Good morning, ladies and gentlemen, and welcome to the Calian's Q4 2021 Conference Call. At this time, all participants are on a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Kevin Ford, Chief Executive Officer. Sir, the floor is yours.
Thank you, Catherine, and good morning, everyone. With me this morning is Patrick Houston, our CFO. We'd like to welcome you to Calian's Q4 and 2021 Full-Year Results Conference Call. Please note 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. I'm gonna start with our Q4 results. In Q4 , we saw revenue of CAD 128 million, a 4% increase compared to the same period last year. Adjusted EBITDA and adjusted net profit grew year-over-year at 35% and 54%, respectively. We have continued to see momentum in new contract signings this quarter, with CAD 84 million in new wins, leaving us with a solid backlog of CAD 1.3 billion. Dividend levels remain unchanged at CAD 0.28 per share.
As a reminder, this quarter marks our 80th consecutive profitable quarter. That's over 20 years of profitable execution and delivery. I'm thrilled to share, for the first time in company history, we have passed the half-billion-dollar mark with annual revenues of CAD 518 million. This is a major milestone for Calian on our journey to become a billion-dollar innovative global growth company. COVID-19 has presented many challenges, particularly around maintaining our manufacturing capabilities, traveling to customer sites, and supporting customers virtually. I'm pleased we were able to achieve this milestone even during a difficult time. Adjusted EBITDA and adjusted net profit increased by 41% and 58%, respectively, and at 24%, gross margins are the highest they've ever been. Another point of pride for our team. Our net cash has grown threefold year-over-year, and EBITDA margins are now above 10%.
Our success in fiscal 2021 can't be told through numbers alone. We acquired three new companies, bolstering our capabilities in areas such as cybersecurity and high-performance antenna capabilities and allowing us to expand our customer base. Calian was named to the FP500, a ranking of the top 500 largest Canadian companies by revenue, and we were added to the S&P/TSX SmallCap Index. We've continued to add new leaders to help propel the company forward. This included Michelle Bedford, our Chief Commercial Officer, Sean Hamer, our Chief Technology Officer, and Sacha Gera as President of IT and Cyber Solutions. We have also made significant contributions to our communities. We are a key partner in Canada's response to COVID-19. We supported indigenous communities with remote healthcare. We continue to deliver our military family doctor network and assist over 20 charities.
Our efforts to diversify our revenue has shown tremendous progress. Just a few years ago, almost 70% of our revenue came from government customers at the federal, provincial, and municipal levels. While we have continued to grow our government revenue, our efforts to diversify into commercial and international segments have resulted in significant growth, and the revenue split is now 50/50 between traditional government sources and commercial customers. I'd like to spend a moment sharing an update on each of our segments. If you've been on one of these calls before, you've heard me mention our four-piston engine and how a growth in one segment balances the potential decline in another. It is my sincere belief that this four-segment structure, as well as our four-pillar growth framework of continuous improvement, customer diversification, customer retention, and innovation, are key ingredients to our success.
Three of the four segments delivered double-digit revenue growth this quarter. IT and Cyber's impressive revenue growth of 61% was led by the contribution of the newly acquired Dapasoft and iSecurity companies. For Advanced Technologies, Advanced Technologies is the segment that has been most impacted by COVID-19. With supply chain challenges and travel restrictions delaying completion of some projects, and despite this, Advanced Technologies saw increases across the board in revenue, EBITDA, and gross margin. Acquisitive revenue makes up 77% of the total increase and is attributable to revenue from the acquisitions of InterTronic and Tallysman. In addition to acquisitive growth, Advanced Technologies has demonstrated growth in AgTech product sales and continued expansion and growth in European ground system products.
For health, while revenue decreased 22% this quarter as a result of the one-time deployment of mobile respiratory care units in Q4 of 2020, revenue grew 20% for the year. Demand for high-quality healthcare services has increased during the pandemic, and Calian has been engaged for a variety of services across Canada, including vaccinations, screening, quarantine support, and virtual clinic setup. As an example, Calian nurses support a 1-800 hotline that offers COVID-19 screening, complete contact tracing, and public health education for Nunavut residents. It's a critical service for residents who live in remote areas a far distance from healthcare services. For learning, revenue growth in learning was strong both in the quarter and the year.
The team has embraced both in-person and virtual delivery of its learning platform, and growth in Q4 was 23% when compared to the same quarter last year. Just after the fiscal year end, we announced the acquisition of SimFront, a leader in immersive training solutions incorporating augmented, virtual, and mixed reality technologies. Now we can offer customers an end-to-end military training and simulation solution with opportunities not just in defense, but in healthcare and oil and gas. For IT segments, the IT and Cyber Solutions saw the largest increase in revenue growth with 52% related to acquisitive revenue. This demonstrates that the capabilities and assets from our acquisition of Dapasoft and iSecurity are indeed transforming our IT segment.
