Good day, ladies and gentlemen, and welcome to the Calient's Third Quarter Results Conference Call. As a reminder, this conference is being recorded. And I would like to turn the conference over to Mr. Kevin Ford, Chief Executive Officer. Please go ahead, sir.
Thank you, Casey, and good afternoon, ladies and gentlemen. With me this afternoon is Patrick Houston, our CFO, and we'd like to welcome you to the Calion's Q3 2020 conference call. I'm pleased to announce another record quarter of revenue for Calyen, which we have now accomplished for 8 consecutive quarters. The results demonstrate our continued growth and the resilience of Calyen's diversified business. Q3's consolidated revenue was a record 106,000,000 dollars up 19% from the same period last year.
The quarter also marked our 75th consecutive profitable quarter, highlighting that we continue to remain profitability as we execute our growth plan. While the ongoing public health crisis has had some short term impacts on our earnings, our teams have adjusted and Calian has remained resilient. The 3rd quarter's results reflect our continued focus on profitable growth, while delivering essential services to customers in a very challenging and unpredictable environment. During the quarter, we saw very positive results and growth across most of our segments. Health revenue gained 50% compared to the same period a year earlier, reflecting stronger demand across the business and with our recent acquisition of Alphase and Alio.
A major contributor to the growth was the health teams recently won contract with SNC Lavalin and PEACE joint venture to support the delivery of mobile respiratory care units for the Government of Canada's pandemic response efforts. The Advanced Technology segment posted strong revenue growth of 18% from the prior year quarter, with continued top line contributions from the segment's large ground systems project, mobile wireless product sales for Tier 1 North American mobile wireless provider and other defense and Satcom projects. Information Technology revenue gained 9% from the prior year quarter on stronger overall demand, including solid sales for our cybersecurity products and services. Positive results in the Advanced Technologies, Health and IT segments more than offset a year over year quarter in revenue decline in the Learning business, which was affected by the COVID-nineteen pandemic causing delays to on-site learning activities and training exercises. Through the pandemic shutdowns, we have worked with our customers to find alternate approaches to maintain continuity of service.
And as of June, many of the activities that were paused have returned under new rules and procedures for the safety of instructors and students. Despite the revenue decline for learning, the segment maintained profitability. I'd like to thank our dedicated team at Kion for their efforts during the quarter. They have helped us respond to the pandemic with agility, creativity and a tremendous collective effort. Once again, they have helped carry accounting through this very challenging business environment.
I will now ask Patrick to review the quarterly numbers. Over to you, Patrick.
Thank you, Kevin. It is exciting to report another record revenue quarter. We have again exceeded $100,000,000 in a quarter and accomplished this in exceptional circumstances. The successful execution of our profitable growth during the quarter highlighted the critical essential service nature of our products and services as well as our team's flexibility to adapt to rapid changes in conducting business in the last few months. 3rd quarter revenue increased 19% year over year, while adjusted EBITDA was up 34%.
During our Q3, the company was impacted by the pandemic, which as Kevin mentioned, caused us to pause certain projects requiring on-site delivery. This is largely in our IT and Learning segments, although certain customers in our Health segment also had to pause operations and temporarily halt contract work. On a consolidated basis, COVID-nineteen resulted in a revenue decrease of $8,800,000 during the quarter and an EBITDA impact of 1,700,000 dollars We were able to offset this to some extent with revenue from our engagement with SNC Lavalin on mobile respiratory clinics, also at significantly lower margins. The net impact on EBITDA from COVID-nineteen in the quarter when accounting for the POS contracts and the offsetting SNC work was approximately 1,400,000 dollars Throughout the quarter, each business segment worked extensively with customers to resume operations. And as of this call, we have been able to resume a significant portion of our affected contracts.
