Good day, ladies and gentlemen, and welcome to Talion's First Quarter 2020 Financial Results Conference Call. As a reminder, this call is being recorded. It is now my pleasure to turn the conference over to Mr. Kevin Ford, Chief Executive Officer. Sir, please begin.
Thank you, Chelsea, and good afternoon, ladies and gentlemen. With me today is Patrick Houston, our CFO, and we'd like to welcome you to Calyxt Quarter 2020 conference call. I'm very happy with our Q1 results. We again posted a quarterly revenue record of $99,200,000 up from Q4's quarterly record of $90,900,000 While posting our 6th consecutive quarter of record revenue growth, we also reported our 73rd consecutive profitable quarter. The results reflect our continued focus on profitable growth as we successfully execute our organic and acquisitive growth strategy.
I once again would like to thank our dedicated team at Kallian, all of our staff, employees for their efforts. It was very much appreciated. I'll now ask Patrick to review the quarterly numbers, and I'll provide some comments at the end. So over to you, Patrick.
Thank you, Kevin. It's exciting to again post record quarterly results, reflecting our continued revenue and earnings growth. 1st quarter revenue gained 24% year over year, while EBITDA growth was 47%. 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's Q1. We continue to believe that Calient's diversified profitable growth engine is one of the company's unique strengths.
Consolidated gross margins in the quarter were 20.4% compared to 21% in the Q1 of the previous year. The slight decrease was due to project mix in the quarter. Our focus continues to be the introduction of existing and new products and services into new markets in order to increase our margins. Operating expenses in the quarter were to $11,200,000 in the same quarter of the previous year, a 6% increase.
We continue
to invest in capabilities to help our growth agenda. This includes augmenting our sales and marketing capabilities, building This includes augmenting our sales and marketing capabilities, building capacity in our innovation agenda and strengthening business support to integrate recent acquisitions. Adjusted EBITDA for the quarter was $8,400,000 or $1 per share basic and $1.03 per share diluted. This increased from $5,700,000 or $0.73 per share in the same quarter of the previous year. Adjusted EBITDA in Q1 included a favorable impact of $700,000 from the adoption of IFRS 16.
You can see our reconciliation in the financial statements and MD and A explaining the change in the accounting. Net profit for the Q1 was $4,300,000 or $0.55 per share. This was up from $3,400,000 or $0.43 per share in the same period of the prior year. Working capital in the quarter increased by $21,000,000 This was the result of growth of our business and progress made in our large ground system project. Working capital demand on the large ground system project in the quarter was approximately $16,000,000 We expect an additional 6 $1,000,000 of working capital demand in Q2 as we reach the peak demand for that project.
Our cash balance ended at approximately $14,000,000 dollars And subsequent to quarter end, we expanded our credit facility with RBC from $40,000,000 to $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 it back over to Kevin for his comments.
Thank you, Patrick. So I just want to echo Patrick's comments and again talk about the fact that it was pleasing results in the quarter. Advanced Technology posting very positive organic revenue growth, 68% from the same period a year earlier. Obviously, strong contributions from our large ground systems project and the new mobile wireless products that we've now gone live with for Tier 1 North American mobile provider. Our health revenues is rising 10% from a year earlier as demand increased on our clinician services and psychological assessment services.
IT similarly posted 9% revenue growth on stronger sales focus for our cybersecurity practice. And earning revenues declined slightly, reflecting generally a pace of demand on our core training contracts and focus on securing the new business going forward. Close to Q1 quarter end, on January 31, we announced the acquisition of Health Services Companies, Allface Clinical Research Services, Inc. And Allio Health Services, Inc, which is an exciting announcement for our Health segment in support of our growth objectives. The company served the pharmaceutical and medical device industry and the broader health care sector with clinical trial services, specialty medication support, community care and other services, all enabled by an innovative health care delivery management software application.
This acquisition supports all portfolios of our growth framework and specifically helps diversify our customer base in the pharmaceuticals, home care and hospitals and supports accounting's innovation agenda with services enabled by software. Continued investment in R and D, M and A and our own internal innovation will be critical to our long term profitable growth and continue to push in the global markets. Our recent filing of a shelf prospectus is an important step in providing flexibility as we continue on our growth agenda. In closing, I'm pleased to see the accounting growth story continue in Q1, following a liquid performance in fiscal year 2019. We've received very, very positive feedback regarding our reporting aligned to the 4 segments, which we introduced at the end of our 2019 Q4 and full year results.
