Good day, ladies and gentlemen, and welcome to the Cowen's 4th Quarter Results Conference Call. As a reminder, this conference is being recorded. I would like to turn today's conference over to Mr. Kevin Ford, Chief Executive Officer of Cowen Group. Please go ahead.
Thank you, Carrie, and good morning, ladies and gentlemen. With me today is Patrick Houston, our CFO. We'd like to welcome you to Calyant's 4th quarter and fiscal year 2019 conference call. I'm very happy with our annual results. We again posted record revenues with annual revenue of $343,000,000 and revenues of $90,900,000 for Q4, crossing the $90,000,000 quarterly revenue mark for the first time in company history.
This also is the company's 72nd consecutive profitable quarter. Our results demonstrate the strength of our diversification and the impacts of our growth framework. More importantly, they highlight the strength and dedication of the more than 3,000 people at Callion who continue to be the engine that drives our growth. I want to thank them for their incredible efforts. Calyen's acquisitive and organic growth strategy, the investments in our innovation agenda combined with solid financial management is working.
We have closed 9 acquisitions in the past 8 years, including 2 in the 2019 fiscal year, while achieving positive organic growth and a continued profitability. I'm equally proud that our total shareholder return in 2019 was 21%. With this financial growth, we're also evolving the company. That is why with these results, we've announced a change to our operating segments. The new reporting segmentation announced yesterday is an important development for our shareholders.
As we shift away from the 2 divisional construct, which I believe we had have grown. Going forward, we will report in 4 operating segments. First, Advanced Technologies, which encompasses our legacy systems engineering division, Intragrain, Sat Service and a portion of engineering service that resided in our legacy BTS division. And the remaining BTS services have been split into the health, Learning and Information Technology segments. This new segmentation better reflects our diverse services and markets.
I am proud to say that our new segmented view shows growth across all four of our lines of business. I will now ask Patrick to review the quarterly and full year numbers. Over to you, Patrick.
Thank you, Kevin.
We finished the 2019 fiscal year with record results, achieving 12% revenue growth and 7% EBITDA growth year over year. For the Q4 of 2019, consolidated revenues were up 16% from the prior year. We also finished the year with a backlog of over $1,300,000,000 which is higher than what we started the year with. This demonstrates our ability to both retain and diversify our customer base. I'm very happy to present shareholders with a new four segment view of Talion's operations.
These four segments help simplify the company for shareholders and provide them with a clear lens into our diverse business. You can find further information, discussion and a view of current year and prior year performance of these four segments in our 2019 financial statement and MD and A. All of the 4 segments drove Talion's record year with positive revenues and earnings contributions. Advanced Technologies 2019 revenue was CAD109 1,000,000 up 11% from the previous year. Health revenues were $115,000,000 up 16% from 2018.
Learning ended the year at $63,000,000 up 3% from the previous year and IT revenues were $54,500,000 up 22% from 2018. We continue to believe Italian's diversified profitable growth engine is one of the company's unique strengths. Gross margin for the year on a consolidated basis was 21.8%. This is an increase from 21% in the previous year. Our focus continues to be the introduction of products and services into new markets in order to increase our gross margins.
Operating expenses were up year over year as a result of acquisitions and investments in capacity and innovation, the expensing of share based compensation and certain one time costs related to current year acquisitions. Selling and marketing, administration and facility expenses have increased as we scale the overall business and enter new markets. We continue to manage operating expenses while ensuring we invest where required position the company for long term profitable growth. Adjusted net profit per share for the year, which removes non cash charges related to acquisitions was $2.43 per share. That's an increase of 7% compared to last year's adjusted EPS of $2.27 Please see our reconciliation of adjusted EPS in our press release and MD and A.
Earnings per share for the year were $2.55 per share, approximately 23% from the previous year. This increase was partly due to a one time gain of CAD5.2 million related earn out table for our recent acquisitions of SaaS Service and Integra Grain. I'll remind people we structure our earn outs based on EBITDA growth from the company's trailing historical performance. The payments are made only once we achieve a minimum of 75% of that growth target. We believe this allows us to stay fiscally prudent while paying for strong growth.