Another proof point is the 2021 Microsoft Canada Healthcare Impact Award, presented to Dapasoft for the Corolar Virtual Care Solution, a solution that helps acute care providers quickly roll out premium virtual clinic services. All in all, we see multiple new growth opportunities across all of our segments and are excited about the momentum we have created this year. Now, I'd like to pass it to our CFO, Patrick, to discuss results and key performance indicators.
Thanks, Kevin. We have several important achievements in Q4 , including increases across the board in revenue, Adjusted EBITDA, and adjusted net profit. This performance can be largely attributed to investments we have made in each of our seven segments to bring technology and differentiated services that resonate with our broad customer base. Acquisitive growth in the quarter was 8% and 12% for the entire year. The acquisitions we have completed during our fiscal year have all been meaningful contributors. Organic growth in the quarter was -4% and 8% for the entire year. Passing the half-billion-dollar revenue mark is a major milestone for Calian, and growing gross margins and EBITDA margins ahead of revenue speaks to our profitable growth agenda. Gross margin performance in the quarter was strong, reaching 26% compared to 19% in the same quarter a year ago.
The improvements in EBITDA of 35% and adjusted net income of 54% significantly outpaced our revenue growth in Q4. Our balance sheet remains a strength. We ended the quarter at CAD 78 million in cash in a credit facility of 120 million, which is still undrawn. We completed three acquisitions during FY 2021 and have already successfully closed one acquisition in FY 2022. We continue to invest in our team to facilitate further investments in M&A, and our pipeline of deals is as busy as ever. I'll turn the call back over to Kevin.
Thank you, Patrick. I can't overstate how pleased I am with how far Calian has come, and I hope this demonstrates why. In only four years, we have nearly doubled our annual revenue, more than doubled EBITDA, and achieved record high margin levels. This has been the result of how we go to market, the assets and technologies we own, and the geographical expansion we have accomplished. I believe this is just the beginning of our journey. These results have reinforced our strategy to invest in our existing assets and technologies to accelerate organic growth in the long term. We've talked quite a bit about how our recent acquisitions have contributed to revenue growth. We spent CAD 70 million on M&A this year, the most in company history, to acquire technology assets that strategically bolster our capabilities in different areas like cybersecurity and immersive training solutions.
We've never had more technology assets than we have right now, and we'll continue to grow this portfolio through M&A and continued organic investment. On guidance, I must caution that revenues realized are ultimately dependent on the extent and timing of future contract awards, customer realization of existing contract vehicles, and any impacts due to COVID-19, and specifically government regulations related to social distancing, stay-at-home orders, and broader global travel restrictions. Based on currently available information of contract backlog, sales opportunities, and our assessment of the marketplace, we expect to continue our growth posture in the coming year. Our guidance does not incorporate any additional M&A activity. Should we close on any new opportunities, their contributions would be incremental. With that backdrop, our guidance for the fiscal year ended September 30, 2022, we expect revenues in the range of CAD 550- 590 million.
Adjusted EBITDA in the range of CAD 57- 61 million. Adjusted net income in the range of CAD 39.25- 42.75 million. Please see our press release in MD&A for detailed reconciliation of our guidance. As mentioned, this guidance indicates that FY 2022 will be another record year with potential for double-digit growth in revenue and EBITDA. This guidance includes several million in new investments in our health, cyber, and communication assets to create long-term value. Why should investors have confidence in Calian? We've been in business for 39 years, having just celebrated 80 consecutive profitable quarters. Our balance sheet is strong and our strategy of diversity, profitable growth in both organic and M&A growth is delivering results. I don't believe our stock price properly reflects our recent performance and our upward trajectory.
As CEO, I'm confident that we have the team, the assets, and the strategy to deliver long-term profitable growth. Finally, I wanna thank our staff for once again achieving not only record results, but for being there for our customers. What has been demonstrated through the COVID is our services and solutions are essential to our customers across all of our segments, and I'm extremely proud of our team for rising to the challenge yet once again. With that, operator, Catherine, I'd like to now open the call to questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone now. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold a moment while we poll for questions. Your first question is coming from Amr Ezzat. Your line is live.
Good morning. It's Michael Kypreos on behalf of Amr. Congratulations on the strong quarter.
Thanks, Michael.