The 4 segments of Advanced Technologies, Health, Learning and Information Technology are highlighting our focus going forward and have helped simplify the company for our shareholders. Our focus within the segments continues
to be
on acquisitive and organic growth, innovation and global markets. I look forward to talking to our shareholders and analysts tomorrow at our accounting's diverse business and growth achievements at our AGM and Annual Investor Day being held tomorrow, February 6, at the TMX Broadcast Centre in Toronto starting at 9:45. And if you're available, please attend. Lastly, the traditional markets in which Cowen operates are stable, and management expects organic revenue and earnings growth in most or all of our 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 reports as well as customer utilization of existing contract vehicles.
Based on currently available information and our assessment of the marketplace, 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 to adjusted EBITDA per share in the range of $4.25 to $4.55 and adjusted net profit in the range of $2.50 to $2.80 per share. So with that, Chelsea, I'd like to now open the call up to questions.
Yes, sir. Our first question will come from Jeff Lavoie with Desjardins.
Yes, good morning gentlemen and congratulations for the strong quarter. I just wanted to start with the guidance. I just wanted to make sure that the increase to the guidance was mostly driven by recent acquisition announced on Friday last week.
Yes. We increased revenue guidance by about $15,000,000 at the bottom and top,
Jean Francois.
About 3 quarters of that was related to the acquisition, and about a quarter is just continued pace of our existing business. We saw a strong Q1, and we're expecting that to continue throughout the year.
Okay. So it's on the revenue line, but also probably on the EBITDA and the adjusted EPS as well?
Yes. It was similarly down to 3 kind of moved up together. So we're just expecting continued performance of our existing business as well as the impact of the new acquisition.
Okay. Perfect. And when we talk about these acquisitions, how should we be thinking, Patrick, in terms of amortization of intangibles and also goodwill for those 2 acquisitions in the future?
Yes. We just closed the deal last week, so we haven't had the opportunity to do the valuation and, at the same point, have the auditors go through it. So I'll have to defer to the next quarter. And at that point, I can give you some more color, but I would expect it to be similar to our prior acquisitions in terms of ratios of intangibles and goodwill as an initial kind of point.
Okay. No, that's good color. Thank you very much. And when you look at Advanced Technologies, I mean, the growth was very impressive at about 64%, with only about 7% coming from M and A. So I was curious if you could talk a little bit about the key driver of this organic growth.
I know there's probably a lot that come from the large satellite contract, but I just wanted to have your view on this one.
So 2 distinct events, really. Obviously, progress on our ground system. We said this is going to be the big year for that one, so we're seeing good growth. The other one really is the first shipment of our first wireless product. So we put a press release out announcing that.
So we were able to develop this product over the last couple of years. It's being deployed by Tier 1 mobile carrier in North America. So that's really exciting for us because it's our first foray into that space, but again, shows the capability of our advanced technology. So that contributed as well to that organic growth in Q1.
Okay. And would it be fair to assume that about 50% came from the ground system and 50% of the organic growth came from mobile carrier? Or the mix was a little bit different?
More weighted towards the large ground system, but good Q1 on our mobile space, and I think that one's going to continue to pick up pace throughout the year.
Okay, great. And if we look at the building side, I mean, the backlog remained extremely solid, but the written growth was a little bit impacted by the slowdown in demand. But how should we be thinking about demand or organic growth in the quarters to come for that division?
Right now, what we're trying to do is the across each of those 5% of Envirose. So we're trying to look at that consistently across each of the segments. So learning is right now with our key defense contracts, it will move up and down in the quarter depending on demand and scheduling and timing of exercises that we run for the military. We're seeing some good portion of our emergency management services. So again, finding a little sort of effective.
But I think for modeling purposes, keep it in that 3% to 5% range, I think, is idealistically dynamically as we now focus on how do we move that Learning segment up to double digit growth. But for modeling, I think 3% to 5% if you were to look at it going forward.
Okay, perfect. And maybe a last one for me. On the IT side, the margin was very strong at 9.9%. So would it so I was wondering what should we expect going through fiscal 2020? Should we expect a similar margin?
And also, I was curious to know if you could provide a little bit more color around the business mix of this segment, so product versus services, please.
Yes. So we're really pleased with the increase in margin. It's really been pretty conservative effort between the last couple of years of moving that up in our IT group. So really pleased with the progress that Sandra, who's the VP of that group, has really been doing with her team. On some of the product resale, because we don't recognize the full revenue, but just the margin that's helping us increase So right now, the product sales is still a small portion, but the margins are much higher than our traditional resource based contracts.
So we continue to really look for to increase that mix over time. And I think as we do that, the margin will continue. In the short term, we're hoping to at least hold the margins we've seen in Q1. But again, objective is to continue to increase that in the future.
That's great color. Thank you very much.
Thank you. And our next question comes from Deepak Kaushal with Stifel. Deepak, make sure your phone is not muted. We have from Doug Taylor with Canaccord Genuity.
