OTTAWA, ONTARIO--(Marketwired - Aug. 4, 2016) - Calian Group Ltd. (TSX:CGY) today released unaudited results for the third quarter ended June 30, 2016.
The Company reported revenues for the quarter of $73.2 million, a 14% increase from the $64.3 million reported in the same quarter of the previous year. For the nine-month period ended June 30, 2016 the Company reported revenues of $205.8 million, a 14% increase compared to revenues of $181.3 million in the prior year.
EBITDA(1) for the third quarter was $6.1 million, a 53% increase compared to $4.0 million in the same quarter of the previous year and for the nine-month period ended June 30, 2016, EBITDA(1) was $16.7 million, a 36% increase compared to $12.3 million in the prior year.
Net profit for the third quarter was $3.9 million or $0.52 per share basic and diluted, a 77% increase compared to $2.2 million or $0.30 per share basic and diluted in the same quarter of the previous year. On a year-to-date basis, net profit was $10.2 million or $1.38 per share basic and diluted, an increase of 48% compared to net profit of $6.9 million or $0.94 per share basic and diluted in the previous nine-month period. Adjusted Net Profit(1) for the third quarter was $4.0 million or $0.54 per share basic and diluted, compared to $2.5 million or $0.34 per share basic and diluted in the same quarter of the previous year. On a year-to-date basis, adjusted net profit(1) was $10.9 million or $1.47 per share basic and diluted compared to $7.7 million or $1.05 per share basic and diluted in the previous nine-month period.
See caution regarding non-GAAP measures at the end of this press release
"This has been an excellent quarter for the company" stated Jacqueline Gauthier, CFO. "Surpassing $70 million in quarterly revenues is a new milestone for Calian and our third consecutive quarter of attaining highest revenues in company history. Combined with a significant increase in cash flows and earnings, this is a testament to our team's efforts to achieve these results."
"We continue to execute well across all of our growth strategy pillars of customer retention, customer diversification, service line evolution and continuous improvement with wins in each element of our strategy" stated Kevin Ford, CEO. For example, the $4 million in new health services contracts announced this quarter is an excellent example of our customer diversification strategy working. The announcement of our SED division's contract this quarter with the Canadian Space Agency maintaining our over 23 year relationship is an excellent example of our customer retention pillar. Also, with continued success in the re-wins of our long term contract base and the recent announcement of the extension to our DND Health services contract, our contract backlog remains strong providing a stable base of business for the foreseeable future" continued Ford.
"I continue to receive positive feedback on the renaming of the company to Calian Group Ltd. that aligns the corporate entity to our diverse offerings. While we are pleased with the current results, we also continue to invest in our service lines to ensure they are positioned for long term growth" stated Ford. "The diverse nature of the company's services and our demonstrated ability to deliver these services both domestically and globally with now over 50 profitable quarters I believe is our key differentiator."
During fiscal 2016, management will continue to focus on its key strategic initiatives. Traditional markets in which Calian operates have stabilized recently and management expects organic revenue and earnings growth in most or all of its service lines 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 contracting vehicles. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2016 to be in the range of $260 million to $280 million, net profit per share in the range of $1.65 to $1.90 per share and adjusted net profit(1) in the range of $1.74 to $1.99 per share.
Caution regarding non-GAAP measures:
This press release is based on reported earnings in accordance with IFRS. Reference to generally accepted accounting principles (GAAP) means IFRS, unless indicated otherwise. This press release is also based on non-GAAP financial measures including EBITDA, adjusted net profit and adjusted net profit per share. These non-GAAP measures are mainly derived from the interim consolidated financial statements, but do not have a standardized meaning prescribed by IFRS; therefore, others using these terms may calculate them differently. Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users of our financial reports with enhanced understanding of our results and related trends and increases transparency and clarity into the core results of our business. Refer to the MD&A for definitions of these metrics and reconciliations to the most comparable IFRS measures.
About Calian
Calian employs over 2,500 people with offices and projects that span Canada, U.S. and international markets. The company's capabilities are diverse with services delivered through two divisions. The Business and Technology Services (BTS) Division is headquartered in Ottawa and includes the provision of business and technology services to industry, public and government in the health, training, engineering and IT services domains. Calian's Systems Engineering Division (SED) located in Saskatoon plans, designs and implements complex communication systems for many of the world's space agencies and leading satellite manufacturers and operators. SED also provides contract manufacturing services for both private sector and military customers in North America.
DISCLAIMER
Certain information included in this press release is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Such statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar statements. Factors which could cause results or events to differ from current expectations include, among other things: the impact of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of business or credit risk with major customers; technical risks on fixed price projects; general industry and market conditions and growth rates; international growth and global economic conditions, and including currency exchange rate fluctuations; and the impact of consolidations in the business services industry. For additional information with respect to certain of these and other factors, please see the Company's most recent annual report and other reports filed by Calian with the Ontario Securities Commission. Calian disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. No assurance can be given that actual results, performance or achievement expressed in, or implied by, forward-looking statements within this disclosure will occur, or if they do, that any benefits may be derived from them.
