Good day, ladies and gentlemen, and welcome to Calyen's Second Quarter Results Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Kevin Ford, Chief Executive Officer. Please go ahead, sir.
Thank you, David, and good morning, everyone. Good morning, ladies and gentlemen. With me this morning is Patrick Houston, our CFO. We'd like to welcome you to the Calyen's Q2 2020 conference call. To start off, I'd like to thank all of the frontline health and essential service workers for their dedication and courage during this extraordinary time.
Frontline health workers, Canadian Armed Forces members and other essential service professionals, including our own dedicated staff at Calian, are out there serving those in need and as a result encountering exposure risk every day. From all of us at Callion, I want to express that we recognize and deeply appreciate your service. Through this crisis, Callion has remained resilient. We've activated our own emergency management expertise internally to ensure we are responding appropriately in our crisis management. As a result, our experienced executive and management teams have been deeply engaged on a daily basis, ensuring leaders are well briefed and that we are taking necessary actions in response to this unprecedented global challenge.
While we have experienced some impacts on the company, overall, I am very proud of our 2nd quarter results. We posted a quarterly revenue record of $104,000,000 representing the first time we've exceeded $100,000,000 in a quarter. It was also our 7th consecutive quarter in which we reported our highest ever revenue. We also reported our 74th consecutive profitable quarter. Overall, the quarter reflected the essential nature of our services to customers.
Even in this turbulent environment, our continued focus has been growing our business organically and through acquisitions and doing this while continuing to deliver consistent profitability. The Advanced Technologies segment posted very positive organic revenue growth of 60% compared to the same period a year earlier. This included top line contributions from our new ground systems project and the newly launched mobile wireless product. Health revenues rose 16% from a year earlier as we closed the acquisition of Allo Phase Allo and continued to grow organically. Information Technology posted 7% revenue growth and stronger solution sales from our cybersecurity practice and the Learning segment had a slight decline due to some delays in major training exercises related to COVID-nineteen and the due to some delays in major training exercises related to COVID-nineteen and the pace of new business.
I would like to thank our dedicated team at Calyen for their efforts during this unprecedented time. From my perspective, they truly are the stars who have been carrying Calyen through this very challenging business environment. I'll now ask Patrick to review the quarterly numbers. Over to you, Patrick.
Thank you, Kevin. It's exciting to post another record quarter with the results reflecting continued revenue and earnings growth. 2nd quarter revenue increased 25% year over year, while EBITDA was up 65%. The company's essential services and the stability of our diversified business was evident in the quarter as Advanced Technologies, Health and IT posted solid revenue and EBITDA growth compared to the prior year quarter. We continue to believe that Calium's diversified profitable growth engine is one of the company's unique strengths.
During the month of March, as the government implemented stay at home orders and other physical distancing measures, the company experienced a reduction in revenue of 1,200,000 dollars Please see our MD and A for further discussion of the impact of COVID-nineteen in the quarter. Going forward, we currently anticipate measures to be in place until at least early June. And as a result, anticipate a further revenue impact of $6,000,000 to $8,000,000 in the current fiscal year. Consolidated gross margin in the quarter was 22.5%, an improvement from 21.7% in the Q2 of the prior year, largely due to contributions from our acquisitions and an increase in new business at higher margin profiles. Operating expenses in the Q2 were $13,300,000 This compares to $11,600,000 in the same quarter of the previous year, a 15% increase.
The increase was the result of cost from our recent acquisitions as well as increased resources as we continue to invest in our business development and delivery engines to support the company's growth. Adjusted EBITDA for the quarter was $10,200,000 an increase of 55% from 6,600,000 dollars in the same quarter of the previous year. Adjusted EBITDA in Q2 included a favorable impact of $800,000 from the adoption of IFRS 16. Growth on a pro form a basis year over year was 40%. Please see our financial statements and MD and A for a reconciliation of the impact of this accounting change.
Net profit in the 2nd quarter was $5,300,000 an increase of 36 percent from $3,900,000 in the same period of the prior year. Adjusted net profit in the 2nd quarter was $6,800,000 an increase of 51%. Working capital in the quarter increased by $11,800,000 This was a result of ongoing implementation of our large ground system project and the impact of the change in the U. S. To Canadian dollar foreign exchange rate at the end of the month of March.
The impact of overall business growth was offset by better than expected collections and prudent cash management. With respect to our large ground system project, working capital demand on the project in the quarter was $9,500,000 We expect to have additional usage in Q3 before seeing improvement by the end of the fiscal year of about $5,000,000 from our current position. The cash and cash equivalents balance ended at approximately $33,000,000 During the quarter, we repaid our credit facility balance of $26,000,000 and we will continue to maintain our $60,000,000 credit facility with RBC for future use. Finally, we're pleased to announce the completion of our public offering this quarter, in which we issued 1,560,000 shares for net proceeds of just approximately $66,000,000 This has significantly strengthened our balance sheet and will provide liquidity going forward to execute our profitable growth strategy. Post transaction, we now have approximately 9,600,000 shares outstanding and our weighted average shares outstanding for this fiscal year will be approximately 9,100,000.
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 it back over to Kevin.
Thank you, Patrick. Overall, I was happy to see Cowen's growth strategy continue through the quarter despite the challenging and extraordinary business environment across the global economy. And speaking to our investors, I used the phrase often stability through diversity, grow through innovation. And from my perspective, we're continuing to demonstrate the value in our 4 piston engine. During the quarter, on January 31, we announced the acquisition of health services companies Allface Clinical Research Services and Allure Health Services based in Ottawa.
The company has served the pharmaceutical and medical device industry and the broader health sector with clinical trial services, specialty medication support, community care and other services, all enabled by an innovative healthcare delivery software management application. This acquisition supports all four pillars of our growth framework and specifically diversifies our customer base into pharmaceuticals, home care and hospitals and supports Calion's innovation agenda with software enabled services. Congratulations to our health team for closing this exciting acquisition. And again, a warm welcome to the Allstate's Alio teams to Calium. In a challenging environment, we continue to win new business on the new contracts.
Valeon posted strong contract signings of $140,000,000 in the quarter, increasing our overall contract backlog. We concluded wins in our Advanced Technologies segment for the provision and installation of ground systems in the European market, increased contract backlog and help due to numerous wins as demand for our health services remained very strong. The Allo acquisition also added to our contract backlog. For the IT segment, we continue to see demand on cybersecurity services and increased demand for IT consulting with a major defense contractor. In learning, we are seeing increased demand for emergency management support services across First Nations, provincial, municipal and critical infrastructure organizations.
The first pillar of Cali's growth framework is customer retention. Post quarter 2, we were pleased to announce the successful recompete for a contract from the Department of National Defense to provide training services for the Canadian Forces School of Aerospace Technology and Engineering. With 2 optional extension periods of 2 years each, the aggregate contract value over the 6 period 6 year period is approximately $64,000,000
We continue to work on a
daily basis to adjust the delivery of products and services for our customers despite a rapidly evolving environment both within Canada and internationally. The criticality of what we do has meant that we have seen excellent collaboration and support from our customers, which we greatly appreciate. Our management team will continue to adjust as needed to ensure the continued operation of all four segments, while focusing on the safety of our employees. In closing, I am pleased with the continued execution of our strategy in the quarter. Continued investment in research and development and M and A will be critical to our growth and continued push into new markets.
With a solid cash position and access to our debt facility, we have the liquidity we need to carry us through the short term and balance sheet and cash flows to support Calyen's continued integration and long term profitability objectives. Lastly, while the traditional markets in which Calient operates are managing through this pandemic, management expects organic revenue and earnings growth opportunities in most or all of our segments through the successful execution of our growth strategy. However, we must caution that revenues realized are openly dependent on the extent and timing of future contract awards, customer utilization of existing contracting vehicles and any impacts due to COVID-nineteen, specifically government regulations related to physical distancing, stay at home orders and broader global travel restrictions. Based on currently available information and our assessment of the marketplace, we have maintained our previously issued guidance, but have adjusted the per share numbers, which have been impacted by the issuance of shares in our previously mentioned public offering. We expect revenues for fiscal 2020 to be in the range of $380,000,000 to 410,000,000 dollars EBITDA per share in the range of $3.77 to $4.03 and adjusted net profit in the range of $2.21 to $2.48 per share.