You are sitting on a record cash position with no debt. I appreciate that these things are hard to time, but going into 2022, can you give a sense of how much capital you're looking to deploy into M&A? Then can you speak to which areas you're seeing opportunities in?
Hi, Michael. Thanks for the question. Yeah, we've been busy on M&A. In the last couple of years, we've completed on average here four M&A deals per year. We've done one so far this year. I'd say our pipeline is quite full in terms of new opportunities coming to us. And right now we're busy, you know, trying to assess which ones make sense to us and execute those. It's hard to give you an exact number of how much capital we deploy, but we're certainly looking to, you know, continue the same momentum we've done here in the last couple of years and complete, you know, multiple transactions. The timing will just depend on as those come into focus and we get them, you know, done to our satisfaction.
All right. Thank you. On the health segment, I understand that you had a year-over-year decline with the MRCUs of last year. I'm looking to get more color on the quarter-to-quarter movement from Q3. How much of the decline is COVID related work that isn't there anymore? When thinking about your reported CAD 44 million in revenues for the quarter, is that a good plateau to build growth on top of, or is there still some COVID-related work that will taper off?
Yeah. The COVID-related work, you know, specific response kind of in our healthcare group this year was about CAD 30 million for the year. That started to taper off, obviously, in Q4. You know, our expectation right now and in our guidance, we're expecting that, you know, there might be a slight amount, a bit less in Q1, but not beyond that. Of course, you know, the environment's changing pretty rapidly, so if that came back on, certainly the team's ready to respond to that, and that would be incremental to where we're at. I think that's our current understanding of the environment.
On IT services, very impressive gross margin performance again. In your MD&A, you mentioned that this is on the Dapasoft acquisition. Is there anything unusual in the quarter that helped contribute to the margin expansion, or is that the new normal?
Yeah, great question. It's Kevin. I think from my viewpoint, that's the new normal from our viewpoint. Dapasoft and iSecurity come out of the blocks very strong, both in their cloud migration, our healthcare platforms and cyber. It's exactly the type of assets and companies and staff and talent that we wanna acquire for not only the capabilities we can bring to customers, but at the impact to our margins to your point. We're not expecting that to be a blip. We're expecting that to be more of a longer-term trend and trajectory now for IT business.
Okay, great. That's all for me. Thanks. I'll pass the line.
Thank you so much for the question.
Your next question is coming from Benoit Poirier. Your line is live.
Yes. Good morning, Kevin. Good morning, Patrick, and congrats again. First question, if we look at Advanced Technologies, what was the contribution from the large satellite ground system contract in Q4, and how should we be thinking about Q1, if there's anything to be done?
Yeah. With CAD sub-10 million this quarter, Benoit, we've got probably about CAD 6 million left here this year to recognize and finish the project. We're right in the last stages here. Certainly that project has ramped down as we expected as we completed it. You know, the team's won some new ones in Europe and those have been ramping up. I think from Advanced Technologies, you know, strong quarter across those deliveries of the new projects plus some incremental product sales. It was good to see, you know, a strong performance from AT this quarter.
Okay. What should we expect once this contract is finished from a working capital standpoint? Maybe should we expect profitability for Advanced Technologies to be back in toward more normal range for fiscal year 2022?
Yeah. From working capital, we made some good progress this quarter. We brought back in about CAD 20 million of that. You saw that, you know, appear in the cash and the WIP balance come down. We're expecting kind of similar contribution probably in Q1 and Q2, as that kind of ramps down and gets to completion. In profitability, yeah, I think, you know, this is the first step back to kind of more historical levels for AT this quarter, and then you'll probably see some incremental improvements next year.
Okay. That's great. Could you talk about the timing to start the other large one worth CAD 33 million that was awarded in February 2020? I thought it was expected to start early in 2022. If you could talk about the pipeline to replace those large satellite ground system, I would be curious to get more color on the pipeline opportunity, especially for Advanced Technologies.
Yeah. Thanks very much, Kevin. The large project basically has been ramping up, primarily Q4, and will definitely continue into our new year, so we'll have a positive impact to our 2022 AT trajectory. I think the exciting part I'm seeing in Advanced Technologies right now, if you think about our antenna line, and with the acquisition of Tallysman, SatService, InterTronic, if you had a menu in front of you with all the different antennas required for our communications, right now we have a much deeper solution set than we've ever had.
If you think about that announcement on the electric vehicle manufacturer that we've sold with Tallysman antennas for its global navigation support, you think about the full motion antenna capability of InterTronic, you think about our presence in SatService in Germany now, the pipeline is actually probably the strongest it's been in our Advanced Technologies business for both large aperture antennas and also, you know, the GNSS antennas. We're expecting AT to continue on a solid trajectory, and very excited by the opportunities, not just because of the number of them, but the size and scope of some of these are actually quite significant.
We just gotta do our thing, keep our heads to the ground, and win our share, but I think you'll see some good progress on Advanced Technologies this year just by the nature of the investment we've made in our antenna line.
Okay. That's great, Kevin. And Pat, could you maybe share some thoughts about CapEx, R&D, and free cash flow for fiscal year 2022? How should we be thinking?
Yeah. CapEx was up a bit this year. We obviously had the one-time investment in our ERP platform. That project's scheduled to be done in February, so I think you'll see CapEx come down a bit next year back to kind of more normalized levels in that CAD 3- 4 million normalized level. And then, you know, the dividend we've been holding right now will be about, for next year at the current shares outstanding, about CAD 12.5- 13 million. So I think those are clear. Then it's really how much we can generate. Obviously we're growing again, you know, from an EBITDA perspective, you know, our guidance indicates, you know, +10% growth again there. So you should see, you know, free cash flow increase pretty significantly compared to this year.
Okay. From a dividend standpoint, how should we be looking at the payout right now and the timing to consider a potential increase down the road?
Yes, we communicate to investors that our objective was to get the payout from a free cash flow perspective down into the 30%. I think, you know, as of Q4, we've kind of gotten to that level. Our objective in the last couple of years has been to grow that cash flow and bring the dividend back in line with where it should be. I think as we go into next year and we see incremental growth, I think we'll start to look at whether we should adjust it. I think certainly the plan over the last two years has worked in terms of, you know, bringing it in line with where we want it to be.
That's great color. Thank you very much for the time.
Thanks, Benoit Poirier.
Your next question is coming from Nick Agostino. Your line is live.
Hi, yes. Good morning. If I could just go back to the fiscal 2022 guidance. I think in your MD&A, you highlight a shortage of trained staff as being, you know, I guess part of the variables that you considered in putting together the guidance. Can you maybe talk a little bit to what areas where you're seeing that shortage in learning health or whatever the case is, and maybe what steps you're taking to rectify that and when you think you can have that shortage fully rectified?
Yeah. From our viewpoint, I think like all companies right now, not just Calian, you know, you hear with my colleagues at organizations and CEOs and C-levels, the war on talent. What we've seen in a virtual world, Nick, is that the ability to work virtually is giving everyone opportunities, frankly, to work from home or wherever they wanna work, whether it's in Canada or around the world. What we see primarily, the demand really for us is in two pockets. I think, we're seeing on healthcare practitioners and then software engineers. We've never been busy in our software engineering group. Right now we continue to grow. When you think about Calian now, we have software capability in all of our segments.
We've moved from strictly services in some areas now to have technology assets. We continue to look at methods and mechanisms to retain and attract talent both in that, in those two domains. So far, actually, we've been able to keep up. We just wanted to highlight to everyone that all companies right now, talent is gonna be a constraint, but we continue to work with our CHRO, Sue Ivay, and our business unit leaders on mechanisms and ways to ensure that we can step up to our customer requirements. Right now it's not impeding our growth, but it's something we've got an eye on and we're not taking for granted.
That's great color. Can you maybe quantify how much of a wage impact it's having on your overall business or how much of an impact it's having on your EBITDA margin, assuming that you've got to pay higher wages possibly for retention purposes?
Yeah. I mean, we try to respond to the market conditions wherever those people are working and the roles they have. We certainly, you know, that's an important factor, not the only one in terms of retaining the people, but certainly one. You know, as we get new customer deals, we try to, you know, take all of that information, with our fixed cost and our variable cost, and try to price it appropriately. So far, we haven't seen a massive margin erosion because of it, but that's certainly one we're gonna have to, you know, be dynamic with as we continue to, you know, bid on new deals.
Okay. Just so I heard you clearly, you're pretty much able to pass on, in a lot of cases, whatever higher wages?
So far, to some extent, yes. I mean, obviously you've been seeing in the news, you know, pretty significant increases and it's unclear when this is gonna end. I'd say so far, but you know, our ability to that, you know, depending on the magnitude going forward, is gonna be, you know, something to watch.
Okay. Just one last question for me. Supply chain issues, obviously it's something that's impacted the entire IT space. I would assume that you know you guys are gonna feel it on your advanced tech side and in your IT side. Can you maybe talk a little bit about what specifically we're seeing and just based on the feedback from your suppliers, how long you think that issue's going to persist? Is it a first half 2022, or do you guys think it's gonna persist through next year? Has it resulted in you guys maybe carrying a little bit higher inventory in some cases? I'll pass the line. Thanks.