The strength in Advanced Technologies and then the recent acquisitions is taking the spotlight off of the Integran and Satservice a little bit.
But I wonder if you can provide
a little bit of an update on how those two acquisitions are progressing since last quarter and perhaps comment on how they're tracking towards future earnout targets?
Yes. So both I just did a review of Satsuma 2 weeks ago and InterContin the same. Both are actually doing very well in the context of performance. Both are same orders. Both coming in from the context of growth that we've seen from last year.
As far as our target targets, we're going to get another quarter where we assess MBIG is how we're feeling about that. We're definitely seeing more positive momentum than we did the year before. And despite our and as I am still very confident, those two companies are great both of them have great teams and both of them are doing great things and they're all profitable. So Aaron, on that side, we'll see how that plays out and I'll update that next quarter. But right now, I'm very happy and impressed with what they're both collectively doing, both in the context of new sales and orders as well as progression on integration our Advanced Technologies group, so they'll go further.
Okay. The advanced technologies and the large ground system build, you provided a lot of color on the working capital impact into Q2. I mean, should we think is Q2 being that being consistent with the peak revenue quarter for this particular build? And do you expect to recover any of the working capital you've invested towards the back half of this year? Or will that be prospects of filling the backlog for that type of satellite work in behind this large deal.
Sure. Mean the revenue and working capital aren't completely linked as we're doing the revenue on the percentage completion of the entire project, but we have certain payments and milestones that we're expecting from the customers. That's why they're not completely linked. So I think the revenue will be fairly consistent throughout this year. From a working capital, yes, there will be another $6,000,000 in Q2 and then likely slide in Q3.
And then Q4 is when it starts to unwind, and that will unwind over another 12 months after that to start coming back in. And then on your second question on backfilling, I mean, we've got we're working on several requests. There's lots of activity that we are seeing in the ground system business. So we have got some fairly nice projects that we would like to win, and we're hoping to secure those in the short term.
And if we're able to
do that, that would contribute to revenue next year, which would help backfill kind of the reduction on this large ground system. So we're hoping to hear about those in the next quarter.
Okay. I don't want to steal any more thunder from your event tomorrow. So nice quarter. We'll see you tomorrow.
Thanks, Eric.
Thank you. Our next question comes from Jeff LeBlois with Desjardins.
Yes. Thank you very much. I just wanted to ask 2 small questions from a modeling standpoint. So on the R and D front, so you have spent about $3,000,000 to $4,000,000 in the last 2 years on that R and D level. So how should we be thinking for fiscal year 2020?
Yes. So you saw we've broken out R and D for the first time. So I think certainly, as we spend more on that, we'll people are getting better visibility. I think for the current year, the Q1 run rate will probably continue for the back to the last three quarters. So I think that's what you should model in the short term.
And I think it accelerates in future years as we start to identify new projects.
Okay, great. And maybe lastly, on the credit facility. So you mentioned in your opening remarks that you increased it to from $40,000,000 to $60,000,000 So I just wanted to make sure when you look at the increase should we so would it be fair to assume that Kieran is still on the lookout for more M and D deals despite the recent transaction announced last week?
That's correct. From my perspective, as most of the we've staffed now a permanent basic M and A office internally, whose job is basically to continue to work with companies out there, whether it's in partnering or M and A opportunities. So yes, we the pace of the 10% growth minimum is something under the consumer growth modest and we could keep that going. And that will be both through organic and M and A. So we don't want to sell them M and A for sure, but we're also taking our time to make sure we're taking time to integrate the ones we've done.
And we're on the lookout for sure. If you think about our segments right now, we've done 2 in advanced technologies over the last year. We've done 1 in the health segment. Our cyber acquisition that we did in IT Services, that's almost 2 years ago now. So I think there's capacity there to look at other capacity for the management team to integrate.
And then our learning business is also something I'm looking at as a priority as we look to bring in more innovation into our Learning Services practices. So yes, we're not we don't think we're slowing down, but in the same spirit, we're making sure more importantly that opportunities are good opportunities for accounting longer term.
That's great. Thank you very much for the color. See you tomorrow. Thank you. Thank
you.
And we can speakers, we have no further questions in the queue at this time.
Okay. That's great, Chelsea. And I thank for lost you on the phone, Samal. I'm hoping that I'll be able to say hi in person at our Investor Day and updates. I'm excited about giving an opportunity for other people beside Kevin Ford to speak for a change in the company progress.
And just want to reiterate to my team, thanks again for a great quarter and look forward to providing an update for those that are able to attend tomorrow. And if anyone would like any further information, obviously don't hesitate to reach out. So with that, Chelsea, we'll close-up this call. I look forward to giving another update officially over the next quarter results in a couple months. And for those attending tomorrow, we'll see you tomorrow.
Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect.