busy M and A pipeline right now as well. And then again, seeing the Progress in areas such as health and advanced technologies and learning. Speaker 200:24:07So I'm confident, Doug, that the fundamentals of what we've put in place and what I've been talking to market I've taken on this too, I haven't changed at all. And I was I really want to reiterate that. This is a bump. This is not a trend. And this is not something that Takes us off our game in any way. Speaker 200:24:22We continue, we've made the adjustments and we move forward. Speaker 500:24:27Okay. So Let's talk about then the M and A pipeline. You at certain points, I think, hinted at the prospects of additional meaningful M and A beyond HPT by the end For this fiscal year, I mean looking at the date here and in light of some of your comments, are you signaling much change at all in that outlook or potentially A change in your focus areas as in which sectors might be most attractive in light of some of the challenges facing ITCS, for example? Speaker 300:24:57Yes. We're pretty active, Doug, on the M and A side. We've got multiple processes going, so we're optimistic on a few of them that we can Guess where we want to be. Realistically, I don't think those close before September 30, but to the extent we're able To follow through on some of the ones that are very active right now, they would be likely in Q1 or early in Q1. So we're optimistic there. Speaker 300:25:20We've got the liquidity in place. We're spending a lot of time on the M and A agenda. I think our priorities hasn't really changed. We're we've got strong Strategic initiatives in each of the 4 segments and we're trying to find M and A that fits that. So I think it's continuing on there and we're optimistic about Keeping pace on capital deployment here going into FY 2024. Speaker 500:25:45Perhaps one last one then for me. You mentioned your intention to review your dividend again at some point in the near term. It's something I think you've talked Increasingly, perhaps I can get you to potentially expand on what you think an appropriate framework might be for how you balance So that dividend against your need for capital for M and A in the current interest rate and debt environment and all that, Could you just expand a little on your thoughts there? Thank you. Speaker 300:26:15Yes, absolutely. We've always said to try to get the payout down Kind of 30% of our free cash flows. We're kind of in that range now, which is why we've kind of gotten to where we wanted to be. It took us a couple of years as we just grew the business. So we're kind of in that range now. Speaker 300:26:29To your point, we've been prioritizing the deployment of capital on M and A because the return has been good and we've been getting Really good results there. So that's been our top priority. So I think going into next year, we keep watching it as long as the M and A targets are there. We likely hold a dividend, but we're always looking into the extent that that 30% starts to reduce as we continue to grow, then I think we look at it more seriously. So I think that's Our short term outlook on the dividend. Speaker 500:26:57Thanks for that color. I'll pass the line. Speaker 200:26:58Thanks, Ken. Appreciate the questions. Operator00:27:02Thank you. Our next question comes from Benoit Poirier with Desjardins. Your line is open. Speaker 600:27:09Yes. Good morning, Kevin. Good morning, Patrick. With respect to the shortfall in EBITDA, you're calling almost a €10,000,000 reduction in fiscal year 2023, but on the back of the restructuring plan that will bring about €8,000,000 of benefits, How should we be thinking about the EBITDA for fiscal year 2024? Speaker 300:27:34Yes. Good morning, Benoit. If you remember, last quarter, we said we thought we'd get at the bottom of the range on the guidance. And if you take the midpoint of our new guidance that we spoke to this morning, we're $7,000,000 to $8,000,000 off and that's why We feel with the reductions we've made, it kind of puts us back to where we thought we would be, which I think is what we wanted going into FY 2024. And then it's really Looking to the elements Kevin pointed to the M and A, we just closed the organic growth and the pipeline, which puts us back to The growth position is going into next year. Speaker 300:28:08So I think that was the purpose of the restructuring and the size, and then that's why I kind of realigned our business. Speaker 600:28:15Okay. That's great color. And when you're looking at your backlog was down 8% sequentially, it looks like booking Was software for health and learning? Could you provide some color about the what you're seeing out there in terms of booking activity, Bidding pipeline and any slowdown in demand? Speaker 300:28:37Yes. Actually, the demand has been going up. Obviously, a lot of our core contracts don't come up for renewal a lot. We've been using those and the customers have been using them to a greater extent. But we do see pretty strong pipeline. Speaker 300:28:50So we're expecting strong signings here going into next year in health Good morning, Kevin. Speaker 200:28:56Yes, I think so. And I think actually just to comment on health, we're seeing Benoit very high demand on our core health services contract with Defense, Probably you're talking about the high silvers we've seen in a while. So I think that's also contributing just to the backlog, bringing that out Quicker than normal. On the learning side, really what we're seeing is, again, with my travels now between NATO and Europe, Canada, There is strong demand right now on our current contracts for sure and then lots of procurement activity. But as I mentioned in the past, It's just timing. Speaker 200:29:31The government procurement cycles are complex, and they take time. So we're still confident there's A few opportunities for us. We have a good pipeline of opportunities. It's just the ability for the customer to get it to the street. And as we know, the customer is under significant stress right now with regard to The reductions in capacity, the lack of capacity in the military as well as the operational tempo. Speaker 200:29:51So we're trying to work with them as best we can to optimize the And then obviously, we'll be ready to respond