We continue to expect positive contributions from these acquisitions in the upcoming year. Our cash position remains stable at CAD17 1,000,000 This decreased slightly from the previous year due to our 2 acquisitions as well as working capital requirements as the company continues to increase delivered larger multi year customer contracts. Our line of credit stood at CAD13 1,000,000 at the end of the year. I'd like to note that effective October 1, 2019, we have adopted IFRS 16, which impacts how we account for our operating leases going forward. These accounting changes will modestly impact our guidance for fiscal year 2020.
We expect the impact of capitalizing our leases to be an increase in EBITDA of approximately $2,900,000 next year and a decrease in net income of $200,000 We provided a full reconciliation of this change in our financial statements and MD and A. 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.
Thanks, Patrick. The 2019 fiscal year has been exciting for Calyant in many fronts. We finished with record revenues and EBITDA, executed 2 acquisitions, launched innovative products, strengthened our global presence, retained our key customers and gained new customers across all of our lines of business. The 2 acquisitions closed for Advanced Technology at Steer support the segment's customer diversification and service line evolution objectives. Vergina's Saskatchewan based Integra Grain Technologies has enabled our push into the AgTech market, leveraging complementary capabilities for this segment.
The
acquisition of Satservice based in Germany provides Calhoun with a foothold in Europe and supports the company's expansion in the European market with turnkey satellite solutions as well as products. As I've set a profitable revenue growth target of 10% or higher, I was pleased to see Advanced Technologies growth at 11%, Health at 16% and Information Technology at 22%. Our Learning segment focused on customer retention, rewinning 2 large contracts this year that added over $200,000,000 to our contracted backlog, also growing at 3% in the year. Across the 4 segments, the company continues to invest in innovation. The Advanced Technology segment continues to develop its new line of carbon fiber antennas and remote PHY cable technologies as well as strengthening our communications products and software engineering offerings.
In Q4, the Learning segment launched Calian Maestro B2E, an innovative exercise management software solution designed to fulfill complex training objectives. While these initiatives all require investment, we view them as critical to unlocking innovation and supporting Calyxt long term growth. Looking forward, we continue to see positive momentum on Calyxt growth path as we execute organic and exclusive growth strategies and leveraging our strong backlog investments innovation and a dedicated employee base, believe we're well positioned to continue the execution of our growth plan. At this time, I'd like to inform all of our shareholders and analysts that we'll be holding our AGM and Annual Investor Day the morning of February 6, 2020 in Toronto and you may contact Calyen Investor Relations for more information. Lastly, the traditional markets in which Callion operates are stable and management expects organic revenue growth 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 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 $365,000,000 to $395,000,000 EBITDA per share in the range of $4 to $4.30 and adjusted net profit in the range of $2.35 to $2.65 per share. So, Terry, I'd like to now open the call to questions.
Thank Our first question will be from Doug Taylor with Canaccord Genuity.
Thank you. Good morning, Kevin and Patrick. I appreciate the added segmentation, very helpful in helping us see the underlying drivers of your business. So I want to start with a couple of questions on that. I mean, as we work that into our models, is there anything you can provide us either quantitatively or by way of directionality about how those segments build up to that annual guidance you provided and perhaps you could frame that in with respect to your kind of 5% organic growth plus 5% acquisitive growth type target that you have for your business lines?
Yes. Hi, Doug. Yes, I think next year this year we had a great performance in terms of all of them growing. I think we're still expecting that for next year, but I think the leader in leading the pack is going to be Advanced Technologies. They've got a strong year.
We have that big project that we're doing on the ground systems as well as they have integrated SAP service as growth drivers as well as some of these new products. So I think Advanced Technologies will be the most aggressive grower for next year, but we still expect all those segments to be above this year.
I mean, you mentioned the large ground systems business. That's it's obviously it was kind of lumpy towards the end of this fiscal year. As we enter fiscal 2020, can you update us on where we are with respect to kind of the backlog and ramp up of that new business and the key contract that you have starting off there?
Yes. We still expect a strong NIR next year, probably an increase of about $20,000,000 over this year's revenue for that project. And then continuing on in the following year, we'll still have $15,000,000 to $20,000,000 that will go into the following year. So it's still a lot of work to go. Progress has been good so far and we're getting into delivery stages now.