| CALIAN GROUP LTD. | ||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||
| As at June 30, 2016 and September 30, 2015 | ||||||
| (Canadian dollars in thousands) | ||||||
NOTES |
June 30, 2016 |
September 30, 2015 |
||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash | $ 13,336 | $ 10,624 | ||||
| Accounts receivable | 61,821 | 50,494 | ||||
| Work in process | 15,951 | 17,431 | ||||
| Prepaid expenses | 1,338 | 1,449 | ||||
| Derivative assets | 8 | 928 | 424 | |||
| Total current assets | 93,374 | 80,422 | ||||
| NON-CURRENT ASSETS | ||||||
| Equipment | 5,166 | 5,245 | ||||
| Application software | 407 | 377 | ||||
| Acquired intangible assets | 3,309 | 4,246 | ||||
| Goodwill | 12,037 | 12,037 | ||||
| Total non-current assets | 20,919 | 21,905 | ||||
| TOTAL ASSETS | $ 114,293 | $ 102,327 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Accounts payable and accrued liabilities | $ 29,974 | $ 25,582 | ||||
| Unearned contract revenue | 7,316 | 6,980 | ||||
| Derivative liabilities | 8 | 871 | 751 | |||
| Total current liabilities | 38,161 | 33,313 | ||||
| NON-CURRENT LIABILITIES | ||||||
| Deferred tax liabilities | 816 | 299 | ||||
| Total non-current liabilities | 816 | 299 | ||||
| TOTAL LIABILITIES | 38,977 | 33,612 | ||||
| SHAREHOLDERS' EQUITY | ||||||
| Issued capital | 5 | 21,459 | 20,673 | |||
| Contributed surplus | 510 | 458 | ||||
| Retained earnings | 54,624 | 50,633 | ||||
| Accumulated other comprehensive loss | (1,277 | ) | (3,049 | ) | ||
| TOTAL SHAREHOLDERS' EQUITY | 75,316 | 68,715 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 114,293 |
$ 102,327 |
||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN GROUP LTD. | |||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF NET PROFIT | |||||||||
| For the three and nine-month periods ended June 30, 2016 and 2015 | |||||||||
| (Canadian dollars in thousands, except per share data) | |||||||||
| NOTES | Three months ended June 30, 2016 |
Three months ended June 30, 2015 |
Nine months ended June 30, 2016 |
Nine months ended June 30, 2015 |
|||||
| Revenues | $ 73,196 | $ 64,267 | 205,829 | $ 181,309 | |||||
| Cost of revenues | 60,162 | 54,268 | 169,048 | 150,579 | |||||
| Gross profit | 13,034 | 9,999 | 36,781 | 30,730 | |||||
| Selling and marketing | 1,107 | 1,009 | 3,160 | 3,006 | |||||
| General and administration | 4,905 | 4,194 | 14,207 | 12,894 | |||||
| Facilities | 908 | 826 | 2,719 | 2,514 | |||||
| Depreciation | 334 | 324 | 955 | 976 | |||||
| Amortization | 312 | 357 | 936 | 1,073 | |||||
| Deemed compensation related to acquisitions | 108 | 268 | 642 | 802 | |||||
| Profit before interest income and income tax expense | 5,360 | 3,021 | 14,162 | 9,465 | |||||
| Interest income | 11 | 18 | 22 | 77 | |||||
| Profit before income tax expense | 5,371 | 3,039 | 14,184 | 9,542 | |||||
| Income tax expense - current | 1,531 | 901 | 4,078 | 2,896 | |||||
| Income tax expense - deferred | (48 | ) | (76 | ) | (107 | ) | (244 | ) | |
| Total income tax expense | 1,483 | 825 | 3,971 | 2,652 | |||||
| NET PROFIT FOR THE PERIOD | $ 3,888 | $ 2,214 | $ 10,213 | $ 6,890 | |||||
| NET PROFIT PER SHARE: | ||||||||||
| Basic | 6 | $ 0.52 | $ 0.30 | $ 1.38 | $ 0.94 | |||||
| Diluted | 6 | $ 0.52 | $ 0.30 | $ 1.38 | $ 0.94 | |||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN GROUP LTD. | ||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||
| For the three and nine-month periods ended June 30, 2016 and 2015 | ||||||||||
| (Canadian dollars in thousands) | ||||||||||
| NOTES | Three months ended June 30, 2016 |
Three months ended June 30, 2015 |
Nine months ended June 30, 2016 |
Nine months ended June 30, 2015 |
||||||
| NET PROFIT FOR THE PERIOD | $ 3,888 | $ 2,214 | $ 10,213 | $ 6,890 | ||||||
| Other comprehensive income, net of tax | ||||||||||
| Change in deferred gain or loss on derivatives designated as cash flow hedges, net of tax of $652 and $244 (2015 - $438 and $77) | 647 |
772 |
1,772 |
(1,067 |
) | |||||
| Other comprehensive income (loss), net of tax | 647 |
772 |
1,772 |
(1,067 |
) | |||||
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | $ 4,535 | $ 2,986 | $ 11,985 | $ 5,823 | ||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN GROUP LTD. | |||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||
| For the nine month periods ended June 30, 2016 and 2015 | |||||||||||
| (Canadian dollars in thousands, except per share data) | |||||||||||
| Notes | Issued capital |
Contributed surplus |
Retained earnings |
Cash flow hedging reserve |
Total | ||||||
| Balance October 1, 2015 | $ 20,673 | $ 458 | $ 50,633 | $ (3,049 | ) | $ 68,715 | |||||
| Total comprehensive income | - | - | 10,213 | 1,772 | 11,985 | ||||||
| Dividends ($0.84 per share) | - | - | (6,222 | ) | - | (6,222 | ) | ||||
| Issue of shares under the employee share purchase plan | 5 | 388 | - | - | - | 388 | |||||
| Issue of shares under the employee share option plan | 5 | 398 | (25 | ) | - | - | 373 | ||||
| Share based compensation expense | 5 | - | 77 | - | - | 77 | |||||
| Balance June 30, 2016 | $ 21,459 | $ 510 | $ 54,624 | $ (1,277 | ) | $ 75,316 | |||||
| Notes | Issued capital |
Contributed surplus |
Retained earnings |
Cash flow hedging reserve |
Total | ||||||