We currently estimate a further revenue impact of CAD 2,000,000 to CAD 3,000,000 for the remainder of the fiscal year. Please see our MD and A for further discussion of these impacts in the quarter. Our already strong balance sheet was further strengthened this quarter. We ended the quarter with $46,000,000 of cash on hand, which supported our completion of 2 new M and A transactions shortly after quarter end. Consolidated gross margins in the quarter were 21.4 percent in line with the same period of the previous year.
Operating expenses in the Q3 were $13,500,000 up from $12,500,000 in the same period of the previous year. This was the result of investments in strategic initiatives to diversify our customer base and expand into new verticals, investments across the segment to enable project delivery and some additional costs related to acquisitions and outstanding equity instruments. We continue to make focused, disciplined investments in our business development and delivery engines to support the company's overall growth. Adjusted EBITDA for the 3rd quarter was $9,000,000 an increase of 34% from $6,700,000 in the same quarter of the previous year. Adjusted net profit in the 3rd quarter was $5,600,000 an increase from $5,000,000 in the same period of the previous year.
Working capital in the quarter decreased by $5,400,000 This was the result of the ongoing implementation of our large ground system project offset by U. S. Canadian dollar exchange rate changes, government programs introduced as part of their response to COVID-nineteen, which allowed the deferral of certain tax payments and improved collection and management of accounts payable. Our net liquidity position remains strong with $46,000,000 of cash on hand and no balance drawn on our credit facility of $60,000,000 Finally, 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'll now turn the call back over to Kevin.
Thank you, Patrick. Overall, we have continued to demonstrate the execution of Calient's growth strategy despite challenges across the global economy. I often refer to Calliant as having a 4% engine, driven by our 4 segments of advanced technologies, health, learning and IT. And I think you saw the work of that engine in the quarter with each segment focused on growth and innovation. Our sales efforts continue to show positive momentum in the quarter as we captured $154,000,000 in new contracts, ending the period with a revenue backlog of approximately 1,300,000,000 These new contracts included health's new business with S&T Lavalin, worked up to $26,000,000 in revenue in the first phase.
Our IT segment successful recompete for a cybersecurity contract with the Department of National Defense worth up to $22,000,000 over 3 years. The Learning segment successful recompete for the training service contract, the Canadian Forces School of Aerospace Technology and Engineering worth up to $54,000,000 over the next 6 years. 4th quarter end, the Calient team is excited to announce the close of 2 acquisitions, strengthening the IT and Learning segments. In the Learning segment, we acquired CTS International, a boutique training firm based in Stavanger, Norway. CTS provides the Learning team with her presence in Europe and the opportunity to pursue new training business within NATO as well as other defense and commercial customers in the European market.
For the IT segment, we acquired MSEK Solutions, a firm based on Ottawa specializing in radio frequency emission security and technical surveillance countermeasures. MSEK's wealth of cybersecurity experience will position Cajun into a dominant position in the mission security field and provide our cyber solution team with this market differentiation. Congratulations to our learning and IT teams for closing these acquisitions. And again, to the CTS and MSEK teams, a warm welcome to Kalyan. Regarding frontline health and essential service workers, I'd like to thank all of you for your dedication and courage during this ongoing public health crisis.
Our own dedicated staff at Calhoun have been delivering essential services with so many other frontline health workers, Canadian Armed Forces members and service workers. From all of us at Calyen, we offer our deepest appreciation for your service. Going forward, M and A growth will continue to be a focus. We will also continue to invest in R and D and sales to support future organic growth. The Advanced Technology segment, for instance, has continued R and D related to new products with the recent launch of its 4th generation Dessimator D4 spectrum analyzer product, which monitors radio frequency communications and detects signal issues.
