OTTAWA, ONTARIO--(Marketwired - Aug. 6, 2014) - Calian Technologies Ltd. (TSX:CTY) today released unaudited results for the third quarter ended June 30, 2014.
The Company reported revenues for the quarter of $53.8 million, a 7% decrease from the $58.1 million reported in the same quarter of the previous year and for the nine-month period ended June 30, 2014, the Company reported revenues of $156.8 million compared to revenues of $175.0 million in the prior year.
Net profit for the third quarter was $2.9 million or $0.39 per share basic and diluted, compared to $3.3 million or $0.43 per share basic and diluted in the same quarter of the previous year. On a year-to-date basis, net profit was $8.0 million or $1.09 per share basic and diluted compared to net profit of $10.0 million or $1.32 per share basic and diluted in the previous nine-month period. Adjusted Net Profit(1) for the third quarter was $2.7 million or $0.37 per share basic and diluted, compared to $3.3 million or $0.43 per share basic and diluted in the same quarter of the previous year. On a year-to-date basis, adjusted net profit(1) was $7.8 million or $1.06 per share basic and diluted compared to net profit of $10.0 million or $1.32 per share basic and diluted in the previous nine-month period.
(1) See caution regarding non-GAAP measures at the end of this press release
"The results released today reflect continued contraction in government spending and was evident in both of our divisions. Program delays and cancellations within government in general and DND specifically, have resulted in reduced take-up on existing contract vehicles and postponed revenue realization on new ones. The areas that have been most affected by military spending cuts are the vehicle maintenance services and training services in our BTS division. On the positive side, our BTS health group continues to show solid revenues and our ancillary communications products segment at SED has produced excellent results in terms of revenue growth and gross margin contribution. While the overall results for the quarter are obviously below that of the prior year, we are encouraged by the achievement of consecutive quarter improvement. In addition, we continue to scrutinize discretionary spending in an effort to improve results wherever possible" stated Ray Basler, President and CEO.
"We are also very pleased with the acquisitions of Amtek Engineering Services Ltd. and DWP Solutions Inc. Amtek is a longstanding and trusted partner in many defence pursuits. At this early stage, Amtek's performance has met our expectations and integration efforts are underway. The complementary markets of Amtek present an excellent opportunity to bring our collective capabilities to bear and I am confident that our combined team will be successful in future pursuits. While we did have a small presence in the IT security market, the acquisition of DWP will provide access to even greater opportunities in this fast growing and strategic segment of the market. All of our recent acquisitions have been geared towards the expansion and evolution of our service lines and we will be open to other future acquisitions should the right strategic opportunities arise" continued Basler.
The retention provisions included as part of the acquisitions agreements are deemed under IFRS as deferred compensation payable to certain shareholders and accordingly an amount of $2,139 has been excluded from the total consideration of the purchase and will be expensed in the Company's consolidated statement of net profit on a straight-line basis over the next 24 months, being the retention period required under the agreements. In addition, as a result of excluding a significant portion of the purchase price in the Amtek acquisition, the identifiable tangible and intangible assets on acquisition were higher than the consideration allocated which resulted in a bargain purchase gain. While these unusual items will affect our reported earnings for the next two years, they do not represent a degradation of our earning power or cash flow generating capabilities. Accordingly, we have excluded these effects in our Adjusted Net Profit - a non-GAAP measure more fully explained in the Management Discussion and Analysis section of this report. These unusual items will result in a lessening of our reported earnings per share and of our future financial guidance measures over the next 24 months.
"While outside the purview of the third quarter results, I am very pleased with the recent two year renewal of our CFSATE contract in Borden as well as the two year extension to our Health Services Support Contract. These contract extensions are considered a direct reflection and validation of the high quality services that we have been providing to DND over the last number of years. These extensions will add confidence to future revenue projections" stated Basler.