So I think we're still pretty positive on a strong year.
The EBITDA guidance that you provided, just to be crystal clear, that is based on the new accounting standard. So with the benefit of the mere $3,000,000 from the leases, correct?
That is correct, yes.
Okay. So first of all, I mean, can you help us with the lease benefit, where do you expect that to fall within the segmentation? Or is that going to be largely corporate? Any help there would be good.
Yes. So the reduction in expenses of $2,900,000 will be across mostly in the Advanced Technologies Group that they have the most expensive facilities. So the facilities lie in each of the segments. So that will be the biggest reduction. And then you'll see we'll break up the amortization and expense down below the line.
Okay. Because they have 2.9, probably about 2.5 of it in technology.
That's very helpful. And so I mean if I back out the impact of that accounting change, it seems to me that the EBITDA guidance suggests roughly static margins across corporate wide. Is that consistent with how you view the individual units? Are you expecting there to be some winners and losers with respect to your margin profile of your business this year relative to last year?
We're seeing some improvements. I mean, the large ground system projects generally have these large projects generally have lower margins that's pulling it down a bit. So I think we are expecting some improvements minus that project. And obviously, if we're able to a lot of this innovation we're doing is new products. We're hoping to start phasing in towards the end of the year.
So to the extent we're able to do that, I think we can continue to improve the margins, but certainly that is a focus.
Yes. And Erinn, it's Kevin. So with regards to our innovation agenda across all the segments, the goal is to continue to increase margins. If you look at the announcement I talked about in our learning segment with our Maestro ED product, So as we transition from services to products to solutions, the whole spirit of that is number 1 is to make sure our customers are getting a full solution offering in each of our segments, but as well that we bring more technology in there to drive margins. So my expectation is we're going to continue to push margins forward.
Definitely in the Advanced Technologies Group, we expect more over the longer term as we invest in more products right across Integrating SaaS and our legacy STD division. So it's definitely a goal, Doug. And I don't think you're going to see major jumps. You'll see incremental growth over the next few years here.
Fantastic. I'll pass the line. Thank you.
Thanks Doug. Appreciate the comments.
Thank you. Our next question will be from Benoit Poirier with Desjardins Capital Markets.
Hey, good morning Patrick and Kevin and congrats for the level of disclosure and the new segmented information. So very appreciated. Just to come back on the big satellite contract, the ground system contract, just want to get some color about the ramp up right now, but you mentioned that there will be about €20,000,000 incremental revenues in fiscal 2020. But what would be the backlog following fiscal 2020? Is there another $15,000,000 $20,000,000 or the contract will be mostly completed?
Yes, I think you got it. That range $15,000,000 to $20,000,000 depending on the exact timing, that's likely what would go into the following year to finish it off.
Okay, perfect. So but this amount, so if you add up $20,000,000 in fiscal 2020, could you remind me what was the contribution in fiscal 2019, Patrick, with respect to that satellite contract?
Approximately around 20,000,000 approximately.
Okay, perfect. Okay. So that's very good color. And could you provide now some color about the working cap and free cash flow looking at the fiscal 'twenty. If you look at working cap, there was some consumption in fiscal '20 in about €8,500,000 But I would just be curious to know a little bit more as you still add more revenues from this contract in fiscal 2020.
Yes. At working capital, we have a couple of things going. 1, obviously, this contract has it's not as flat on working capital, so it's a bit heavier upfront. I think those start to reverse kind of in the second half of this year. So we'll probably see a bit of pressure in the 1st 2 quarters and then it starts to unwind in the second half.
So I think that's one factor. I mean the overall business is just growing everywhere, so that's just going to lead us to have more working capital in terms of accounts receivable. And CapEx, we expect next year to be fairly flat to this year. We've got a few investments we're making in IT systems and things like that, but it should be consistent with this year.
Okay, perfect. So would it be fair to say that the working capital consumption should be similar to fiscal 2019, dollars 8,500,000 or would you expect an improvement or a decrease versus last year, Patrick?
That's probably a fair estimate. I mean, a lot of it comes down to timing right around the end of the year. Of course, it could go a couple of 1,000,000 either way, but I think that's a timing estimate for now.
Okay. Okay. That's fair. That's pretty good. And I was just curious to know if you saw any impact from the election on your business.