So in closing, while the current global business and economic environment is uncertain, Calian has responded to recent adversity with resilience, flexibility and creativity. The Q3 demonstrated our consistent ability to increase top line revenues and win work through challenging market conditions. Calyen entered 2020 with a strong backlog of work and has continued to add to new contract wins and renewals to maintain this backlog position. Lastly, while the traditional markets in which Calient operates are managing through this pandemic, management expects organic revenue and earnings growth in most or all of its segments through the successful execution of our growth strategy. However, we must caution that revenues realized are ultimately dependent on the extent and timing of future contract awards, customer utilization of existing contract vehicles and any impacts due to COVID-nineteen, specifically government regulations related to social distancing, stay at home orders and broader global travel restrictions.
Based on currently available information and our assessment of the marketplace, we have increased our guidance to reflect our strong Q3 and our momentum going forward into the Q4 of fiscal 2020. We expect revenues for fiscal year 2020 to be in the range of $415,000,000 to $435,000,000 EBITDA per share in the range of $3.95 to $4.17 and adjusted net profit in the range of $2.48 to $2.70 per share. Please see our press release and MDA for a detailed reconciliation of our guidance. So with that, Casey, I'd like to now open the call to questions.
Thank you. And our first question comes from Amir Azad with Echelon Wealth Partners.
Good afternoon. Thanks for taking my questions and congrats on the strong quarter. First on your updated guidance, could you maybe give us some color on the different drivers there for the Delta? You mentioned the SMC contract in your prepared remarks, but the $30,000,000 bump in your revenues implies that you're perhaps seeing strength in other areas of the business as well. Maybe some color would be helpful.
Yes. Hi, Mirek. Thanks. So SNC certainly is one of the drivers. That contract is in the approximately $25,000,000 value.
We're hoping to deliver the majority of that this year, but some of it might slip into Q1. The other one is where we are making good progress on our large ground system project that's proceeding despite any of the travel restrictions. Our team has really worked hard to continue the pace on that project. So we're seeing a little bit of incremental revenue there. And we're also seeing, as we mentioned in our prepared comments, the COVID impact has lessened significantly.
So in Q4, so that should help us finish up the year.
Fantastic. Then maybe another one on your new guidance. The new guidance implies the EBITDA margin is just a touch lower than your previous forecast. Just wondering what brought that on. Is it the, I guess, like the lower EBITDA margin of the SNC contract?
Or is there anything else to read into that?
No, I think you've got it there. The S and C contract certainly has much lower margin than our traditional business. So although it's helping us on revenue, it is bringing down our EBITDA percentage slightly.
Fantastic. Fantastic. On the advanced technologies sector, I guess, as I look at the growth contribution during the quarter of 18%, can you share with us how much of that comes from ground systems versus your wireless product?
Yes. In the quarter, I mean, the majority there's 3 really drivers. Ground systems was the largest one. We did see continued demand slightly higher than last quarter for the products. And Intragrain, which really comes into focus here in Q3 and Q4, had a strong quarter as well.
So the combination of those 3 is really what propelled the growth.
Understood. Okay. So I guess as we turn our attention to fiscal 2021, maybe you could give us a bit of color on the bidding activities and the opportunities, I guess, you're seeing for both like ground systems and the wireless products. Just trying to get a sense of how much activity you're seeing and how large, I guess, are these opportunities relative to what you guys are delivering on?
Yes, I would say, yes, it's Kevin. So I think for me, what I'm as in this quarter with over $150,000,000 signings, what we're seeing is that from a sales opportunity perspective for whether it's advanced technology, healthcare, learning, IT, we're seeing good opportunities and ranging from 100 of 1,000 of dollars to multimillion dollar opportunities. So I've been impressed, frankly, just by the amount of the activity that I'm seeing in our proposals groups, how many proposals are going out the door. So across each of our segments, in advanced technology specifically, we're seeing still lots of customer opportunities with current customers as well as potentially new customers. We're seeing interest in areas such as our carbon fiber antennas, which we are rolling out as far as this ground system project.
As you remember, we announced this last year that's a new capability for us. So I'm pretty excited by the fact that in a very challenging environment that we're still seeing lots of opportunities and lots of proposal activity. Of course, we got to win those. We got to win our share of them, but in no way are we feeling not having opportunities right now to continue the growth profile.