| Balance October 1, 2014 | $ 20,161 | $ 336 | $ 49,128 | $ (74 | ) | $ 69,551 | |||||
| Total comprehensive income | - | - | 6,890 | (1,067 | ) | 5,823 | |||||
| Dividends ($0.84 per share) | - | - | (6,188 | ) | - | (6,188 | ) | ||||
| Issue of shares under the employee share purchase plan | 5 | 413 | - | - | - | 413 | |||||
| Share based compensation expense | 5 | - | 76 | - | - | 76 | |||||
| Balance June 30, 2015 | $ 20,574 | $ 412 | $ 49,830 | $ (1,141 | ) | $ 69,675 | |||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN GROUP LTD. | ||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
| For the nine-month periods ended June 30, 2016 and 2015 | ||||||
| (Canadian dollars in thousands) | ||||||
| NOTES | Nine months ended June 30, 2016 |
Nine months ended June 30, 2015 |
||||
| CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES | ||||||
| Net profit for the period | $ 10,213 | $ 6,890 | ||||
| Items not affecting cash: | ||||||
| Interest income | (22 | ) | (77 | ) | ||
| Income tax expense | 3,971 | 2,652 | ||||
| Employee stock purchase plan and option plan compensation expense | 134 | 127 | ||||
| Depreciation and amortization | 1,891 | 2,049 | ||||
| Deemed compensation related to acquisitions | 642 | 802 | ||||
| 16,829 | 12,443 | |||||
| Change in non-cash working capital | ||||||
| Accounts receivable | (11,609 | ) | (9,333 | ) | ||
| Work in process | 1,480 | (5,846 | ) | |||
| Prepaid expenses | 111 | 286 | ||||
| Accounts payable and accrued liabilities | 5,873 | 63 | ||||
| Unearned contract revenue | 336 | 2,723 | ||||
| 13,020 | 336 | |||||
| Interest received | 22 | 77 | ||||
| Income tax paid | (3,071 | ) | (3,132 | ) | ||
| 9,971 | (2,719 | ) | ||||
| CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES | ||||||
| Issuance of shares | 698 | 349 | ||||
| Dividends | (6,222 | ) | (6,188 | ) | ||
| (5,524 | ) | (5,839 | ) | |||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||
| Equipment and application software | (905 | ) | (2,640 | ) | ||
| Acquisitions | 10 | (830 | ) | (900 | ) | |
| (1,735 | ) | (3,540 | ) | |||
| NET CASH INFLOW (OUTFLOW) | $ 2,712 | $ (12,098 | ) | |||
| CASH, BEGINNING OF PERIOD | 10,624 | 25,200 | ||||
| CASH, END OF PERIOD | $ 13,336 | $ 13,102 | ||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN GROUP LTD. |
| NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| For the three and nine-month periods ended June 30, 2016 and 2015 |
| (Canadian dollars in thousands, except per share amounts) |
| (Unaudited) |
- BASIS OF PREPARATION
Calian Group Ltd. ("the Company") is incorporated under the Canada Business Corporations Act. The address of its registered office and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6. The Company's capabilities include the provision of business and technology services to industry and government in the health, IT services and training domains as well as the design, manufacturing and maintenance of complex systems to the communications and defence sectors.
On April 1, 2016, the Company changed its name from Calian Technologies Ltd. to Calian Group Ltd. The Company name change was done to better reflect the diversity of its services in light of the expansion into areas such as healthcare and training.
These unaudited interim condensed consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, as issued by the International Accounting Standard Board ("IASB"). These unaudited interim condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") and in accordance with the accounting policies the Company adopted in its annual consolidated financial statements for the year ended September 30, 2015 and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report for the year ended September 30, 2015. These unaudited interim condensed consolidated financial statements do not include all of the information required in annual financial statements.
These unaudited interim condensed consolidated financial statements were authorized for issuance by the Board of Directors on August 4, 2016.
- FUTURE CHANGES IN ACCOUNTING POLICIES
IFRS 15 Revenue from Contracts with Customers
In April 2014, the IASB released IFRS 15 - Revenue from Contracts with Customers. The Standard replaces IAS11 Construction Contracts and IAS18 Revenue, providing a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.
IFRS 9 Financial instruments
IFRS 9 was issued by the International Accounting Standards Board ("IASB") in November 2009 and October 2010, was amended in 2013 and finalized in July 2014 and will replace IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 uses a single approach to determine whether a financial instrument is measured at fair value through profit or loss, fair value through other comprehensive income or amortized cost, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of those financial instruments. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB released IFRS 16 Leases which replaces IAS 17 Leases. For lessees applying IFRS 16, a single recognition and measurement model for leases would apply, with required recognition of assets and liabilities for most leases. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The Company has not yet assessed the impact of the adoption of this standard on its consolidated financial statements.
- CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Estimates:
The preparation of financial statements in conformity with IFRS requires the Company's management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates.
There were no significant changes in estimates or approaches to determining estimates in the periods presented when compared to the estimates or approaches used the annual consolidated financial statements for the year ended September 30, 2015.
- SEASONALITY
The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. The Company's revenues and earnings have historically been subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays.
- ISSUED CAPITAL
Employee Share Purchase Plan
During the nine-month periods ended June 30, 2016 (2015), the Company issued 21,801 (19,390) shares under the Company's Employee Share Purchase Plan at an average price of $14.92 ($17.99) for a total cash of $325 ($349) and total non-cash of $63 ($64).
Stock options
The Company had an established stock option plan which expired on February 5, 2016 when the shareholders elected not to renew the plan. Under the plan, eligible directors and employees were granted the right to purchase shares of common stock at a price established by the Board of Directors on the date the options were granted but in no circumstances below fair market value of the shares at the date of grant. Effective February 5, 2016, no further grants can be made under the plan. As at June 30, 2016 (2015), 415,000 (415,000) options are outstanding of which 329,100 (326,600) are exercisable. During the first nine-months ended June 30, 2016 (2015), no options were granted and 20,000 options were exercised.
- NET PROFIT PER SHARE
The diluted weighted average number of shares has been calculated as follows:
| Three months ended June 30 | Nine months ended June 30 | |||
| 2016 | 2015 | 2016 | 2015 | |
| Weighted average number of shares - basic | 7,420,099 | 7,373,298 | 7,399,199 | 7,363,603 |
| Addition to reflect the dilutive effect of employee stock options | 6,931 | - | 166 | - |
| Weighted average number of shares - diluted | 7,427,030 | 7,373,298 | 7,399,364 | 7,363,603 |
Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not included in the computation of diluted earnings per share. For the three and nine-month periods ended June 30, 2016 (2015), 320,000 (415,000) options were excluded from the above computation.
Profit for the period is the measure of profit or loss used to calculate Net profit per share.
- SEGMENTED INFORMATION
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, regarding how to allocate resources and assess performance. The Company's chief operating decision maker is the Chief Executive Officer. The Company operates in two reportable segments described below, defined by their primary type of service offering, namely Systems Engineering and Business and Technology Services.
- Systems Engineering involves planning, designing and implementing solutions that meet a customer's specific business and technical needs, primarily in the satellite communications sector.
- Business and Technology Services provides business and technology services to industry and government in the health, IT services, training, and engineering domains.
The Company evaluates performance and allocates resources based on earnings before interest income and income taxes. The accounting policies of the segments are the same as those described in Note 2 - Summary of significant accounting policies to the consolidated financial statements for the year ended September 30, 2015.
| Three months ended June 30, 2016 | Systems Engineering | Business and Technology Services | Corporate | Total | ||
| Revenues | $ 23,083 | $ 50,113 | $ - | $ 73,196 | ||
| Profit before interest income and income tax expense | 3,052 | 3,085 | (777 | ) | 5,360 | |
| Interest income | 11 | |||||
| Income tax expense | (1,483 | ) | ||||
| Net profit for the period | $ 3,888 | |||||
| Three months ended June 30, 2015 | Systems Engineering | Business and Technology Services | Corporate | Total | ||
| Revenues | $ 20,433 | $ 43,834 | $ - | $ 64,267 | ||
| Profit before interest income and income tax expense | 2,142 | 1,383 | (504 | ) | 3,021 | |
| Interest income | 18 | |||||
| Income tax expense | (825 | ) | ||||
| Net profit for the period | $ 2,214 | |||||
| Nine months ended June 30, 2016 | Systems Engineering | Business and Technology Services | Corporate | Total | ||
| Revenues | $ 60,247 | $ 145,582 | $ - | $ 205,829 | ||
| Profit before interest income and income tax expense | 9,273 | 6,943 | (2,054 | ) | 14,162 | |
| Interest income | 22 | |||||
| Income tax expense | (3,971 | ) | ||||
| Net profit for the period | $ 10,213 | |||||
| Total assets other than cash and goodwill | $ 38,635 | $ 50,061 | $ 224 | $ 88,920 | ||
| Goodwill | - | 12,037 | - | 12,037 | ||
| Cash | - | - | 13,336 | 13,336 | ||
| Total assets | $ 38,635 | $ 62,098 | $ 13,560 | $ 114,293 | ||
| Equipment and intangible expenditures | $ 583 | $ 322 | $ - | $ 905 | ||
| Nine months ended June 30, 2015 | Systems Engineering | Business and Technology Services | Corporate | Total | ||
| Revenues | $ 52,365 | $ 128,944 | $ - | $ 181,309 | ||
| Profit before interest income and income tax expense | 7,204 | 3,844 | (1,583 | ) | 9,465 | |
| Interest income | 77 | |||||
| Income tax expense | (2,652 | ) | ||||
| Net profit for the period | $ 6,890 | |||||
| Equipment and intangible expenditures | $ 2,193 | $ 447 | $ - | $ 2,640 | ||
| As at September 30, 2015 | Systems Engineering | Business and Technology Services | Corporate | Total | ||
| Total assets other than cash and goodwill | $ 37,488 | $ 42,073 | $ 105 | $ 79,666 | ||
| Goodwill | - | 12,037 | - | 12,037 | ||
| Cash | - | - | 10,624 | 10,624 | ||
| Total assets | $ 37,488 | $ 54,110 | $ 10,729 | $ 102,327 |
- HEDGING
Foreign currency risk related to contracts
The Company is exposed to foreign currency exchange fluctuations on its cash balance, accounts receivable, accounts payable and accrued liabilities and future cash flows related to contracts denominated in a foreign currency. Future cash flows will be realized over the life of the contracts. The Company utilizes derivative financial instruments, principally in the form of forward exchange contracts, in the management of its foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and therefore, the Company's policy is to hedge 100% of its foreign currency exposure. The Company does not utilize derivative financial instruments for trading or speculative purposes. The Company applies hedge accounting when appropriate documentation and effectiveness criteria are met.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments on projects.
The Company also formally assesses, both at the hedge's inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge ineffectiveness has historically been insignificant.
The forward foreign exchange contracts primarily require the Company to purchase or sell certain foreign currencies with or for Canadian dollars at contractual rates. At June 30, 2016, the Company had the following forward foreign exchange contracts:
Type | Notional | Currency | Maturity | Equivalent Cdn. Dollars | Fair Value June 30, 2016 |
| SELL | 53,501 | USD | August 2016 | $ 69,107 | $ 824 |
| SELL | 7,077 | EURO | August 2016 | 10,142 | 103 |
| SELL | 50 | GDP | August 2016 | 86 | 1 |
| Derivative assets | $ 928 | ||||
| BUY | 25,829 | USD | August 2016 | $ 33,363 | $ 469 |
| SELL | 1,000 | USD | September 2016 | 1,384 | 225 |
| SELL | 1,000 | USD | September 2017 | 1,384 | 173 |
| BUY | 251 | EURO | August 2016 | 360 | 4 |
| Derivative liabilities | $ 871 |
A 10% strengthening of the Canadian dollar against the following currencies at June 30, 2016 would have decreased other comprehensive income as related to the forward foreign exchange contracts by the amounts shown below.
June 30, 2016 | |
| USD | $ 3,484 |
| EURO | 889 |
| GBP | 2 |
| $ 4,375 |
- CONTINGENCIES
In the normal course of business, the Company is party to business and employee related claims. The potential outcomes related to existing matters faced by the Company are not determinable at this time. The Company intends to defend these actions, and management believes that the resolution of these matters will not have a material adverse effect on the Company's financial condition.
- ACQUISITIONS
Amtek Engineering Services Ltd. ("Amtek")
Under the contingent payment arrangement, the Company is required to pay the former shareholders of Amtek an additional $900 and $900 if Amtek attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended April 30, 2015 and 2016 respectively. During the nine-month period ended June 30, 2016 (2015), the Company paid $830 ($900) related to the first and second year earn-outs.
DWP Solutions Inc. (DWP)
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of DWP an additional $300 and $375 if DWP attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended June 30, 2015 and 2016 respectively. The Company paid the full $300 related to the first year earn-out in July 2015. Effective June 30, 2016, DWP has substantially met the earn-out targets related to the second year and $365 was paid in July 2016.
Management Discussion and Analysis - June 30, 2016:
(Canadian dollars in thousands, except per share data)
This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors of the Company. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. The Board of Directors is responsible for ensuring that we fulfill our responsibilities for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The Board of Directors carries out this responsibility principally through its Audit Committee.
IFRS and non-GAAP measures:
This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the most comparable IFRS measure.
RESULTS OF OPERATIONS
Revenues:
For the third quarter of 2016, revenues were $73,196 compared to $64,267 reported for the same period in 2015 representing a 14% increase from the prior year. For the nine-month period ending June 30, 2016 revenues were $205,829 compared to $181,309 for 2015, an increase of 14%.
Systems Engineering's (SED) revenues were $23,083 in the quarter and $60,247 on a year-to-date basis representing a 13% and 15% increase respectively when compared to the $20,433 and $52,365 recorded for the same periods in the previous year. SED's increase in revenue for the quarter was largely attributed to satellite ground systems deliveries with the completion of a significant number of non-labor milestones while the labour activities continued at a steady pace. However the greater revenue year-to-date in comparison to the previous year is reflective of an increase in number of projects particularly in our satellite RF ground systems but also in our communications product developments and our satellite gateway solutions.
Business and Technology Services (BTS) revenues were $50,113 in the quarter and $145,582 on a year-to-date basis representing a 14% and 13% increase respectively when compared to the $43,834 and $128,944 recorded for the same periods in the previous year. In addition to modest inroads with our diversification efforts, the continued recovery with government spending during the first nine-months of 2016 resulted in additional demand for our services in many of the division's mainstay contracts.
Management expects that the marketplace for the near term will continue to be very competitive and the timing of new contract awards is always subject to delay. Our solid backlog provides a reasonable level of revenue assurance on existing contracts and new opportunities continue to arise. Although we continue to focus our efforts on the diversification of our customer base outside of government, the nature and extent of future government spending remain uncertain and therefore, future revenues in this sector will ultimately be determined by customer demand on existing contracts as well as the timing of future contract awards.
Gross margin
Gross margin was 17.8% for the third quarter of 2016 and 17.9% on a year-to-date basis compared to the 15.6% and 16.9% recorded for the same periods in the previous year.