Please see our press release and MD and A for a complete reconciliation of the issuance of shares and the impact on our guidance. So David, with that, I'd like to now open the call to questions.
Thank you. Ladies and gentlemen, at this time, the floor is open for questions. Our first question comes from Doug Taylor with Canaccord Genuity.
Thank you. Good morning, Kevin, Patrick. So you maintained your revenue and EBITDA guidance, which is certainly saying something in these markets, and that's despite your projected impact from COVID. So I guess I just want to ask, I mean, is there
a particular area of outperformance,
be it Advanced Technologies or otherwise, that's offsetting that the impact that you spoke about? Or is it just that you feel like your guidance range is wide enough that you can kind of swallow that impact within the originally established range? Yes, Doug, thanks for the question. I think what we're seeing is, as Patrick mentioned, we've been able to quantify the impact of COVID-nineteen, both in the context of our recent quarter and projecting forward. We're working with the management team to literally almost person by person, project by project identify the impacts.
So we feel the range of the impacts right now based on what we know today and our estimations of the time line are correct. And what we're seeing in offsets is just the increased demand on health services, for example. Some of our other projects in our IT group have really been strong very well in the context of staying able to continue working. And then our advanced technology segment as well, with the projects pretty well deemed essential, we'll be able to maintain our schedules and also ideally look to improve even our schedule implementation. So it's really a mix of a few things that are allowing us to hold our guidance despite the COVID impact.
And even though there is challenges out there, we do see some opportunities for us as well by the nature of our services. Okay. I appreciate the guidance on the future COVID-nineteen impact in the coming quarters. We talked in a previous call about that sort of being a $3,000,000 to $4,000,000 a month range while the restrictions were in place. That appears consistent with the number you provided or reiterated today.
But I thought I'd ask, if it's that amount of impact is front end loaded to April. And if, for example, the restrictions were to last longer than the June 1 date that you're talking about here, whether the impact on future months would actually be less than the range I just kind of talked about.
Yes. I think certainly, I think your point is most of the impact is going to be at the beginning of Q3 here and it's going to start tickling off. I think if it does get extended, obviously, we will continue to see some impact. But I think perhaps on a decreasing rate because we'll be able to get some portion of the services going again, we're seeing customers are still working with us to try to get either partial return so that they don't lose the capacity completely. So I think the longer that goes, I think we continue to see more of that.
So I think there'll be an impact just on a decreasing rate.
That's exactly what I was looking for. Last question for me and I'll pass the line. M and A in this environment, I can appreciate that everyone is kind of hoarding their cash and liquidity right now. And you guys have never been ones to rush these things. But can you comment on how the environment looks for potentially additional M and A right now, both your appetite and pricing and things like that?
That would
be helpful. Thank you, Kevin.
Yes. I think for us, the to be honest with you, the focus hasn't changed. Clearly, our COVID-nineteen impact and response has been a daily call with the team with regard to managing that, managing operations. But balancing that out has been our continued focus on growth. So we continue with research and development projects.
We continue with our M and A platform as far as looking for opportunities aligned to our 4 segments and our strategies. So I would say, Doug, that we are still that element of our business hasn't changed. The thing you have to consider is just the ability to do proper due diligence in a COVID-nineteen rule. So we're adjusting to that with regard to our discussions with our Board, discussions with our staff. But right now, it's full steam ahead.
We want to not only come out of COVID-nineteen with good results, I want to come out stronger than ever with us ready to go and not taking a step back in our growth posture. So we see opportunities across the segments just by the diverse nature. There's a lot of questions that are on valuation right now. The one thing I would say I have noticed is that companies that are serving essential services or managing through this very well, I don't think there's a big valuation impact. I think what we're seeing obviously is companies that are maybe more effective than others that maybe the valuation question could come into play in the short term.
So we're seeing a real mixed bag right now in valuation, to be honest with you. And I think it really depends on the company's customer segments and the deemed essential services that they're providing. That's good color. Thank you. I'll pass the line.
Thanks, Doug. Yes. Thanks, Doug.
Thank you. Our next question comes from Deepak Kaushal with Stifel.