for these new procurements as they come out. We expect that's going to unwind over the next 2, 3 quarters. Speaker 600:30:04Okay. Okay. That's great color, Kevin and Patrick. If we look at the net cash, it ended at €41,000,000 And looking at Q4, There is the upfront payment for HPT with the share issuance. And if I'm right, there is still $15,000,000 of earnouts So I'm just wondering if my calculation for cash outflow is okay in Q4? Speaker 300:30:31Yes, Phil. We've got HPT as well as the 2 earn outs that's outflows of a little over 50,000,000 I think we're going to have some positive working capital impact. We've the collections have been stronger here starting in the quarter and our AP payments were a bit higher in Q3. So I think we'll see some pause So we likely have some debt at the end of Q4 just because we need some cash on hand to run the business, but we're certainly start to already between The free cash flow as well as positive working capital before we should start clawing back some of the payments we made on the M and A. Speaker 600:31:05Okay. And in terms of working capital reversal, do you still feel comfortable about an overall 20,000,000 Positive working cap reversal for the full year, Patrick? Speaker 300:31:18I think we might miss that a bit right now. We're negative 6 On a year to date basis, I think Q4 will be positive. So depending on some of the collections, we could get over $10,000,000 by the end of Q4, but I think it would be dependent on the timing right towards the end of The quarter end collections. Speaker 600:31:33Okay. Would you say $10,000,000 for the year or $10,000,000 positive just for Okay, perfect. That's great color. And any color about the or comments about the Buyback these days, given the valuation multiple? Speaker 300:31:55Yes, it's a good question. It's always something that we look at. But right now, our main priority is just continue to deploy the capital on Agenda, we're seeing good momentum there. So I think that's our top priority and we're just going to focus on that. Obviously, if anything would change drastically on the shares or We continue to see misalignment between the growth we're driving in the stock price. Speaker 300:32:18I think we'll look at it more seriously. But right now, we're focused on our operational plans. Speaker 600:32:24Okay. Thank you very much for the time. Speaker 400:32:28Thanks, Benoit. Thanks, Benoit. Operator00:32:30Thank you. Our next question It comes from Amar Zat with Industrial Alliance. Your line is open. Speaker 700:32:37Good morning, Kevin. Good morning, Patrick. On the IT side, I just wonder, did the weakness in the quarter, both on the top line and the margin performance, Kind of a surprise to you, or could you start to see that like last quarter in Q2 when you guys were circling like probably to lower ends Of the guidance range. Then do you feel like this weakness is due to the macro environment or part of it This is also due to the leadership transition in IT. Speaker 200:33:14Yes. No, thanks. Thanks, Amber. Nice to hear from you. The maybe I'll start with your last question first. Speaker 200:33:20I don't In any way, I believe this is related to the transition team we have in place with the IT group. They're strong in meeting with them. They're As of yesterday, we continue to look at every opportunity in pipeline and they reassured me this is a flip. And as we saw, there are strong signs in the end of the quarter that we expect to pick up. So I believe it's a blip and it doesn't in any way limit my or Do I worry about that transition team? Speaker 200:33:50They're very strong. They're committed and I'm confident that they're going to turn this around. And with regard to the With regards to the beginning of the quarter, we started to see some slowdown clearly in the resale elements and work with the team cooperatively And capacity, looking where the opportunities were and we saw in the last month of the quarter a turnaround. So I just want to reiterate that this isn't Something we just wait for the end of the quarter and hope results happen. We're monitoring this all the time. Speaker 200:34:19So we were actually working within the quarter Looking at the opportunity funnel and saw a strong pickup again in the last month of the quarter, obviously not enough to reflect in the Q4. So we're confident to look. I have total confidence in that team. And there are macro trends, clarity on recession and that, I don't believe that it's going to negatively affect us longer term here. So our IT business will be back and running. Speaker 200:34:44It's also important to recognize that our cyber business It was very strong, continues to be very strong and the recurring revenues continue to be very strong. So it does More on our resales and our cyber. Cyber is very strong. Our government business continues to see new wins. So it's really a piece of our IT business. Speaker 200:35:02I don't know what the whole IT business characterize that Somehow it's having some issues here. I expect this will come back in the quarter. Speaker 700:35:11That's great color, Kevin. Then I guess what I'm thinking about Q4 for this business line, last year, we had a very large quarter. Can you maybe remind us how to think about seasonality in IT and Cyber? Speaker 300:35:29I think there's less seasonality more than just it's a bit lumpy like you saw last year, obviously, when we were unwinding some backlog because of supply chain issues, we were on The positive side of the lumpiness, I think this quarter we were on the other end. I think the performance you saw kind of in Q1 and Q2 were kind of more normalized levels, and I think We're trying to get back to you here in the coming quarters. Speaker 700:35:52Okay. Then I just wonder on The cost savings initiative, I sort of, I guess from your prepared remarks, I thought the implied methods Was that what targets, ITC, but it seems like it targets like more than one area. I just wonder how it impacts your delivery capacity At all? Speaker 200:36:18Yes, great question. It was important and it's important for people to realize that when we looked at this, this wasn't in any way Blank reduction, this was targeted reduction working with each of my senior leadership team members to find