Yeah, thanks. In that area, it really depends on our segment. Certain areas we've been absolutely able to find alternative sources if we've had issues, whether it's on chips or components. Other areas it's been maybe lead times are longer, but so far we just did an update and did a review yesterday. So far we continue to be able to make schedules and deadlines from Calian's perspective. The risk is, as you said, as this continues, maybe we will see some delays, but I don't think it's gonna be across the whole company. It'll be in pockets of the company. Our procurement teams right now are working day and night to combine alternative sourcing, both domestically and globally, to ensure that we don't hit that wall.
So far we've been able to manage through it, much to the thanks of our procurement and supply teams that are scanning the world globally. If we see some issues, it'll likely be in certain pockets, but again, we're not expecting a major delay, maybe minor delays currently. That could change to your point, 'cause of the current dynamics. As far as how long does this go, it's a bit of a crystal ball exercise, I think, for the world right now. We're starting to see some things come back online, but I think to your point, the first half of this year, I think most companies are gonna be dealing with some form of this until we see supply chains get back to 100% capacity.
Okay. Thank you.
Thanks for the questions.
Your next question is coming from Neal Bakshi. Your line is live.
Good morning. Thanks for taking my question. I thought I'd start off, just by following up on that last question about supply chain issues. Just wondering if that affects in any way that CAD 5- 10 million opportunity you last noted regarding that EV manufacturer integration. Just wondering if that affects it at all or if it's being replenished with other opportunities as well.
So far it hasn't. I think we've been trying to overcome it with just sheer time and effort. The team is working, you know, day and night to make sure that we can keep up with the customer demand. You know, we'd have to buy, you know, slightly more than we normally would have just to make sure that we can do that. So far it hasn't, but you know it's not because we haven't. We're putting in the effort to try to make sure it doesn't happen, and the teams are working very differently, very hard.
Right. Okay. Just a question regarding the modular nuclear reactor services. I guess coming off of, you know, COP26, and a lot of kind of alternative energy sources, just wondering if what you're seeing in terms of pipeline of other servicing opportunities in that space or the pipeline could speak to there.
Yeah. Thanks, Neal. You know, how exciting is it to be the CEO of a company that's working with organizations on small modular reactors, nuclear reactors, when you think about the climate challenges, globally that obviously were highlighted in COP, the recent COP conference. All is to say is the team, you know, our nuclear group probably doesn't get enough visibility or highlight in our company because of the diversity, and led by Hani and Francois. We have a very talented group of nuclear engineers that are working with organizations on SMRs with regards to their initial feasibility studies, the whole kit. We believe this is not just a domestic opportunity, but a global opportunity, but we're gonna walk before we run. We have quite a few discussions going on.
We've won some contracts to start working through that. In many ways, we're winning more than our share, I think, which demonstrates the talent of our team. Nothing I want to look at, you know, longer term. Short term is going very, very well. I think frankly, that opportunity on its own could be an interesting one for Calian over the next couple of years, not just from a growth perspective, but to your point on the potential impact to climate. We're really excited about it, and stand by and we'll continue to try and update as we go through our next calls. Thanks for that question 'cause we probably don't talk about those areas enough in the company.
Excellent. Thank you. Just one question with regards to this, the telenursing services contract. Just wondering if the margin profile is to be seen as similar to, what you've been seeing in the last year or if it's any kinda higher or lower. Just any color you can provide there. Thank you.
Sorry, I just missed the beginning of that. Which contract, sorry?
This is the telenursing services. It's about CAD 13 million in the backlog for Q4.
Yeah, we continue with that one. It's been going well. I don't see any expectation of change in demand or margins. I think that one continues on in the short term, as the customer still wants the services.
Thank you. I'll pass the line.
Thank you.
We have no further questions from the lines at this time. I would now like to turn the floor back to Kevin Ford for closing remarks.
Okay, thanks everyone who attended and participated. I think you all are hearing a pretty excited CEO at the end of the line. The team I wanna thank again. I have just never seen so many assets in this company on the technology elements. We're looking at healthcare platforms. We're talking about virtual care platforms. We're talking about learning platforms. I think that journey as an innovative global growth company is well entrenched, and the team is committed to making that happen. I just really wanna highlight again, my thanks to the Calian staff, who have really knocked it out of the park from my viewpoint, not only created amazing results, but created a foundation for our continued growth to a billion-dollar company. My thanks, and with that, Catherine, we can end the call.
Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.