Kevin, this has been a burning question on my mind for you guys and now we know a little bit more about the environment with COVID. But you guys employ internal experts on healthcare and emergency response. I'm just curious what they're telling you and your Board about COVID that's ahead of what we hear maybe in the mainstream or ahead of the curve and how Calient might be able to take advantage of this insight, not just for the business, but to banks at all of your stakeholders, including some of your customers?
Yes. Thanks, Deepak. And I think what's happening for Calum is the fact we have those emergency management and health professionals, as you said, engaged. We've I think where it's really helped us is just on our response protocol. We have as I mentioned, there could be a call at 10 o'clock every morning with a formal briefing to all of our management team across the country and in some case the globe with regard to latest statistics, rates by province, rates by our operating regions, impacts with regards to whether it's in Saskatoon or in Ottawa.
So I think the one thing we're seeing is our ability to digest and ingest information, look at the trends and then actually respond proactively has been very helpful for Kallian. We are now finalizing our recovery protocols, leveraging the same technology sorry, the same methodology that we've used for our customers with regard to how do you now plan the recovery. So that's been very, very helpful for us, I think, just to keep our arms around the response to this. As far as do we have any secret sauce or crystal ball that with regard to COVID, I would say I'm not convinced that we're any better off in the company other than our ability to ingest this information around multiple sources. And for us right now, our estimates and our guidance are based on what we're seeing in the context of the numbers and what we're seeing in the context of the provincial and federal reaction with regard to reducing some of the restrictions and then some of our customer input with regard to, for example, whether it's at National Defense or whatever, our ability to either work remotely or get back to work at the office us and take it that way.
So I don't think we have a crystal ball to do that. But I think what we're doing is we're doing really well in adjusting information and making informed decisions about where and how we continue to operate and maintain our growth profile in the supply chain.
Okay. That's helpful. And then in terms of the benefits or the opportunities that you're seeing with COVID, I was wondering if you can just give a little bit more specific color on what the nature of those are. I know you talked about a bit of that in healthcare and some more demand and the IT side of things. But are you seeing specific, for example, opportunities related to telehealth or on the IT side in terms of work from home?
And what kind of commentary can you give us in terms of pipeline for that side of business?
Yes. I think for me, on the opportunity side, if look at our Advanced Technologies Group, it's interesting, a good part of our funnel right now and sales funnel continues to be very active. That gets back to our critical infrastructure, communication, support we're providing, whether it's in SATCOM, mobile environments, defense. Interdrain right now has very, very strong demand with regards to the farming season coming. We've got our Saad Service Group in Germany that continues to expand its customer base.
So I think that's more of a business as usual, but it's not we don't see huge impacts right now in COVID-nineteen. If anything, we're seeing just increased demand for what I call that critical infrastructure or critical components to some of these sectors. In our health business, for sure, we're seeing increased demand in certain areas, in certain pockets, nursing, for example, in Nunavut. We are actually we've gone from a couple to many, many nursing support in Nunavut. We've actually worked in the oil and gas sector in certain areas for things like travel screening.
We're also working with organizations on the setup of mobile hospitals. And that to us is brand new for us, right? And I can add to Noah, frankly, just with regard to government response. So we're seeing an impact there on the positive side. So just again more and more support for the health business.
On the learning side with emergency management, again, these opportunities aren't necessarily as large, but they're definitely in demand. So as we mentioned, First Nations, critical infrastructure organizations, provincial municipal organizations are asking us to help them support not only the COVID response, but the FDA also consider we're dealing with fire and flooding season now in the majority of these areas. So a lot of folks are certainly getting overwhelmed by the amount of activity they want to deal with. In our IT services, it's basically been business as usual, but our continued focus on cyber and cyber products is really paying off as we target and continue to invest in the sales engineer. So that's not necessarily COVID related, it's just an impact I think we're seeing on our previous investments we've made in cyber.
So long answer to your question, but I hope I covered it.
No, that's very helpful. And if I can ask just one follow-up to that and I'll pass the line. So you have good strength and opportunity in all four of these divisions. When you think of capital allocation, what do you expect to see the most over the next 12 to 18 months plus 1? Thanks again.