Gross margin in Systems Engineering was 21.2% in the third quarter of 2016 and 24.3% on a year-to-date basis compared to the 18.0% and 22.6% recorded for the same periods in the previous year. The higher margins in comparison to the previous year are due to product sales, excellent project execution and a higher labor component in the current mix of projects which yields higher margins than material and subcontract procurements which dominated the same period last year. Solid performance in all of SED's business areas has resulted in these strong results. Although the mix of revenues will always play a role in the margin ultimately realized, the diversity of the division between defence related and commercial work as well as product development and project execution will allow the division to continue to prevail in the current competitive landscape.
Gross margin in Business and Technology Services was 16.2% in the third quarter of 2016 and 15.2% on a year-to-date basis compared to the 14.4% and 14.7% recorded for the same periods in the previous year. Gross margin for the third quarter of 2016 received the benefit of fewer costs from the Easter statutory holiday which fell in March this current year rather than April and from the improved mix created from the increased revenues in higher margin contracts. The traditional BTS business which is concentrated within the federal government remains stable. While stiff competition on new work is expected to temper any significant near-term improvement, the division continues to evolve its service offering with a goal to increase gross margins realized in the longer term.
Because of the significant difference in gross margin between each of the two divisions, the overall gross margin of the Company is dependent on the relative level of revenue generated from each division. Management will continue to focus on operational execution and diligent negotiation of supplier costs in order to maximize margins. However, increased competition is expected to maintain the pressure on margins in both divisions. The volatility of the Canadian dollar is always an influencing factor for margins on new work in the SED division when denominated in foreign currencies.
Operating expenses:
For the nine-month period ended June 30, 2016, selling and marketing, general and administration and facilities totalled $20,086 or 9.8% of revenues compared to $18,414 or 10.2% of revenues reported in 2015. Operating costs increased in absolute dollars as a result of additional incentive accruals from improved profits and from continued investment in both business development and service line evolution capabilities. However, with growing revenues, operating costs as a percentage of revenues decreased.
EBITDA(1):
EBITDA(1) for the third quarter was $6,114 compared to $3,970 in the same quarter of the previous year. For the nine-month period ended June 30, 2016, EBITDA(1) was $16,695 compared to $12,316 in the same period of the previous year.
Depreciation:
For the nine-month period ended June 30, 2016, depreciation was $955 which is in line with the $976 recorded in fiscal 2015.
Amortization of intangibles:
Amortization of intangibles decreased to $936 compared to $1,073 in fiscal 2015.
Deemed compensation related to acquisitions and Bargain purchase gain:
For the nine-month period ended June 30, 2016, deemed compensation related to acquisition amounted to $642 compared to $802 recorded in fiscal 2015. The deemed amortization has now been fully expensed.
Income taxes:
The provision for income taxes was $3,971 or 28.0% of earnings before tax compared to $2,652 in 2015 or 27.8% of earnings before tax. The difference in effective tax rates is primarily due to the non-deductibility of the deemed compensation amounts referred to in the above paragraph. The effective tax rate for 2016, prior to considering the impact of non-taxable transactions and adjustments to reflect actual tax provision as filed, is expected to be approximately 26.9%.
Net profit:
As a result of the foregoing, in the third quarter of 2016 the Company recorded net profit of $3,888 or $0.52 per share basic and diluted, compared to $2,214 or $0.30 per share basic and diluted in the same quarter of the prior year. Adjusted net profit(1) for the third quarter was $3,996 or $0.54 per share basic and diluted, compared to $2,482 or $0.34 per share basic and diluted in the same quarter of the previous year. For the nine-month period ended June 30, 2016 the Company recorded net profit of $10,213 or $1.38 per share basic and diluted, compared to $6,890 or $0.94 per share basic and diluted in the same period of the prior year. Adjusted net profit(1) for the nine-month period ended June 30, 2016 was $10,855 or $1.47 per share basic and diluted, compared to $7,692 or $1.05 per share basic and diluted in the same period of the previous year.
(1) See reconciliation regarding non-GAAP measures below
Reconciliation of non-GAAP measures to most comparable IFRS measures:
Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users of the Company's financial reports with enhanced understanding of the Company's results and related trends and increases transparency and clarity into the core results of the business. EBITDA, adjusted net profit and adjusted net profit per share exclude items that do not reflect, in our opinion, the Company's core performance and helps users of our MD&A to better analyze our results, enabling comparability of our results from one period to another.
These non-GAAP measures are mainly derived from the interim consolidated financial statements, but do not have a standardized meaning prescribed by IFRS; therefore, others using these terms may calculate them differently. The exclusion of certain items from non-GAAP performance measures does not imply that these are necessarily non-recurring. From time to time, we may exclude additional items if we believe doing so would result in a more transparent and comparable disclosure. Other entities may define the above measures differently than we do. In those cases, it may be difficult to use similarly named non-GAAP measures of other entities to compare performance of those entities to the Company's performance.
| Reconciliation of adjusted net profit | Third Quarter 2016 | Third Quarter 2015 | YTD Quarter 2016 | YTD Quarter 2015 |
| NET PROFIT | $ 3,888 | $ 2,214 | $ 10,213 | $ 6,890 |
| Deemed compensation related to acquisitions | 108 | 268 | 642 | 802 |
| Adjusted net profit | $ 3,996 | $ 2,482 | $ 10,855 | $ 7,692 |
| Reconciliation of EBITDA | Third Quarter 2016 | Third Quarter 2015 | YTD Quarter 2016 | YTD Quarter 2015 |
| Profit before interest income and income tax expense | $ 5,360 | $ 3,021 | $ 14,162 | $ 9,465 |
| Depreciation | 334 | 324 | 955 | 976 |
| Amortization | 312 | 357 | 936 | 1,073 |
| Deemed compensation related to acquisitions | 108 | 268 | 642 | 802 |
| EBITDA | $ 6,114 | $ 3,970 | $ 16,695 | $12,316 |
BACKLOG
The Company's backlog at June 30, 2016 was $386 million with terms extended to fiscal 2021. This compares to $442 million reported at September 30, 2015. Contracted Backlog represents maximum potential revenues remaining to be earned on signed contracts, whereas Option Renewals represent customers' options to further extend existing contracts under similar terms and conditions.
Most fee for service contracts provide the customer with the ability to adjust the timing and level of effort throughout the contract life and as such the amount actually realized could be materially different from the original contract value. The following table represents management's best estimate of the backlog realization for 2016, 2017 and beyond based on management's current visibility into customers' existing requirements. Management's estimate of the realizable portion (current utilization rates and known customer requirements) is less than the total value of signed contracts and related options by approximately $70 million. The Company's policy is to reduce the reported contractual backlog once it receives confirmation from the customer that indicates the utilization of the full contract value may not materialize.
| (dollars in millions) | Fiscal 2016 | Fiscal 2017 | Beyond 2017 | Estimated realizable portion of Backlog | Excess over estimated realizable portion | TOTAL |
| Contracted Backlog | $ 60 | $ 125 | $ 59 | $ 244 | $ 62 | $ 306 |
| Option Renewals | - | 16 | 56 | 72 | 8 | 80 |
| TOTAL | $ 60 | $ 141 | $ 115 | $ 316 | $ 70 | $ 386 |
| Business and Technology Services | $ 43 | $ 108 | $ 94 | $ 245 | $ 70 | $ 315 |
| Systems Engineering | 17 | 33 | 21 | 71 | - | 71 |
| TOTAL | $ 60 | $ 141 | $ 115 | $ 316 | $ 70 | $ 386 |
FINANCIAL CONDITION AND CASHFLOWS
Operating activities:
Cash inflows from operating activities for the period ended June 30, 2016 were $9,971 compared to cash outflows of $2,719 in 2015. Cash flows have been positively impacted by the decrease in work in process offset by an increase in accounts receivables commensurate with increased activity in both divisions. In addition, amounts owed to suppliers increased as a result of significant levels of activity near quarter end. The aging of the accounts receivables remain in excellent health. These variations in cash flows are not considered unusual and reflect normal working capital fluctuations associated with the ebbs and flows of the business. The market for the Systems Engineering Division is characterized by contracts with billings tied to milestones achieved, which often results in significant working capital requirements. Conversely, given the nature of this business, it is sometimes possible to negotiate advance payments on contracts. Such advance payments give rise to unearned revenue that will be realized as revenue over the course of the contract. As at June 30, 2016, the Company's total unearned revenue amounted to $7,316. This compares to $6,980 at September 30, 2015, with the increase primarily attributable to advance billings for work to be performed in a future period.
Financing activities:
During the periods ended June 30, 2016 (2015), the Company paid quarterly dividends of $0.84 ($0.84) per share. The Company intends to continue with its quarterly dividend policy for the foreseeable future.
Investing activities:
During the nine-month periods ended June 30, 2016 (2015), the Company paid $830 ($900) for various acquisitions as described in these financial statements. During the nine-month period, the Company invested $905 in capital assets compared to $2,640 in the prior period which included significant upgrades to the manufacturing assets in the SED division. Capital acquisitions have reverted to normal levels for fiscal 2016.
Capital resources:
At June 30, 2016 the Company had a short-term credit facility of $10,000 with a Canadian chartered bank that bears interest at prime and is secured by assets of the Company. An amount of $75 was used to issue a letter of credit to meet customer contractual requirements. Management believes that Calian has sufficient cash resources to continue to finance its working capital requirements and pay a quarterly dividend.
ADOPTION OF NEW ACCOUNTING RULES AND IMPACT ON FINANCIAL RESULTS
The Company did not adopt any new accounting policies this quarter.