areas either We had additional capacity or it just wasn't aligned to market reality. So it was targeted. It was not just IT, it was across our business in certain areas In corporate support services, learning, healthcare, IT, the whole business we looked at with regard to where we needed to make Those are tough decisions. So, in no way, the important thing is areas that we have seen Great demand and good growth, they were basically left untouched. Speaker 200:37:02And we wanted to make sure that in this process, we did not impact Our ability to meet our customer requirements or ability to meet our growth objectives. So it was very surgical. It was it's never fun to go through those, but it was necessary. It's done and we move forward. Speaker 700:37:18Then maybe one last one. On Health, I appreciate your comments on The growth visibility going forward, so I understand the investments you are making. But just wondering on the gross margin side, A nice jump in the quarter. Are these levels sustainable? Or how do we think about that going forward? Speaker 300:37:41Yes, we're seeing good demand. We had some new contracts come online in the second half year. So I think that helps the margin. I think we'll see a little bit of They come back off and normalize a bit, but I think we are seeing as some of these new contracts come on, we're able to generate a bit Higher margins than we had in our legacy business. So not a huge increase, but I think we're slowly trying to Getting better there. Speaker 300:38:06And I think as we've crossed this kind of $200,000,000 run rate business in health, which is a new level for us, I think we're seeing better efficiencies as So I think Derek has been doing a good job about looking at the business and building a more efficient Speaker 200:38:21Yes. And I just want to jump in on that, Emery, because I want to echo what Patrick says. Derek has been here just almost 6 months now And really been impressed by his ability Speaker 300:38:30to take a look at Speaker 200:38:30what we have in the truck. We've reorganized some of the healthcare digital assets we're seeing in IT under HisWatch. We now have a healthcare digital team. We're seeing lots of progress there. As I mentioned in my results summary, we've got our first Nexi sale. Speaker 200:38:45So very, very optimistic. He's got a great vision and the team is aligned to that vision. So I think we're going to continue to see good things from our health business. Speaker 700:38:54Thanks. Thanks for the color. I'll pass the link. Speaker 200:38:57No, that's great, Amit. Thanks for the questions. Operator00:39:05Our next question is a follow-up from Benoit Poirier with Desjardins. Your line is open. Speaker 600:39:10Yes. In the press release, there are some mentions around the timing of deliveries of products for Advanced Tech and IT segment. So could you Maybe provide more color about those comments. And is there any relation to issues at the ViaSat? Speaker 300:39:29No, right now, Benoit, it's really just we've got we had some good findings. We saw in both ICTS and AT and T in Q3. We do turn those around and deliver in Q4. So it's really going to come down to the timing in the last month and how much of that we can shift. So I think that's why those certainly have higher margin and impact on EBITDA. Speaker 300:39:49So that's why we're going to be bigger going to that. The good thing is the business is there. We've got the order Speaker 600:39:58Okay. And last one for me, Kevin, could you give us an update on the President's Search for ITCS and what you're looking for in terms of key attributes for the new President? Yes. Speaker 200:40:13Thanks, Benoit. So we've been a couple of months into this. Frankly, we're almost over 100 applicants. So we've worked down to the last few. We're in finalizing interviews now with those candidates. Speaker 200:40:29And my goal is still to have a new President in place in time for the beginning of our new fiscal year And sooner if I can, but we're not going to rush the process. We want to make sure we get it right. The attributes clearly are continuing to look at Our IT and Cyber business, how we position that in the marketplace with regard to increased cyber demands, cloud, cloud migration, The ability to continue to generate and increase our recurring revenue streams with our team, the global expansion that we see, obviously North America focused initially, but obviously going to Europe. I'm looking for somebody that can bring positive energy to a track record on transforming and continue the transformation of our IT business And that's somebody that can work across Callion with our cross business unit updates with regard to cross sell opportunities. So We're getting there and I think we'll be close soon to announcing who that will be. Speaker 600:41:26That's great. Okay. Thanks for the time. Speaker 200:41:29Thanks, Manuel. Speaker 600:41:30Good night. Operator00:41:32Thank you. There are no further questions at this time. I'd like to turn the call back over to Kevin Ford for any closing remarks. Speaker 200:41:39Thank you, Michelle. I think it's important for me to restate my confidence that this is a blip, My confidence that we're on track for another record year as we had as I start looking ahead to 2024, summarize The $8,000,000 restructuring is done. It's not something we're planning on doing, it's done. We do have HBT and L on the team and excited by that. We do have the organic growth momentum. Speaker 200:42:06We saw that in the quarter. We have the backlog still over $1,000,000,000 over $568,000,000 in signings. And now with our M and A pipeline strong and our balance sheet, I do want the market to understand, I believe this is a look and in no way a trend. Our team is committed to working through this. It's been a very busy couple of weeks as you can imagine. Speaker 200:42:27And I've seen nothing but everyone putting their shoulder into this to make sure We right size on this EBITDA margin. So with that, I want to thank you all for the questions and attending today I look forward to providing an update on our next quarterly call. And with that, Michelle, we can close the call. Operator00:42:45Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.Read morePowered by