Good day, and thank you for standing by. Welcome to the Calian Group first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jennifer McCaughey, Director of Investor Relations. Please go ahead.
Thank you, Dee Dee, and good morning, everyone. Thank you for joining us for Calian's Q1 2026 conference call. Presenting this morning are Patrick Houston, Chief Executive Officer, and Will Majic, VP Finance. They will present our Q1 results, provide insight into our strategic initiatives, and discuss our outlook for the remainder of the year. As noted on slide two, please be advised 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. As a reminder, all amounts are expressed in Canadian dollars, except as otherwise specified. With that, let me turn the call over to Patrick.
Thank you, Jennifer, and good morning. Following a strong finish to FY 2025, we carried that momentum into a record Q1. Revenue reached CAD 208 million, and adjusted EBITDA totaled CAD 23 million, both new company highs for a first quarter. Revenue increased 12% year-over-year, including 6% organic growth. Adjusted EBITDA rose 28%, driving margins to 11%. Performance was fueled by robust demand across our defense and space segment and several businesses within essential industries, along with the contribution from recent acquisitions, margin expansion, and strong operational execution by our team. Momentum behind our defense and solutions continues to build, driven by sustained activity in Europe and rising demand in Canada. These market signals and early wins make it clear that investing now is critical to ensuring we capture the expanding opportunity set in this fast-moving environment.
Our space solutions are also experiencing renewed momentum, highlighted by the signing of two new antenna contracts this quarter, totaling more than CAD 35 million. We concluded the quarter with CAD 171 million in new signings and a robust backlog of CAD 1.4 billion, providing a strong foundation for continued growth and success in coming quarters. Let me spend a moment on our new structure we introduced this quarter. As you know, we simplified our operating model to better align with market demand and serve our customers more effectively. We moved from four segments to two, defense and space and essential industries, a change driven by clarity and focus. The new structure brings our capabilities together under a simpler, stronger model that reflects how customers think, buy, and expect solutions to be delivered.
It's designed to integrate the essential elements in one place: technology, expertise, delivery, and customer insights. By aligning these strengths, we can develop integrated solutions faster, collaborate more effectively, and scale our impact. This realignment is a deliberate step in our long-term growth strategy, reinforcing our core capabilities and enhancing our ability to deliver mission-critical solutions. It also provides greater transparency into how we operate and where we're directing our efforts. In the near term, our defense and space segment, representing approximately 2/3 of revenue, will focus on developing differentiated solutions to meet growing demand and the needs of our customers in Europe, the United States, and Canada. Our essential industry segment, representing roughly 1/3 of revenue, is focused on margin expansion while benefiting from organic growth tailwinds in health and energy. With actions already in motion and teams executing against disciplined plans, early progress is evident.
We expect margins to improve meaningfully throughout the year, exiting at double-digit levels. Taken together, these actions position us to accelerate profitable growth and strengthen the business for the long term. With a clearer structure, sharper focus, and disciplined execution, we're well-positioned to capture emerging opportunities and deliver sustained value to customers and shareholders. Now, a few words on our operations. Let me begin with defense and space. Our defense solutions continue to build momentum with sustained activity across Europe and solid progress on key initiatives in Canada. Growth is broad-based, spanning mission-critical areas including healthcare, manufacturing, cybersecurity, and military training. In Europe, FY 2025 performance was strong, driven by the successful integration of Mabway and the execution of multiple NATO contracts. That momentum has carried into the first quarter, as European governments, facing heightened and immediate security requirements, accelerate procurement decisions.
At the same time, countries are actively diversifying, creating new opportunities for Canadian companies like Calian across manufacturing and defense supply chains. To capitalize on this demand, we expect to increase investment in the region, particularly in talent, infrastructure, and technology. These investments are deliberate and targeted, positioning us to scale responsibly, deepen customer relationships, and establish long-term leadership in the European defense market. In Canada, we're seeing early but encouraging signs as activity levels increasing and broader plans are being developed.... Our ongoing engagement with federal stakeholders continues to shape our understanding of future requirements. The forthcoming defense industrial plan is expected to mark a meaningful shift, positioning defense as a driver of economic growth while strengthening national security. Calian is well-positioned to benefit across training, manufacturing, and in-service support.
In January, we announced that Calian will mobilize a significant amount of capital from multiple sources to accelerate the development and deployment of sovereign C5ISR capabilities through Calian Ventures. This initiative brings together capital from ventures, co-development of new IP with Canadian small and medium-sized businesses, regional investment agencies, and federal programs to accelerate capability development at scale. As demand increases, we're challenging ourselves to think differently, finding new ways to deliver greater value through cost efficiency, streamlined delivery, and in innovative technology and service models. This mindset is central to strengthening our competitive position and improving outcomes for our customers. While the direction of travel in Canadian defense is clearly positive, the precise timing of opportunities remains difficult to predict with high certainty. We will continue to monitor developments and closely remain disciplined and agile as the landscape evolves. Turning now to our space solutions.
The space industry continues to evolve at a remarkable pace, driven by the greater need for speed, commercialization, and dual use. One of the most important shifts we're seeing is the growing role of ground infrastructure and the ability to deliver seamless connectivity, no matter the constellation. As data volumes increase and constellations expand, operators are scaling global ground station networks and increasingly turning to ground station as a service model to gain flexibility, efficiency, and speed to market. More broadly, the industry is maturing rapidly. Satellites, ground systems, and software are becoming more tightly integrated, all amid intensifying geopolitical and commercial competition. These forces are reshaping long-term strategies and accelerating innovation across the sector. We're seeing these trends clearly reflected in our own business. After a period of slower growth, our ground station activity has regained momentum.
This quarter, we secured a contract of more than CAD 30 million with a leading global space technology company to design and manufacture advanced ground stations for their next-generation satellite systems. We also won a contract from Germany's Federal Ministry of Defense, represented by the University of the Federal Armed Forces in Munich, to deliver an advanced full-service Q/V-band antenna ground station in support of scientific and modern military satellite communications. These wins highlight the increasing convergence of defense and space and reinforce the strategic rationale of our dedicated defense and space segment. Together, they underscore Calian's reputation as a trusted provider of mission-critical infrastructure in complex, high-consequence environments. Taken together, our progress across defense and space reflects the relevance of our capabilities and the scale we've developed in this market over the last decade.
Our focus is to deliver for our customers in our existing relationships, while seeking broader mandates where Calian can serve as prime vendor to deliver integrated solutions that customers will value for decades to come. Let me turn to essential industries. Revenues in our essential industry segment increased by nearly 20% in the quarter. The growth was driven by the strong performance of our AMS acquisition, which has meaningfully strengthened our position as we expand in the Arctic region. This addition provides a durable footprint and advances our broader strategic priorities. We also returned to organic growth, modest but important inflection point for this business. The improvement was led by our U.S. commercial operations, which have rebounded and resumed growth following a challenging year. With a strengthened backlog in place, this business is well-positioned for sustained momentum.
Expanding and delivering differentiated solutions across critical industries, including health and energy, is a core pillar of our strategy and will enhance the resilience and value of our overall portfolio. Looking ahead, we remain focused on margin expansion with the right mix of growth and operational discipline. We can expect continued improvement in profitability. I'll now turn it over to Will to discuss Q1 results. Will?
Thank you, Patrick. Q1 revenues increased 12% to CAD 208 million and represent a record quarter. This growth was driven by both defense and space and essential industry segments. Acquisitive growth was 6% and was generated by the contributions of AMS, completed in May 2025, and InField Scientific, which closed in October 2025. We successfully built on the momentum from last quarter, achieving organic growth of 6%. This marks our second consecutive quarter of positive organic growth, signaling that the headwinds we previously faced are beginning to subside. With this progress, we are returning to the levels of organic growth we experienced in prior periods, which is a promising sign for our business. As those challenges recede, we are increasingly optimistic about our outlook and confident that we are moving beyond these difficulties of the past.
This positive trajectory positions us well for continued growth and success in the quarters ahead. Q1 gross profit increased by 21% to CAD 71 million, as compared to CAD 59 million for the same period last year and represents a record high. This increase reflects revenue growth, changes in mix, and contributions from acquisitions. Similarly, gross margin increased from 31.8% to 34.1%. Q1 adjusted EBITDA increased 28% to CAD 23 million, significantly outpacing revenue growth. This increase was driven by strong performance across our key businesses, as well as the execution of cost optimization initiatives implemented at the end of last year. It was partially offset by a few one-time items. As a result, adjusted EBITDA margin reached 11%, up from 9.6% for the same period last year.
With the implementation of our new operating structure, the allocation of shared services expenses in fiscal 2025 has changed from what we reported last year. As a result, fiscal 2025 will reflect higher shared services expenses. This increase does not represent higher overall costs, but rather a reclassification driven by a new structure and updated cost allocation methodology. We've already begun analyzing these costs to identify opportunities to streamline processes and eliminate redundancies. Based on this work, we will implement targeted efficiency initiatives to optimize resource allocation and manage overall expenses.
This disciplined, phased approach is designed to build a more agile, cost-effective organization that supports our long-term strategic objectives. Turning now to cash flow and capital deployment. In Q1, we generated CAD 7 million in cash flow from operations, compared to CAD 4 million last year, primarily due to higher profitability, partially offset by higher interest and income tax payments.
Working capital efficiency was approximately 10%, up from 8.5% in the same period last year, primarily reflecting working capital acquired through recent acquisitions. Consistent with prior years, the first quarter saw a seasonal use of working capital, which we expect to reverse in the coming quarters as we converge towards our long-term target. Operating free cash flow increased 21% to CAD 60 million, reflecting strong cash conversion at 69% of adjusted EBITDA. Turning to capital deployment. During the quarter, we used cash on hand and a portion of our credit facility to fund CAD 2 million in capital expenditures and CAD 18 million in acquisition-related payments, including earn-outs. This included the CAD 12 million acquisition of InField Scientific, as well as the second-year earn-out payment relating to our August 2023 acquisition of HPT, with the remaining balance of this earn-out to be paid over the coming quarters.
This earn-out reflects HPT's strong performance and successful integration into our operations. We also returned CAD 3 million to shareholders through dividends. Looking ahead on M&A, our pipeline remains robust, with multiple active discussions underway. We're optimistic about completing several strategic transactions in fiscal 2026, and as we've outlined previously, acquisitions continue to be our top capital deployment priority. Let's take a look at the balance sheet and cash availability. As at December 31, 2025, we had drawn CAD 165 million on our debt facility. During Q1, we drew an additional CAD 34 million to pay for the acquisitions of InField Scientific, earn-out payments, and general operating purposes. We ended the quarter with net debt of CAD 102 million, representing a net debt to adjusted EBITDA ratio of 1.2 x. This is still well below our threshold of 2.5 x.
We have ample financial flexibility to support our growth strategy as the combination of the unused portion of our credit facility, our cash position, and our accordion represent close to CAD 250 million. Now let's turn to our fiscal 2026 outlook. Our fiscal 2026 outlook has not changed since last quarter. Over the next several years, we are targeting annual revenue growth of 10%-15%, driven by a combination of organic expansion and strategic acquisitions. This is consistent with our historical 12% revenue CAGR over the past decade. As we execute on this strategy, our focus remains on expanding EBITDA, free cash flow, and return on invested capital by prioritizing high-growth verticals, streamlining operations, and deploying capital with discipline. As a result, we expect adjusted EBITDA growth to consistently outpace revenue growth in the midterm.
We will balance this with investments to ensure our solutions continue to lead and ensure we can capitalize on upcoming opportunities. Our first quarter underscores this approach, with revenue up 12% and adjusted EBITDA increasing by 28%. For fiscal 2026, based on our existing business, we anticipate double-digit growth in revenue and adjusted EBITDA compared to fiscal 2025. This outlook is supported by sustained momentum in our defense and space and essential industry segments, cost optimization initiatives, and the full-year contributions from our recent AMS and InField Scientific acquisitions. From a capital deployment perspective, we expect working capital usage to track in line with revenue growth. Capital expenditures are anticipated to remain in the CAD 10 million range, supporting both ongoing operations and targeted growth investments.
Our dividend policy remains unchanged, with a target payout of 25%-30% of operating free cash flow, reflecting our commitment to shareholders—to shareholder return while maintaining financial flexibility. Consistent with our strategy, M&A will remain our primary use of cash as we continue to expand our capabilities and broaden our market reach. For the remainder of the year, we expect to pay earn-outs for AMS for about CAD 5 million in Q2 and the residual balance of the HPT earn-out over the next few quarters. With improved support for our share price, we have temporarily paused our share repurchase program and redirected capital towards higher-priority strategic initiatives. We remain open to resuming buybacks on an opportunistic basis, subject to market conditions and our overall capital allocation framework. This approach preserves flexibility and ensures capital is deployed where it can deliver the greatest long-term value.
We remain focused on executing our strategy and driving value for our stakeholders. I will now turn the call back over to Patrick for closing remarks. Patrick?
Thank you, Will. To close, Q1 reflects a strong start to the year and reinforces our confidence in Calian's strategy and execution. We delivered record first quarter results, strengthened our backlog, and continued to invest deliberately in the areas where we see the most compelling long-term opportunities. Our simplified operating structure is already sharpening our focus and improving how we deploy capital, talent, and capabilities across the organization. Momentum in defense and space is building, our essential industries business are progressing as expected, and our balance sheet provides significant flexibility to pursue growth opportunities while maintaining discipline. While the external environment remains dynamic, the fundamentals of our business are strong. We're focused on executing well, scaling responsibly, and creating long-term value for our customers, employees, and shareholders. And with that, Dee Dee, I'd like to open the call for questions.
Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.... Our first question comes from Nicholas Boychuk of ATB Cormark Capital Markets. Your line is open.
Thanks. Good morning, Patrick. I'm hoping we can start the questions here just on the organic framework that happened this quarter and unpack a couple of the moving parts. So first, you noted that healthcare and learning were both doing particularly well. Are you able to share any color on the activity that's driving that? Like, are we seeing a little bit more service usage from the Canadian Armed Forces and maybe a return to NATO learning spend?
Yeah, good morning, Nick. Yeah, a few points on that. I think what we're seeing is, you know, I mentioned in my comments, continued strength in Europe. I think that we saw that continue in Q1. I think the environment there is strong, and the team's doing a great job delivering. In Canada, I think started to see some signs of reversing what had been, you know, cuts that we saw this time last year. So I think that's been positive. And the team's doing a great job meeting it. So I think it's just been, you know, more activity on existing engagements we have, and certainly we're getting ready to see, you know, further increases in the coming years.
Okay. That's good. Then there was a little bit of a disconnect in that same organic thread, just related to the cybersecurity signings. You mentioned in the PR and the MD&A that the organic growth that was driven this quarter wasn't necessarily tied to the essential industries, which I would interpret to include the cybersecurity, yet in the backlog growth, you specifically called out CAD 50 million worth of contract signings, which seems extremely exciting. Are you able to kind of make that connection for me? Is there a return that we're seeing in cybersecurity, and we should be thinking a little bit more about that business growing this year? Or is that just a one-off contract, maybe related to a defense contractor or defense business?
No, great point picking that up. We are seeing a return both on commercial and in defense. The signings in this quarter were strong. We ended the quarter with good backlogs across both of those verticals. We weren't able to deliver this quarter, so I think that'll come in the coming quarters, but I think it's a strong sign that we're seeing some momentum there. So, I think it'll be a strong year this year for cybersecurity, and it's good coming off of last year where, you know, there were some demand challenges and pushout and some of that's starting to come back into reality here for us.
Great. And then the last one for me. Just, just on the gross margin performance. I appreciate the comments that a lot of the changes were either related to mix, or the layering in of acquisitions. Anything you can share, though, on whether or not this was kind of a transitory quarter or if there's some permanence to that, and that we should be thinking that the 34%-ish range is kind of where you expect it to be trending moving forward?
Yeah, good, good momentum this quarter. There is some seasonality to the business, depending on deliveries of, you know, hardware and mix, as you mentioned. I think we are seeing, you know, to the extent the mix continues to improve longer term, it's, it's a target we're trying to increase. But I'd say in the short term, you know, between the, you know, low to mid thirties is, is where we should be. And I think it's something that we can, we've been keeping it now at that level for several years, and I think we can continue to do that.
Yeah. That's great, Patrick. Thanks for the color.
Thanks, Nick.
Thank you. Our next question comes from Stephanie Price of CIBC. Your line is open.
Hi there, it's Sam Schmidt on for Stephanie Price. I wanted to ask about the Canadian military recruitment. The Canadian Armed Forces noted an increase in the number of applications they're receiving. How should we think about the opportunity for Calian here?
Morning, Sam. Yeah, I think, lots in the news about the, you know, renewed push from Canadian Armed Forces to increase. I think it's an important part of their strategy to, you know, recruit and retain more people. You know, this entire environment has created a lot of momentum for them in terms of getting more applicants, and when we talk to the Canadian Armed Forces, they're excited about the possibility. The biggest challenges they have right now is, you know, getting that, you know, people recruited in and trained as quickly as possible so that they can be operationally ready. I think that's where Calian, one of the early opportunities for us, is to really assist there.
So, I think we're still pretty early days, but I think in the coming years, if they can sustain this momentum, I think our ability to really be a great partner to Canadian Armed Forces, to train those people and make them, you know, soldiers ready to act on behalf of Canada, I think is a big opportunity.
That's helpful. Thank you. And then just one more from me on the cost optimization initiatives. Can you speak to how those contributed to the margin expansion in the quarter? And how should we think about margins going forward, as well as any color you can share between the segments? Thanks.
Yeah, we did take some measures. I think we mentioned it in the Q4 call, to try to return some of the profitability levels we thought we could in some of the commercial business. I think you saw some of the benefits of that here in Q1. I thought that there's more to do. I think you heard both in Will and my comments that, you know, we are working on continued increases in efficiencies and profitability in essential industries as well as on the corporate side. So I think there's more to come, but I think you saw some of the early returns here this quarter, and those are positive signs.
Good. Thank you. I'll pass along.
Thank you.
Thanks, Sam.
And our next question comes from Rob Goff of Ventum Capital Markets. Your line is open.
Thank you very much, and, good morning. My question would be with respect to the defense industrial policy. Are there any things that we should be looking for within that policy release in terms of timelines or allocations of budgets?
Morning, Rob.
Morning.
Yeah, this has been something we've been, well, not just us, the entire industry has been waiting for. I think it's gonna come out here shortly, are the indications we've received. I think it's an important position here for Canada. I think what you're gonna see is, you know, tying the link between this increase in defense spending in Canada and how that's gonna affect the broader industry in Canada, GDP growth. So I think the linkage between those two things is gonna be a lot stronger than maybe in previous plans. It's also gonna set priorities for Canada and which, you know, which technologies and solutions that they see as important to be sovereign. I think that's somewhere where Calian can really differentiate, given our position. So we're anticipating this coming out shortly.
I think it'll help us target our investments toward places where, you know, the Canadian government and Canadian Armed Forces want to see momentum quickly, and our team's ready to act on that when it comes out.
Thank you. And with the Made in Canada focus, does it make you look, perhaps longer at building up manufacturing capabilities? And is that in any way related to your acquisition pipeline?
Great point. I think we have a differentiated asset that we do have manufacturing really across Canada, both on the East and West Coast. I think it's a capability we've had, and we can certainly flex in this new world. You know, to the extent we get strong demand signals, it is somewhere that we will invest in order to increase capacity. But right now, we have a lot of capacity that we can deploy quickly. And we'll work with both Canadian Armed Forces, but also, you know, large primes that are looking to, you know, bring some of the manufacturing here in Canada in order to help differentiate their offering. We'll certainly look to partner with them.
Very good. Thank you.
Thanks, Rob.
Thank you. And as a reminder, if you have a question, please press star one, one. And our next question comes from Paul Treiber of RBC Capital Markets. Your line is open.
Oh, thanks so much, and good morning. Just a question with regards to learning and training, you know, specifically around the you know new weapon systems. You know, have you seen a correlation between training spend and the procurement of new weapon systems in the past? And do you expect that to continue going forward?