The company's third quarter performance was below that of last year and reflects constrained government spending and the related increase in competitive pressures. While we have seen some improvement over the last quarter we still expect that it may take some time to experience any significant rebound in certain market segments. Fortunately recent contract signings have helped to solidify the backlog and provided for added revenue confidence. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. In addition, the requirement to categorize certain acquisition payments as compensation expense will also negatively impact fourth quarter earnings by approximately $0.04 per share. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2014 to be in the range of $210 million to $230 million and net profit per share in the range of $1.40 to $1.60 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 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 2,400 people with offices and projects that span Canada, U.S. and international markets. The company's capabilities include the provision of business and technology services to industry and government in the health, training, IT services and operations and maintenance domains as well as the design, manufacturing and maintenance of complex systems to the communications and defence sectors. Our goal is to be the best company to work for, buy from and invest in. The Business and Technology Services (BTS) Division is headquartered in Ottawa. This division delivers outsourcing services for a variety of technical and professional functions and provides health services to numerous domestic customers. Our strength lies in understanding clients' needs, recruiting highly qualified personnel who understand and meet those needs, and then effectively managing those personnel within our customers' framework. Calian's Systems Engineering Division (SED) 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.
For further information, please visit our website at www.calian.com, or contact us at ir@calian.com
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 TECHNOLOGIES LTD. | ||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||||||
| As at June 30, 2014 and September 30, 2013 | ||||||||||
| (Canadian dollars in thousands) | ||||||||||
| NOTES | June 30, 2014 |
September 30, 2013 |
||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS | ||||||||||
| Cash | $ | 22,275 | $ | 29,782 | ||||||
| Accounts receivable | 42,908 | 37,903 | ||||||||
| Work in process | 13,594 | 9,764 | ||||||||
| Prepaid expenses | 2,050 | 1,346 | ||||||||
| Derivative assets | 8 | 94 | 89 | |||||||
| Total current assets | 80,921 | 78,884 | ||||||||
| NON-CURRENT ASSETS | ||||||||||
| Equipment | 3,235 | 3,514 | ||||||||
| Application software | 486 | 585 | ||||||||
| Acquired intangible assets | 10 | 6,128 | 3,808 | |||||||
| Goodwill | 12,037 | 10,781 | ||||||||
| Total non-current assets | 21,886 | 18,688 | ||||||||
| TOTAL ASSETS | $ | 102,807 | $ | 97,572 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Accounts payable and accrued liabilities | $ | 25,475 | $ | 24,634 | ||||||
| Unearned contract revenue | 5,506 | 4,059 | ||||||||
| Share repurchase obligation | 5 | - | 947 | |||||||
| Derivative liabilities | 8 | 94 | 14 | |||||||
| Total current liabilities | 31,075 | 29,654 | ||||||||
| NON-CURRENT LIABILITIES | ||||||||||
| Deferred tax liabilities | 2,067 | 1,121 | ||||||||
| Total non-current liabilities | 2,067 | 1,121 | ||||||||
| TOTAL LIABILITIES | 33,142 | 30,775 | ||||||||
| SHAREHOLDERS' EQUITY | ||||||||||
| Issued capital | 5 | 20,161 | 19,746 | |||||||
| Contributed surplus | 261 | 216 | ||||||||
| Retained earnings | 48,620 | 47,089 | ||||||||
| Accumulated other comprehensive income (loss) | 623 | (254 | ) | |||||||
| TOTAL SHAREHOLDERS' EQUITY | 69,665 | 66,797 | ||||||||
| 102,807 | $ | 97,572 | ||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN TECHNOLOGIES LTD. | |||||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF NET PROFIT | |||||||||||||
| For the three and nine-month periods ended June 30, 2014 and 2013 | |||||||||||||
| (Canadian dollars in thousands, except per share data) | |||||||||||||
| NOTES | Three months ended June 30, 2014 |
Three months ended June 30, 2013 |
Nine months ended June 30, 2014 |
Nine months ended June 30, 2013 |
|||||||||
| Revenues | $ | 53,839 | $ | 58,123 | $ | 156,827 | $ | 174,961 | |||||
| Cost of revenues | 44,028 | 47,655 | 128,174 | 142,682 | |||||||||
| Gross profit | 9,811 | 10,468 | 28,653 | 32,279 | |||||||||
| Selling and marketing | 995 | 976 | 2,848 | 3,055 | |||||||||
| General and administration | 4,403 | 4,339 | 13,003 | 13,472 | |||||||||
| Facilities | 816 | 800 | 2,454 | 2,378 | |||||||||
| Deemed compensation related to acquisitions | 10 | 162 | - | 162 | - | ||||||||
| Bargain purchase gain | 10 | (330 | ) | - | (330 | ) | - | ||||||
| Profit before interest income and income tax expense | 3,765 | 4,353 | 10,516 | 13,374 | |||||||||
| Interest income | 74 | 97 | 214 | 267 | |||||||||
| Profit before income tax expense | 3,839 | 4,450 | 10,730 | 13,641 | |||||||||
| Income tax expense - current | 1,030 | 1,158 | 2,851 | 3,560 | |||||||||
| Income tax expense - deferred | (57 | ) | 16 | (127 | ) | 50 | |||||||
| Total income tax expense | 973 | 1,174 | 2,724 | 3,610 | |||||||||
| NET PROFIT FOR THE PERIOD | $ | 2,866 | $ | 3,276 | $ | 8,006 | $ | 10,031 | |||||
| NET PROFIT PER SHARE: | |||||||||||||
| Basic | 6 | $ | 0.39 | $ | 0.43 | $ | 1.09 | $ | 1.32 | ||||
| Diluted | 6 | $ | 0.39 | $ | 0.43 | $ | 1.09 | $ | 1.32 | ||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN TECHNOLOGIES LTD. | ||||||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||
| For the three and nine-month periods ended June 30, 2014 and 2013 | ||||||||||||||
| (Canadian dollars in thousands) | ||||||||||||||
| NOTES | Three months ended June 30, 2014 |
Three months ended June 30, 2013 |
Nine months ended June 30, 2014 |
Nine months ended June 30, 2013 |
||||||||||
| PROFIT FOR THE PERIOD | $ | 2,866 | $ | 3,276 | $ | 8,006 | $ | 10,031 | ||||||
| Other comprehensive income, net of tax | ||||||||||||||
| Change in deferred gain or loss on derivatives designated as cash flow hedges, net of tax of $221 and $319 (2013 - $80 and $400) | 608 | (234 | ) | 877 | (1,101 | ) | ||||||||
| Other comprehensive income (loss), net of tax | 608 | (234 | ) | 877 | (1,101 | ) | ||||||||
| TOTAL COMPREHENSIVE INCOME FOR THE PERIOD | $ | 3,474 | $ | 3,042 | $ | 8,883 | $ | 8,930 | ||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN TECHNOLOGIES LTD. | |||||||||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||||||||||||||
| For the nine-months ended June 30, 2014 and 2013 | |||||||||||||||||
| (Canadian dollars in thousands, except per share data) | |||||||||||||||||
| Notes | Issued capital | Contributed surplus | Retained earnings | Cash flow hedging reserve |
Total | ||||||||||||
| Balance October 1, 2013 | $ | 19,746 | $ | 216 | $ | 47,089 | $ | (254 | ) | $ | 66,797 | ||||||
| Total comprehensive income | - | - | 8,006 | 877 | 8,883 | ||||||||||||
| Dividends ($0.84 per share) | - | - | (6,196 | ) | - | (6,196 | ) | ||||||||||
| Issue of shares under the employee share purchase plan | 5 | 465 | - | - | - | 465 | |||||||||||
| Issue of shares under stock option plan | 5 | - | - | - | - | - | |||||||||||
| Stock option plan compensation expense | 5 | - | 45 | - | - | 45 | |||||||||||
| Share repurchase | 5 | (174 | ) | - | (1,102 | ) | - | (1,276 | ) | ||||||||
| Share purchase agreement - reclassification | 5 | 124 | - | 823 | - | 947 | |||||||||||
| Balance June 30, 2014 | $ | 20,161 | $ | 261 | $ | 48,620 | $ | 623 | $ | 69,665 | |||||||
| Notes | Issued capital | Contributed surplus | Retained earnings | Cash flow hedging reserve |
Total | ||||||||||||
| Balance October 1, 2012 | $ | 19,949 | $ | 164 | $ | 47,186 | $ | 697 | $ | 67,996 | |||||||
| Total comprehensive income | - | - | 10,031 | (1,101 | ) | 8,930 | |||||||||||
| Dividends ($0.84 per share) | - | - | (6,391 | ) | - | (6,391 | ) | ||||||||||
| Issue of shares under the employee share purchase plan | 5 | 424 | - | - | - | 424 | |||||||||||
| Issue of shares under stock option plan | 5 | 99 | (6 | ) | - | - | 93 | ||||||||||
| Stock option plan compensation expense | 5 | - | 45 | - | - | 45 | |||||||||||
| Share repurchase | 5 | (525 | ) | - | (3,474 | ) | - | (3,999 | ) | ||||||||
| Share purchase agreement - reclassification | 5 | 79 | - | 556 | - | 635 | |||||||||||
| Balance June 30, 2013 | $ | 20,026 | $ | 203 | $ | 47,908 | $ | (404 | ) | $ | 67,733 | ||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
| CALIAN TECHNOLOGIES LTD. | ||||||||||
| UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| For the nine-month periods ended June 30, 2014 and 2013 | ||||||||||
| (Canadian dollars in thousands) | ||||||||||
| NOTES | Nine months ended June 30, 2014 |
Nine months ended June 30, 2013 |
||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||
| Net Profit for the period | $ | 8,006 | $ | 10,031 | ||||||
| Items not affecting cash: | ||||||||||
| Interest income | (214 | ) | (267 | ) | ||||||
| Income tax expense | 2,724 | 3,610 | ||||||||
| Employee stock purchase plan and option plan compensation expense | 96 | 96 | ||||||||
| Amortization | 1,341 | 1,222 | ||||||||
| Deemed compensation related to acquisitions | 162 | - | ||||||||
| Bargain purchase gain | (330 | ) | - | |||||||
| 11,785 | 14,692 | |||||||||
| Change in non-cash working capital | ||||||||||
| Accounts receivable | (602 | ) | 516 | |||||||
| Work in process | (3,830 | ) | 2,219 | |||||||
| Prepaid expenses | 125 | (445 | ) | |||||||
| Accounts payable and accrued liabilities | (595 | ) | 1,594 | |||||||
| Unearned contract revenue | 1,447 | (5,156 | ) | |||||||
| 8,330 | 13,420 | |||||||||
| Interest received | 228 | 285 | ||||||||
| Income tax paid | (3,011 | ) | (3,534 | ) | ||||||
| 5,547 | 10,071 | |||||||||
| CASH FLOWS USED IN FINANCING ACTIVITIES | ||||||||||
| Issuance of common shares | 5 | 388 | 449 | |||||||
| Dividends | (6,196 | ) | (6,391 | ) | ||||||
| Repurchase of shares | 5 | (1,276 | ) | (3,999 | ) | |||||
| (7,084 | ) | (9,941 | ) | |||||||
| CASH FLOWS USED IN INVESTING ACTIVITIES | ||||||||||
| Equipment and application software expenditures | (398 | ) | (540 | ) | ||||||
| Acquisitions | 10 | (5,572 | ) | (400 | ) | |||||
| (5,970 | ) | (940 | ) | |||||||
| NET CASH OUTFLOW | (7,507 | ) | (710 | ) | ||||||
| CASH, BEGINNING OF PERIOD | 29,782 | 31,998 | ||||||||
| CASH, END OF PERIOD | $ | 22,275 | $ | 31,288 | ||||||
CALIAN TECHNOLOGIES LTD.
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine-month periods ended June 30, 2014 and 2013
(Canadian dollars in thousands, except per share amounts)
(Unaudited)
- BASIS OF PREPARATION
Calian Technologies Ltd. ("the Company"), incorporated under the Canada Business Corporations Act, and its wholly-owned subsidiaries provide technology services to industry and government. The address of its registered office and principal place of business is 340 Legget Drive, Ottawa, Ontario K2K 1Y6.
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, 2013 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, 2013. 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 6, 2014.
- FUTURE CHANGES IN ACCOUNTING POLICIES
IFRS 9 Financial instruments
IFRS 9 was issued in November 2009 introducing new requirements for the classification and measurement of financial assets. IFRS9 was further amended in October 2010 to include the requirements for the classification and measurement of financial liabilities and derecognition.
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, 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 the financial assets. 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, 2015. The Company is currently evaluating the impact 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.