From a capital allocation perspective, the as far as what they expect to feed the most, well, to be honest with you, I'm still really excited about all four segments. And I'm not sure I have a preferred segment per se. Definitely, our advanced tech with our ground system, large ground system project and some of the new wins and some of the product development there and we're still going to continue to invest capital there. Our Health business, we've just acquired Alio All Phase. It was a multimillion dollar investment to diversify and bring a software platform into house and now it's with integration and working with our team to enter new markets.
For learning, really, we're focusing on more M and A support to learning, I would say, and in both geographic distribution and targeting Europe for sure, as well as bringing in new capability for learning in areas that took virtual reality, those type of things. In our IT business, it's really a matter of working with Sanders or Udo there on what we call our cyber footprint. As you know, journey of our cyber business right now is coming out of Ottawa. And we've invested now in new headcounts in Shun Bin Shunnel marketplace, and we're looking at other geographic opportunities from an M and A perspective as well as potentially cloud opportunities. So all 4 have capital opportunities.
As Patrick mentioned, we're strong financially. So I think I'm confident in our ability to still invest in all 4, and we continue to assess the opportunities as they come forward.
Thank you. Our next question comes from Benoit Poirier with Desjardins Capital Markets.
Yes. Good morning, Kevin. Good morning, Patrick, and congratulations for this very strong results. Just to clarify, with respect to the COVID-nineteen impact, Patrick, you previously mentioned in the former call that it was you were expecting about $7,000,000 to $8,000,000 in Q2 and Q3. So you just talk about the €6,000,000 to €8,000,000 is it incremental to be a former number or it's basically the new kind of impact that compares to the previous one?
Yes. So this is it's not on top. It's just this is the total impact. So it's $6,000,000 to $8,000,000 and we had about $1,200,000 this quarter. So that's the total impact.
Obviously, we had extended the timing. If you think back to our previous call, we were hoping at that time that things would be back to normal. Now it's taken longer. But at the same time, we've done a bit better in terms of getting some people back to work. Hopefully, the numbers stayed fairly the same.
It's just a bit longer, but we've done better than we were hoping.
And maybe a little bit skewed more towards Q3, right?
Correct. We're hoping the majority of it should be Q3 and then Q4 should be hopefully back to normal.
Okay. That's perfect. And just in terms of contract signings, you were able to put out a book to bill ratio of 1.3 in the quarter. Could you and you were very successful in announcing another satellite ground system contract recently. So could you talk about the bidding pipeline, what you would expect in terms of booking for the next quarter to come and talk more specifically about the other opportunities you see for satellite ground systems.
So maybe I'll okay, so great Patrick. Yes, let's just jump in. Okay. So I mean, I think they're
generally pretty long cycles on some of these larger deals as people look at their network needs and CapEx. So we're really glad to win that transaction earlier this quarter and it's going to start our work is probably going to start in Q4 and go into the following year. So it's a good project. We're still seeing lots of activity on RFPs coming out and our teams are certainly submitting them and we're competing aggressively for those deals. So we haven't seen a tremendous reduction in the short, short term on the amount of RFPs.
We just need to see them come to conclusion and whether we can successfully win them or not. So
in the short term,
I think we're still we're pleased to see that the volume of our feet is still there.
Okay. And now with respect to the latest two acquisition in Ottawa, could you talk a little bit, still early, but about the integration and the opportunity to expand those platforms organically outside Ottawa?
Yes, I'll take that. So Benoit, so first and foremost, we're excited with Alio All Phase because of the diversification. So even though it's Ottawa based, it serves national customers for sure. So I'm working with Gordon and Jeff, the CEO of those companies. We're working on now just integration for our playbook with regards to the back office integration and those type of things.
But what I'm really excited about is just the market reaction to this has been very strong And we've already seen the integration work for us in the context of responding to some of the increased demand from COVID-nineteen. So we think there's diversification opportunities right out of the box as they brought in the whole new customer set to Calian in the pharma area, for example, home care, which was new to us. And then if you can imagine, they now have almost $400,000,000 company here backing them with regard to our ability to go talk to customers and larger customers with regard to the capability that we can bring collectively. So I think it's very positive. The integration is going very well.