Yeah. Good morning, Paul. I think in the training environment, there's two things. I think there's the question we got earlier about just increased capacity. I think that's important. The other one is, as we... You know, Canada is, has spoken about procuring new technologies, new systems that really kind of modernizes Canadian Armed Forces. The introduction of these new technologies does drive, you know, capability training that is required. You know, how do you operate with these new assets? I think Calian is differentiated there, that we can bring in a multitude of different assets in order to, you know, train as effectively as possible. We're a bit agnostic from working with all of the partners, so I think that helps us differentiate there. So I think that'll be long term.
I think first they need to procure these systems, deploy them, and then, you know, the training will come from there. But, I think it's just part of this longer investment in terms of modernizing Canadian Armed Forces and increasing their capability.
And secondly, just on the M&A environment, you talked about the pipeline being quite robust. How are valuations tracking within the defense market at the businesses that you're looking at? And then how do you look at balancing the strategic value of those acquisitions versus the desire to maintain strong returns on capital?
It's a great point. You know, we're spending a lot of time looking at acquisitions, both in defense and space and in our essential industries. I think there is an opportunity to consolidate some of these defense and space assets into ours, and drive more synergy. Your point is valid on, you know, the valuation expectations from sellers and what they're looking at in this environment. I think it will challenge us to look at different deal structures that helps balance, you know, what's the forward opportunity, and try to share that with the sellers. So I think, you know, you'll see us continue to work there, try to find the right deal structure for the right situation.
I'm confident that, you know, even in this environment, we can find good assets that we can buy and grow in the future.
Then just lastly, just on the portfolio review, you know, obviously there's been a lot of dislocation in public markets around the value of software. You know, does that have an impact on your portfolio review and buyer interest in those assets you deem non-core?
I don't think so. I don't think the assets we're reviewing in that space don't really play there, so I don't expect it to change the appetite on that. I mean, we've continued to put effort towards that, and we'll likely come to some conclusions here later this year on direction, but still something we're working on.
Yeah. Thanks for taking the questions.
Thanks, Paul.
Thank you. And our next question comes from Michael Kypreos of Desjardins. Your line is open.
Good morning, and thank you for taking my question. We've seen some reports lately that the recruitment at the Canadian Armed Forces has already experienced a pretty significant step up in activity. Have you seen any of this yet flow through your health or learning businesses, or it's a bit too early?
Hey, good morning, Mike. It's probably a bit too early. I think what we've seen, and you heard in our prepared comments, that the activity levels have increased. I think you've seen that in the growth in our defense and space business. So I think the overall activity, both for new recruits and existing members across, you know, training and healthcare, has increased. And I think that will continue. You know, their ability to just continue to stay on track on their recruitment targets will be important and will drive continued growth in the future, but it's still pretty early days.
Well, that's helpful. And, and maybe any way to frame the upset- the upside for Calian if some of these, recruitment targets that are, that are being put out in the media actually, come through or are achieved by the, the Canadian Armed Forces?
Yeah, it's hard to, to try to draw, like, a one-to-one relationship there. I try to think about it more broadly. You know, the investment that, you know, the Canadian government has talked about in Canadian Armed Forces is significant. It spans both people, new capabilities, and as I mentioned in, in the question on the defense industrial plan, things that they want to be done in Canada now, and I think that's the biggest shift and maybe the biggest opportunity for, for Calian. There are certainly all of the activities we do today, we've been doing them for decades, and then we're a trusted partner.
But really, the biggest opportunity I think for Calian is to move into new areas that, you know, use the same solutions and skills that we have, the trusted track record and trust we have from the Canadian Armed Forces, to supplement what we're doing today and do that for the next decade. So that's probably our biggest opportunity. So I'd probably think of it more broadly than just, you know, more people in the short term. And I think that's the opportunity the team's excited to tackle, and certainly we're there to support and invest to make that happen.
Appreciate it, Pat.
Thanks, Nick. Mike?
Thank you. I'm showing no further questions at this time. I'd like to turn it back to Patrick Houston for closing remarks.
Thank you, Dee Dee. I'd like to thank each of you for attending the call today. We look forward to providing you an update on our next quarterly call in May. With that, Dee Dee, we can close the call.
This concludes today's conference call. Thank you for participating, and you may now disconnect.