Great. Maybe one last one, a housekeeping item. SecureTech's 2nd anniversary was May 31. I noticed that your total contingent consideration still stands at $19,600,000 at quarter end. So safe to assume that they met their targets for the secondary earnout?
Yes, they did meet them and they actually overachieved slightly above the target. So we recorded that and paid it in Q4. So good strong performance from SecurTech in the second
year. Fantastic. Thanks. I'll pass the line.
Thank you. Thanks for your questions.
We'll take our next question from Benoit Poirier with Desjardins Capital Markets.
Yes. Good afternoon, Kevin. Good afternoon, Patrick, and congrats for the very good quarter. For IT, could you maybe congratulations by the way for the acquisition of EMSPC. Could you maybe help us to understand the geographical mix of the business and whether you see increased opportunity with fiber security solution in the context of the pandemic?
Yes. So I think on the first part of your question with regard to the scope or the globe, where we're delivering cyber services specifically, Benoit?
Yes, exactly.
Okay. So right now, if you look at as I mentioned, I think in the past, if you look at our IT Services business today, including cyber, the majority of the work is Ottawa and some Toronto exposure. So what
we're excited
about is now with MSEK and also some of the increased costs in our OpEx is putting more sales headcount in areas such as Toronto. So we think geographically, we have lots of room to grow in Canada. And the reality is the majority of our revenue for IT services right now is coming out of Ottawa with some in Toronto. So we just think frankly growing our IT business is taking all the good work we're doing here and just expanding across the country. So right now domestic play for sure with regard to IT overall and then for specifically cyber in the context of the pandemic.
I think what we're seeing is a few things. We're seeing increased activity for government, government and federal government to push forward with cybersecurity RFPs to strengthen infrastructure, especially as people work mobile, more and more mobile work environments means more exposure to cyber potential issues. So I think everyone's trying to push forward on some of those activities to get some corporate capability or enterprise solutions in place to deal with the mobile world. And then just generally, cyber, regardless of the pandemic, is a concern. And so we continue to see good opportunity and very positive growth profile for that, both in Ottawa and frankly, but across the country.
So I think there's still lots of room to grow in our IT services and cyber specifically for sure.
Okay. And with advanced technology, given the pandemic, people have been working away from home. So are you seeing some incremental demand from your telecommunication customers to increase bandwidth in some specific regions?
Not necessarily. I think a lot of the work historically that we've been doing is in the ground system and Satcom. So I think there's obviously probably been more demand than you think about some of the broadcasters and broadcast capability that we help support. So we haven't really seen from the telecommunications side. We've just entered the mobile marketplace really this year with that one product that we sold to a major carrier.
So we haven't seen demand per se, I would say, Benoit, with regards to that. But we are very busy in advanced technologies on the Satcom Ground Systems segment side, lots of opportunities, lots of bids going out the door. So that's related to pandemic, I can't say for sure, but we're not seeing that slowdown in any shape or form.
Okay. And last one for me, Healthcare. Could you talk about the progress made with the integration of the 2 latest acquisition in Ottawa?
Yes, actually, it's been good. I think as we continue to involve our M and A playbook and take lessons learned from every acquisition as we put it into our playbook, I would say with the Alio All Face team, it's going very, very well. And we've been able to actually leverage each other's collective capabilities now to bid on new work. Clearly, they're supportive of the Aliyah Wolfenstein team as a key part of that SNC Lavalin win as well, bringing their capability to the table. And we continue to get more exposure to other potential pharma customers and obviously the home care elements of that when you think about pandemic and what's going to be going longer term, I think it's going to be a good opportunity for us.
So we've been very excited by it's frankly been very quick out of the blocks with Aliwal phase. The team is incredible. The talent is incredible. And the products they're offering with their home software application that really helps us differentiate is really helping us both in the alluvial phase domains, but also even our healthcare domains grow. So still very positive, Benoit, and frankly, one of our quickest acquisitions out of the gate on the 1 plus 1 equals 3 for sure.