SELECTED QUARTERLY FINANCIAL DATA
| Q3/16 | Q2/16 | Q1/16 | Q4/15 | Q3/15 | Q2/15 | Q1/15 | Q4/14 | ||
| REVENUES | $ 73,196 | $ 68,100 | $ 64,533 | $ 60,944 | $ 64,267 | $ 61,042 | $ 56,000 | $ 54,430 | |
| EBITDA(1) | $ 6,114 | $ 5,408 | $ 5,173 | $ 4,906 | $ 3,970 | $ 3,989 | $ 4,357 | $ 4,525 | |
| Net profit | $ 3,888 | $ 3,262 | $ 3,063 | $ 2,877 | $ 2,214 | $ 2,208 | $ 2,468 | $ 2,575 | |
| Adjusted net profit(1) | $ 3,996 | $ 3,529 | $ 3,330 | $ 3,144 | $ 2,482 | $ 2,475 | $ 2,735 | $ 2,842 | |
| Net profit per share | |||||||||
| Basic | $ 0.52 | $ 0.44 | $ 0.42 | $ 0.39 | $ 0.30 | $ 0.30 | $ 0.34 | $ 0.35 | |
| Diluted | $ 0.52 | $ 0.44 | $ 0.42 | $ 0.39 | $ 0.30 | $ 0.30 | $ 0.34 | $ 0.35 | |
| Adjusted net profit per share(1) | |||||||||
| Basic | $ 0.54 | $ 0.48 | $ 0.45 | $ 0.43 | $ 0.34 | $ 0.34 | $ 0.37 | $ 0.39 | |
| Diluted | $ 0.54 | $ 0.48 | $ 0.45 | $ 0.43 | $ 0.34 | $ 0.34 | $ 0.37 | $ 0.39 | |
SEASONALITY
The Company's operations are subject to some quarterly seasonality due to the timing of vacation periods and statutory holidays. Typically the Company's first and last quarter will be negatively impacted as a result of the Christmas season and summer vacation period. During these periods, the Company can only invoice for work performed and is also required to pay for statutory holidays. This results in reduced levels of revenues and in a drop in gross margins. This seasonality may not be apparent in the overall results of the Company depending on the impact of the realized sales mix of its various projects.
OUTLOOK
Management is confident that the Company is well positioned for sustained growth in the long term. The Company's strong contract backlog provides a solid base for the realization of future revenues. Leveraging the Company's diverse services offerings, the Company operates in global and domestic markets that will continue to require the services that the Company offers. To ensure the Company is positioned to respond to market requirements, the Company will focus on the execution of its growth strategy using a common framework across all of its services:
- Customer retention: through continued delivery excellence, maintain a valued relationship with current customer base;
- Customer diversification: through increasing the percentage of its revenues derived from new business in adjacent and non-government markets, balance customer revenue into numerous global and domestic sectors;
- Service Line Evolution: continue investment in service offerings to increase differentiation and improve gross margin attainment;
- Continuous Improvement: leverage innovation to improve how the Company operates with a goal to streamline processes and provide for a scalable back office support capability.
The Company has completed four acquisitions in the past 4 years, and will proactively look for companies that can accelerate its growth strategy with a focus on customer diversification and service line evolution.
The SED Division has been working within a sustainable satellite sector and is expecting opportunities to continue to arise as systems adopting the latest technologies will be required by customers wishing to maintain and improve their service offerings and react to an increasing demand for bandwidth. SED continues to invest in communications products, software development and manufacturing equipment to strengthen its competitive position. However in the short-term, activity levels in Custom manufacturing will continue to be directly dependent upon SED's customers' requirements and continuing volatility in orders is anticipated as both government and commercial customers continue to re-examine their traditional spending patterns. The recent delays, deferrals and cancellations of DND capital procurements have created intense competition for available manufacturing work. Finally, changes in the relative value of the Canadian dollar may negatively or positively impact the Systems Engineering Division's competitiveness on projects denominated in foreign currencies.
The BTS Division's services are adaptable to many different markets. Currently, its strength lies in providing program management and delivery services across Canada with a significant portion of this work currently with the Department of National Defence. The division has been successful in diversifying its customer base and evolving its service offerings. As an example the division now provides direct to customer health services through the operation of managed medical clinics as well as onsite health practitioners in the oil and gas sector. Management believes that for the long term, the public and private sector will continue to require health, IT, and training services from private enterprises to achieve their business outcomes. Looking at the current outlook, the current economic climate, the results of the recent election and new federal government agenda may create uncertainty as to the extent of demand from this customer, at least in the short term. With recent investments in sales, marketing, acquisitions and success in new markets outside of the federal government, the division is better positioned to manage through these downturns. Recent acquisitions have also bolstered the division's performance and it is expected that overall, the acquired companies will continue to meet and exceed the targets established as part of the acquisitions.
GUIDANCE
During fiscal 2016, management will continue to focus on its key strategic initiatives. Traditional markets in which Calian operates have stabilized recently and management expects organic revenue and earnings growth in most or all of its service lines 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 contracting vehicles. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2016 to be in the range of $260 million to $280 million, net profit per share in the range of $1.65 to $1.90 per share and adjusted net profit(1) in the range of $1.74 to $1.99 per share.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent interim quarter ended June 30, 2016, there have been no changes in the design of the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
FORWARD-LOOKING STATEMENT
Certain information included in this management discussion and analysis is forward-looking and is subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Such statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar statements. Factors which could cause results or events to differ from current expectations include, among other things: the impact of price competition; scarce number of qualified professionals; the impact of rapid technological and market change; loss of business or credit risk with major customers; technical risks on fixed price projects; general industry and market conditions and growth rates; international growth and global economic conditions, currency exchange rate fluctuations; and the impact of consolidations in the business services industry. For additional information with respect to certain of these and other factors, please see the Company's most recent annual report and other reports filed by the Company with the Ontario Securities Commission. Calian disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. No assurance can be given that actual results, performance or achievement expressed in, or implied by, forward-looking statements within this disclosure will occur, or if they do, that any benefits may be derived from them.
The foregoing discussion and analysis should be read in conjunction with the financial statements for the third quarter of 2016, and with the Management Discussion and Analysis in the 2015 annual report, including the section on risks and opportunities.
Contact Information:
President and Chief Executive Officer
613-599-8600
Jacqueline Gauthier
Chief Financial Officer
613-599-8600
ir@calian.com
www.calian.com