And as we see more and more of the talent at the companies, we're just so impressed with their capabilities. And then the next piece obviously is looking at home software application that they've got and looking at how we scale that as well going forward. So we're very excited about it. We think there's lots of integration opportunities as far as the 1 plus one equals 3 and frankly coming out of blocks. It's been one of the strongest ones as far as Camillera blocks quickly.
Thank you. That's great color. And last one for me. When we look at Primacy, could you maybe provide some color on how the COVID-nineteen impacts your contract with Primacy and Loblaw?
Yes. So what we've seen with that is not huge impact with regard to it. Some clinics had decided to close, but I think generally it's business as usual. Just the pace of certain things that maybe have to slow down, whether it's maintenance on a clinic or whatever, just the reality of the restrictions. But we're working a lot more collectively to make sure that it's the program is still running efficiently.
And I think there's a minor impact that I don't think it's been an indicator of being a significant on the prime sheet network.
Okay. That's great color and thanks for the time.
Thanks, Benoit. I appreciate the questions.
Thank you. Our next question comes from Faraz Ahmad with Laurentian Bank.
Hey, good morning, guys. Thanks, Alex. Just a quick question. Just on the Advanced Technology segment, you obviously saw some really strong organic growth. Would you be able to break out how much of that was from the new ground system and how much was from the wireless product?
Yes. The ground system was pretty much consistent from last quarter. So that was when we've kind of reached kind of our peak run ratio as we're delivering the project kind of at our peak right now. We did see pretty significant increase on the wireless products, probably about 3x from last quarter. So last quarter, we just started deliveries and now we've really gotten the supply chain going.
We haven't seen any impacts there, which has been good and we've been keeping the shift to the customer. So the really strong growth and that was one of the reasons why we saw the margins and our EBITDA contribution in advanced technology growth this quarter. So I'm really positive about that project.
Okay. That's great. And then
on the Health side, margins came down a fair bit. Now I imagine a lot of that just because of the cost related to the acquisition of Alfais. But was there another component to it as well? I know you guys mentioned hiring as one.
Yes, we have been adding some new capacity there. Obviously, we're seeing some opportunity to grow, so we're investing there. And your point, Balad, on the acquisition, we did have some one time costs in the quarter as we completed that transaction. So that's in the service line. So I think otherwise, I think you'll see the margins kind of return back to where they were in the previous quarters.
And over the long term, I think probably go up a little bit as Alu and Allstate's contribution has generated a bit higher margin than our existing business. So I think you'll start to see those improvements over the next couple of quarters. Okay.
And then in terms of Alu and Allstate, I know you guys have only had them for about 2 months now. And I know Kevin mentioned they're performing relatively well. But is it generally far and above the numbers that you outlined at the
time of the acquisition? Or is it relatively still in that range? It's still in the range. I think the expectation that we are again with our own due diligence and when we look at the forecast and kind of locked in numbers from a growth trajectory of the company, We're seeing it still
in the range. We're seeing
the ramp up. We just had a major win, a good size win just with the pharma area. So we're ramping up as we expected. So all of the deals that we expected to close are closing and the team is ramping up well with that. So I would say it's in line with our expectations for sure.
And again, as I get to know Leonard Gordon and the team, we just feel pretty excited about the opportunities we're bringing to the table. But yes, so far, it's right on trajectory that we're expecting as far as the growth opportunities and the team continues to pursue in closing the business, which is exactly the spirit of when we're backing. So it's good. It's been excellent so far.
Okay, great. Thanks guys. Thank you.
Thank you. Speakers, at this time, we have no other questioners in the queue.
Okay. So listen, thanks, everyone. Patrick and I and the team, again, I want to wish everyone hope everyone can stay safe in these challenging times. And we do look forward to giving you updates of our Q2 results coming up in August. And again, my thanks to the Calhoun team and our extended healthcare team and all of them close to today that are working so hard to try and keep our customers served and as well helping everyone stay safe.
So with that, David, we can close the call and we look forward to getting updates in the next quarter call in August everyone. So thanks and take care.
Thank you. Ladies and gentlemen, this concludes Calyum's 2nd quarter results conference call. Thank you for your participation. You may now disconnect.