Okay. Congrats and thanks for the time.
No problem. Good to always good.
Thanks, Benoit. Good to hear from you.
We'll take our next question from Faraz Ahmad with Laurentian Bank Securities.
Hey, good afternoon, guys.
Hi, Raj.
Congrats on the quarter. I was hoping to start off just on the Healthcare segment. It's definitely a strong quarter. Of the SNC contract, would you be able to tell us how much of that contract is due this quarter?
Yes, it's
about $7,500,000
Okay. And I guess the bulk of that is the Q4 thing?
Yes. I mean, I think, right now, we're thinking we try to get most of it done. We do have some deliveries in the last couple of weeks of the quarter right now scheduled. So some of it might fit into Q1, but right now the plan is to try to deliver the balance of that that we announced this year.
Okay, great. And within the healthcare segment as well, previously you had mentioned that services that you offer like mental health services and dental had been lagging just because of the focus on essential healthcare. Has that come back recently? And do you expect it to continue to come back in Q4?
Yes. I think for me on the on the dental side and everything, specifically with our defense contract, we're definitely seeing the return to work for dental services. I think there was an initial pause, but I think the reality is that's coming back. I see that even on a personal level with family, help people getting back to dentists. So that one's definitely coming back.
On the mental health side, I would say demand has been neutral. It's just more some of the work we've done in certain areas are stronger with regards to mental health and a lot of work we do with the military that always has been strong. It's just now psychological assessments that we bring in priority, one for like firearms and stuff like that, that's kind of slowed down over the last little while. But again, we expect that to pick up and get back to normal probably in the next 2 or 3 quarters. Okay.
And just turning over to the Learning segment now. You guys mentioned that a lot of the engagements that we saw are coming back online. I mean, would you kind of would you be able to give us a sense as to what percentage of some of your contracts are still on hold?
Yes. I'd say it's a minority right now. I mean there's a few contracts here and there where either the activity hasn't resumed and we haven't found an alternative method to deliver the service. I'd say that's the minority, so say maybe 15%. The rest of the 85% that was that led to that kind of impact in Q3 has since resumed.
Okay. That's great to hear. And then I guess just last one for me. You guys have done a great job maintaining margins during the pandemic and given the focus on costs during COVID, do you see a large opportunity margin gains once things normalize given the tight level of cost control?
Yes. I think we've been monitoring costs, obviously. Travel and things like that have reduced. Some of the marketing has reduced in certain areas. We've caused uncertain increases, which we probably naturally would have done on space and things like that.
So we're trying to find opportunities where we can reduce our expenses that doesn't impact our long term growth, which is really the most important that we're trying to focus on. So invest it to drive the long term growth, but yet at the same time find some opportunities for savings where they naturally are coming.
Okay, great. Thanks guys.
Thank you.
We'll take our next question from Deepak Kaushal with Stifel GMP.
Hi, Kevin, Patrick. Good evening and thanks for taking my questions. I've got a couple of follow ups to some of
the previous questions. Kevin, CTS, the synergies and the rationale, I can easily assume and seem pretty obvious. MSEK seems a bit less obvious. I was wondering
if you could walk us through
the rationale for acquiring that business and what kind of synergies you can drive with the existing IT practice? Yes, I think for me, you're right. It's not necessarily what we were doing in the context of cyber, but what we thought and what we do believe and with the team, what we've added in there is a very unique toolkit into our cyber capabilities. So there's not a lot of companies, this is very boutique. This is not a piece that is easily found.