Is there something that was either a benefit or some impact on Caelion with respect to the election?
Yes. From my perspective, Benoit, we really the government is forming even though what we're seeing in some of our key portfolios is, for example, in defense, Minister Tejgan is still the minister, ISED, Minister Baines is still there. So when you look at some of our key drivers from a government business perspective, at least initially, we're seeing stability in the sense that the ministers that were appointed in those departments are basically the ministers we had prior to the election. So as far as the defense agenda with the strong secure engaged
policy that was put
out under Mr. Sejane's watch, I don't expect there's going to be a major policy that was put out under Mr. Sajan's watch, I don't
expect there's going to be a major variation for that.
And in that policy, they are basically committed to to increasing defense spending over a period of years. So I don't again, I don't expect there's going to be a major shift. We are very busy in our government segment right now and the federal segment for sure across all of our businesses. So right now, probably early to tell until we get the budget from the government in February. But right now, at least I would say, if anything, it looks to be stable coming out of the block despite the reality that we're dealing with what seems to be the same ministers in some of our key departments.
That's very good color, Kevin. And when we look at the EBITDA margin by operating segment, you mentioned some color about fiscal 2020, but I was just looking at how you were able to improve the margin from 13.3% EBITDA to 16% this year. So just wondering if the 16% kind of the sustainable level right now, Patrick, and you'll build on top of that?
Yes. I think what we've just said, the health team has done really an excellent job is to expand that business. So we've gone from about 1 contract to now we're more than 50 contracts That stands across multiple different customers. We're also bringing in psychological assessment and things like that much higher value, more differentiated products. We're very and when we go into these new customers, we work in their environment, really customize the product to their needs.
So that's allowed us to push those margins up. And we expect them to continue to do that. So we've been really successful. And I think this year is just a continuation of that.
Perfect. Okay. And from a modeling standpoint, what should we expect in terms of corporate costs, but also with respect to the intangible or payout earnings in fiscal 'twenty? I'm talking here corporate costs about the $4,900,000 and basically the adjustment that needs to be made to derive adjusted EPS. What kind of sustainable numbers we could look for?
Yes, to answer the adjusted EPS, I think the amortization of intangibles this year was about $3,100,000 probably goes to about $3,800,000 next year. Accretion is probably flat. And then obviously, we have the gain this year. Right now, we're still we have the liability on the books for those two companies. We're still planning on them getting close to that earn out, but we'll probably have better reading on that towards the end of next year as we get closer to those.
And corporate cost is $4,900,000 kind of a sustainable level going forward, Patrick?
Yes, I think so. I mean, part of this restructuring is to try to find efficiencies on the corporate side, right, have like a shared service model that helps each of these segments grow. So we're starting to implement that now. Obviously, we've been catching up last couple of years in terms of investments that just needed to be made to scale this company. But I think now we're going into selective investment, but looking for efficiencies as much as we can.
So 4.9% likely a good base?
Yes. I mean, there's a few investments we need to make, but I don't think it's a traffic increase.
Okay. And last one for me, when we look at the earnouts, you mentioned some color in the annual report with respect to Intragrain SecureTech and SaaS service, the fact that they were not meeting the EBITDA, the earn out in the 1st year. Just want to know if it does it change the outlook going forward or were they relatively close to EBITDA targets? How we should get the contribution from those 3 acquisitions, gentlemen?
Yes. So it's Kevin. So from my perspective, we're still very positive in all three acquisitions. If I walk through them on the SecureTech, our cyber business continues to grow. And in the fact now that we can offer products as well as services based on the SecureTech acquisition is only going to be good for us long term.
So, still very positive on SecureTech on their contributions going forward and I do believe they have every opportunity to make where we want to see them in year 2. InterGrain, what we're seeing with InterGrain is frankly, when you look at of the factors that affected Intrigrain this year, the drought and some of the ag tech space, I think we're just seeing the effects of that with regard to maybe a slowdown in orders, but not necessarily something that would indicate that the business is not strong. It's just some realities that we're dealing with that we have to deal with some environmental factors now from an AgTech perspective and when there's droughts and things like that people tend to hold off on buying. So we're just doing some of those realities. But if you still look at their contribution to the company this year, it was very strong, both from a margin profile and EBITDA perspective.