And then we felt that that with their presence in their customer base, their exposure in defense and other markets and some of their tools that they've developed, we thought it would be something that as we look to strengthen our cyber practice and grow, it's something they had basically reached a certain threshold with the amount of capability they had. And we think now putting our children behind it, we should be looking at that. And when you think about RF and Mission Security, you think about just the reality of mobile workplaces and the reality that cyber attacks are increasing and this is actually dealing with the emissions coming from computers. We still think that's going to be both on the corporate side, the defense side and using potentially on the defense OEMs that we service. So there's going to be a lot of synergies there.
So definitely, we'll be focused initially on defense, the defense OEMs, but we do believe there's some corporate capability here that they are starting to get exposed to that will really help us. And it's a great way to talk to our cyber business and differentiate us in the context of all that we're doing in PPAX. So it's a very strong tool and toolkit for sure. Okay. And then go ahead.
No, no, sorry, go ahead. Yes, this one. No, I was going to shake here as much as I have any more to add on MSAQ or CTS. Well, no, I don't think so. I think for us what we're the CTS one, as you said, the synergies are obvious with regards to expanding our base of training and learning that we're doing in military environments to NATO and other European customers as well as the commercial market there.
You bring in the SaaS service piece that we have in Germany now. So we now have 2 foot footprints in Germany or sorry, in Europe. And I think that is again, it's consciously as part of our plan as we want flag in some of these economies and local areas that we know are going to continue to our long term growth. So, yes, we're very excited at CTS. And again, coming out of the blocks, we're seeing lots of opportunities working together.
So it's pretty exciting.
Got it. And then going back to your early acquisitions, Ali and All Face, you mentioned some COVID related opportunities. I was wondering specifically if you could talk about what you're seeing in the home care services. We hear a little bit more about hospitals having to do more of that servicing its general population in their own homes rather than on-site in the hospitals. What particularly are you seeing there?
And is the product revenue in the healthcare related to that?
I would say for us, it's really 2 things. So number 1, as you said, is people look at alternative delivery models for health care now, whether it's virtual health care, home healthcare, as you said, moving people out of hospitals. You think about our network of national medical practitioners, it's probably one of the strongest in the country across multiple diverse elements. So we had that to start, you bring Alio Allphase in that brings in the capability with their home, health outcomes management engine, which is a proprietary software they developed to help really build a more effective way to interface and integrate a lot of the healthcare systems, I would say, relevant clearly post COVID. And then they also had the pharma trials, you think about pharma, the pharma industry with vaccines and then you bring in the fact that they had exposure to home care and some one of the companies they had bought earlier, a company called Global has actually got a home care capability.
So I would say for us right now in Health, our growth is going to be governments, whether it's defense or SMP. It's going to be continued to grow by other new customers just exposing our healthcare practitioners to that. It's going to be driven by the Aliwal Phase acquisitions with regard to access now to pharma and pharma trials and patient support programs that are coming with the Aliwal Oilfield acquisition. So all of the things that we're doing in healthcare, very relevant and also going to be very more relevant, I think, is now as we look at these alternative healthcare delivery models. And we're working on that very proactively on our next steps for Calyen to really take advantage of that opportunity.
Got it.
Got it. Okay. And I guess my last question, more general on the M and A side, you've done a
handful of them in the recent quarters, and they've all
been quite small. Is that just the nature of what you're seeing in the market? Is it easy to pull the trigger on these small niche boutique kind of
acquisitions? What can you tell
us about the pipeline and what you're seeing in the marketplace, Ebony?
Yes. I think if you look at the if you think about the last 12 months from a client perspective between Sat Service, you bring in the Allo All Phase piece, which is a larger acquisition and then as you said, 2 smaller tuck unders. I would say, I think that's a good categorization of what we're seeing. We really see the smaller tuck under capability, but we're also seeing some larger opportunities across each of the segments. What we're just trying to do is frankly, what I was trying to do with our team is clean up some of the we had met with a lot of companies over the years on the M and A profile.
So really what I asked Patrick and the team to do was clean that up. In other words, let's take a look at those targets that have been the on our list for the last year or 6 months, whatever. Let's clean those up. And what we're doing is exactly that. So what we're doing is either they're on or they're off, let's move on because really what I want to do now is with our focus on the future, we continue to have a good discussion around what's next for us on M and A and both smaller tuck in or some larger acquisitions are on the agenda for sure.
So we see opportunities in each of our segments and what you're seeing us do right now is basically not clean, I don't use that in a negative context, but just trying to close through a few of these targets that we've had discussions on for numerous months and in some cases years. So, yes, lots of opportunity, definitely will be continued focus for us, not just the acquisition, but also integration and all sizes. We're seeing tuck under some larger acquisition opportunities, but making sure we take our time in the COVID world that we can do proper due diligence. And that's the only thing that may slow it down for anybody right now is just how much due diligence you could do in a COVID backdrop. Got it.
Okay. I've got one more, but
I think I'll jump back in
the queue and maybe give other people
a chance and come back in. Thanks again. Thanks, Deepak. Thanks,
We'll take our next question from Amar Shah with 8 Capital.
Hey, good afternoon guys and congrats on the quarter. Your dream of questions have been asked, but I thought I'd sort of just follow-up on that last comment regarding due diligence. Obviously, it's impressive to be able to close a global deal in within the pandemic. But I guess I just wanted to get your viewpoint on, is due diligence a little more difficult for global deals? So would there be more of a preference for things that are perhaps closer to home?
Or I guess, is the pipeline still to be committed to a global outreach?
Yes. I would think for me, the when you look at our playbook and I talked to this, there's really 3 fundamental criteria we look at, 3 lenses we look at in acquisitions, obviously, the financial lens and company performance, growth profile, valuation, multiples, kind of the standard. Then the strategic fit with the company, really supporting 2 elements of our 4 pillar growth strategy, primarily around customer diversification and service line innovation. So those things you can assess in the even in the COVID world, you can assess that virtual. You can sit down, you can talk to companies.
I think we're all getting more and more comfortable with online meetings. If I got paid by online meetings these days, I'd tell you I'd be doing pretty well. And I think we're all in that mindset now where everyone is getting more and more comfortable interacting in an online world. So for those two lenses, I feel that we can really continue to operate, continue to do due diligence in a remote mindset, wherever that acquisition may be. The one you have to assess is our 3rd lens, which is cultural fit.
So I've always said, I like to meet with the owners, I like to have dinner, we like to sit down and talk, we like to meet elements of the management team. So that's the one you have to you really have to assess how effective can you be in cultural due diligence. And that's one we're working through. We're working through some of the targets that we have closed like M SEC and CTS. We had actually met with the company even before COVID had hit, frankly.
These discussions are going on for a while. So we had already had that ability to assess cultural fit and getting to know the company. So that's the one that we'll just continue to evaluate our capability to do that. That being said, I can tell you the online tools are getting more and more effective. I think we're getting more and more comfortable in dealing with it.
So whether the company, frankly, is in Ottawa, Toronto or in Germany, I think the challenge is there for most companies to assess that in a virtual world, but given time, I think we're just getting more comfortable doing that. So right now, we're still moving ahead. We think we can still operate our playbook, but we will be cognizant that we won't pull the trigger on an acquisition unless we feel all three lenses have been satisfied with regard to due diligence.
That makes sense. And has your view on leverage changed at all now that we're kind of a few months into the post COVID world and the business has shown some resilience. I guess, how are you thinking about that?
Yes. We're still comfortable in that 2.5 times EBITDA. But you can see as we continue to grow our EBITDA, we're quickly outgrowing our existing credit facility, which is at $60,000,000 So we'll continue to look at that as we see transactions come into focus, but we're comfortable at that 2.5x EBITDA. And we should be able to secure that kind of financing with some of our existing partners. So we'll use that certainly to continue on our M and A strategy, and it will be important in the next 12 to 18 months as we execute on
that. Great. Thanks, guys. I'll turn it back.