So again, very positive Intergain, very talented team, and I do believe that they're going to continue to support long term objectives. SaaS Service, we've had a very short window for SaaS Service after we acquired them, very short earning period for the first phase. Again, we look at that as being just a timing issue. The backlog is very strong. I did review a few weeks ago with Germany and I'm very impressed by the orders that are coming in and the diversity of customers that are coming in, and their in their ability to again support our long term objectives.
As Patrick said, the one thing we I think we're doing very well with our M and A playbook is that we're making sure that any company we talk to, everyone has growth objectives, which is fantastic and those are the companies we want to buy. But we also want to make sure that from a value perspective, we're getting the right multiple on trailing and future EBITDA. And the earn outs, we still believe is a great mechanism to ensure that there's shared risk between the buyer and the seller to achieve those targets. And I think it's working. We've had 9 acquisitions, our frameworks worked, we've paid earnouts in many of our acquisitions, but it also protects to make sure we're not overpaying for perceived EBITDA that may be coming going forward.
So it just revalidates to me our M and A playbook is working. And all 3 are doing very, very well, very proud of them, very proud of the team that's working there. And I'm confident again that we'll see continued growth in each of those acquisitions. So, so still very positive in all three and we will continue to look for more M and A opportunities this year for sure.
Okay. And maybe just a quick one with respect to the ground system contract. Could you talk, Kevin, about the opportunity to replace those revenues that it will run down in fiscal 2021? It's still a good contributor this year and fiscal 2021. I would just be curious the opportunity to replace those revenue going forward.
Yes. Thanks. Great question. I think that's a very fair question because we have had history in Cali and the kind of moving these cycle and the big programs through the system and then kind of taking a step back in our growth objectives as they finish. So number 1, over the next few years, I think we'll see solid contribution from that project.
During that time, we're doing a few things. Number 1, I've invested more of any CEO in our innovation agenda and new products, new capabilities just organically. So I believe those are going to start to increase to start offsetting any major project wind down. Number 2 is our acquisitions. We've just acquired 2 last year.
We are looking strongly at acquisitions to support our growth objectives. So again, I'll be looking for opportunities to make sure we don't take a step back. And then 3, when you look at the other segments that we're dealing with both in healthcare, our IT business was up 22% last year, healthcare business up 16%. What I'm very confident on, as you know, Ben, I call Cali in a 4 piston engine and I believe right now. So if our advanced technologies is firing all its cylinder this year, I think the other ones continue to pick up pace and they have picked up pace.
If you
look at IT services, for example, in cyber, we are just getting going as a cyber professional services company and you saw that growth 22% and the $55,000,000 I think there's huge opportunity for us to continue to grow that segment, so both organically and through M and A. So the plan right now on our strategy is to then take a step back when those projects are done, to backfill them with either new business or backfill them with M and A, but that's our collective challenge and I'm pretty confident the team is up for that challenge.
Okay. Thank you very much for the time. That was a great color. Thank you.
No, great questions. Thank you, Benoit. I appreciate that.
Thank you. I'm showing no further questions in the queue at this time.
Okay. That's great. And I just want to circle back to Doug Taylor question. Actually, I think about it. I think Doug asked the question on our guidance and whether or not where's what's the basis of that?
I just want to reconfirm right now. That guidance is based on what we know today. It doesn't factor in any other acquisitions. It's basically what we're doing today in the company is driving that guidance. So I just want to make sure that's clear as we exit this call.
So Terry, thank you for moderating. Everyone, thank you again for joining the call. I hope to see all of you at our AGM in Toronto on February 6th. And in Investor Day, we're going to be bringing some of our leaders in to talk about all the great things that are going on in this company and the innovation. And obviously, Patrick and I are available for any other further questions post this call.
So yes, a very excited CEO here with regards to what I'm seeing in the company. I think the four segments really will help define the company moving forward for our shareholders, our employees and our customers. So I think it's the right time for this, Kalyan. And I look forward to talking to you about our progress again next quarter in February on how we're doing against our growth objectives. So with that, Carey, we can end the call.
And again, thanks everyone for your time, Sorting. Very much appreciated.