Thanks. Thanks for the questions.
And we'll take our next question from Deepak Kaushal with Stifel GMP.
Hi, guys. Sorry, thanks for taking my follow-up. I didn't want
to say last question and ask another one before I jump back in the queue.
Patrick, Kevin, more focused on margins for gross margin instead of property margin and net margin. When I look at the gross margin, I'm just trying to assess the path to expanding gross margin. Is that largely going to come through M
and A?
Or can new products like your wireless product, your decimator product or the carbon fiber antennas, can those new products move the gross margin line as you scale the customer base for them?
How should we think about gross margin expansion? Yes. I'll give you my thoughts and let Patrick jump in. Again, back to our 4 pillar growth strategy, the service plan innovation pillar really is about through organic and M and A, expanding product capability or differentiation in the marketplace and all that we do with a goal to improve margins. So whether that's gross to EBITDA margins, we are very passionate about trying to do that in a very challenging market.
So the way you asked the question, you almost answered Deepak, I think it shows you what you're starting with the company here. The reality is our products are higher margins. So we continue to invest in that. If we look at new capabilities from our acquisition perspective, one of the criteria in our financial lens for acquisitions is higher margins that helps move up our consolidated or divisional margins for each of the segments. So, we're really I think over time, I'm confident we can continue to move these up.
It's just going to be the pace of those. As you know, you layer in almost $400,000,000 of revenue, you need to there's only so much you can do at any given year. But the goal is to improve margins through differentiation, through M and A, through organic for sure. Patrick, any thoughts on that?
Yes, I agree. I mean, the majority of these ones we've broken through on the last couple of years have brought significantly higher margins than our traditional kind of consolidated level. And I think they're just starting to take hold. I mean, we saw a bit of a step back here this quarter because of SNC and some of these other ones, which are lower margins. But I think the direction certainly is as we invest in certain new opportunities, whether it be M and A or organic, they're generating margins that are significantly higher than what our traditional consolidated margin is.
Okay. And are you guys willing to share kind of targets for next year? I mean, notwithstanding acquisitions, is 25% gross margin within the realm on the organic business? Or is it still too early to kind of assess that?
I mean, I'd say on the new business that we would generate, for sure, we would have a target of that or above. I mean, the existing as you know with us is we've got a pretty significant backlog of business we go into the year. If you think you look at our MD and A, we've got $250,000,000 or $70,000,000 secured for next year. And the majority of that is the margin on that has already been set. We just need to execute it.
So to bring that up, you can quickly do the math to get to 25, we'd have to do plus 30 on everything else. So I think next year, certainly, objective is to get it up a couple of points through M and A and organic and then continue to make progress.
Okay. That's very helpful, Patrick. Kevin, thanks again for taking my questions. Have a good evening.
No problem, Deepak. I appreciate the questions.
And we'll take a follow-up from Faraz Ahmad with Laurentian Bank Securities.
Hey, guys. Just a quick follow-up for me. I know you spoke a little bit about intragrain. I'm just wondering if you could speak a little bit more about the demand trends you're seeing in that business, especially given all that's going on. And just wondering if that's steeper enough or you're seeing any weakness there?
No. So far, they've been performing pretty well. Obviously, their big quarters is this quarter and the next one as they go through they start delivering their summer orders and then they get their kind of final orders before the winter starts. So far, the macro things, the weather has been good. Farmers had did slow down a little bit because of COVID, but we saw them pick it back up.
So, so far, they're kind of slightly above last year, and we're hoping they finish strong for the year. And so far, we've seen consistent performance from them.
And at this time, there are no further questions.
Okay. Thank you, Casey. So, I want to thank everyone for the questions and the time today. Patrick and I look forward to discussing our 4th quarter results with you in November. Stay safe, everyone.
And if there's any follow on questions, please don't hesitate to reach out. So with that, Casey, we can end the call.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect your phone lines.