Purchase Price allocation
As described in Note 10, during the nine-month period ended June 30, 2014, the Company acquired Med-Team Clinic Inc., Amtek Engineering Ltd. and DWP Solutions Inc. As a result of these acquisitions, management was required to estimate the fair values of each identifiable asset and liability acquired through the acquisitions. Fair value of cash, accounts receivable, accounts payable and equipment were estimated to approximate their carrying values in the companies' records at the date of the transactions. The fair values of the intangible assets were valued using the excess earnings method under the income approach.
There were no other significant changes in estimates or approaches to determining estimates in the periods presented.
- 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
Share repurchase
During the three months ended June 30, 2014 (2013), the Company acquired nil (119,400) of its outstanding common shares at an average price of nil ($20.16) per share for a total of nil ($2,411) including related expenses, through normal course issuer bids in place during the period. During the nine months ended June 30, 2014 (2013), the Company acquired 64,500 (196,570) of its outstanding common shares at an average price of $19.79 ($20.33) per share for a total of $1,276 ($3,999) including related expenses, through normal course issuer bids in place during the period. The excess of the purchase price over the stated capital of the shares was charged to retained earnings.
Stock options
The Company has an established stock option plan, which provides that the Board of Directors may grant stock options to eligible directors and employees. Under the plan, eligible directors and employees are granted the right to purchase shares of common stock at a price established by the Board of Directors on the date the options are granted but in no circumstances below fair market value of the shares at the date of grant. The plan provides for a 10% rolling maximum number of options available for grant. As at June 30, 2014, a total of 735,391 common shares are reserved for issuance under the plan with 240,000 options currently outstanding of which 197,000 are exercisable. No options were issued during the period.
Employee Share Purchase Plan
During the nine-month period ended June 30, 2014 (2013), the Company issued 22,075 (23,346) shares under the Company's Employee Share Purchase Plan at an average price of $17.54 ($15.22) for a total of $388 ($355).
Share repurchase obligation
The Company has an agreement with a third party which provides for automatic repurchases of the Company's shares without the Company having the ability to influence the purchases. The financial liability is determined as the present value of the maximum redemption amount at each of the reporting periods. The reclassification adjustment is made by reducing issued capital and retained earnings with an offsetting adjustment to the share repurchase obligation account. An income adjustment will result for any shares repurchased below the maximum amount per share. The amount of income recognized in the period is insignificant.
- 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 | |||
| 2014 | 2013 | 2014 | 2013 | |
| Weighted average number of shares - basic | 7,353,908 | 7,556,800 | 7,372,054 | 7,601,788 |
| Addition to reflect the dilutive effect of employee stock options | - | 3,911 | 4,662 | 6,145 |
| Weighted average number of shares - diluted | 7,353,908 | 7,560,711 | 7,376,716 | 7,607,933 |
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 period ended June 30, 2014 (2013), 155,000 (NIL) options were excluded from the above computation.
Net 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, operations and maintenance, IT services and training.
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 financial statements for the year ended September 30, 2013.
| Three months ended June 30, 2014 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 14,160 | $ 39,679 | $ - | $ 53,839 | ||
| Profit before interest income and income tax expense | 2,499 | 1,793 | (527 | ) | 3,765 | |
| Interest income | 74 | |||||
| Income tax expense | (973 | ) | ||||
| Net profit for the period | $ 2,866 | |||||
| Total assets other than cash and goodwill | $ 25,422 | $ 42,968 | $ 105 | $ 68,495 | ||
| Goodwill | - | 12,037 | - | 12,037 | ||
| Cash | - | - | 22,275 | 22,275 | ||
| Total assets | $ 25,422 | $ 55,005 | $ 22,380 | $ 102,807 | ||
| Equipment and intangible expenditures | $ 108 | $ 52 | $ - | $ 156 | ||
Three months ended June 30, 2013 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 16,980 | $ 41,143 | $ - | $ 58,123 | ||
| Profit before interest income and income tax expense | 2,344 | 2,554 | (545 | ) | 4,353 | |
| Interest income | 97 | |||||
| Income tax expense | (1,174 | ) | ||||
| Net profit for the period | $ 3,276 | |||||
Nine months ended June 30, 2014 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 41,070 | $ 115,757 | $ - | $ 156,827 | ||
| Profit before interest income and income tax expense | 6,874 | 5,213 | (1,571 | ) | 10,516 | |
| Interest income | 214 | |||||
| Income tax expense | (2,724 | ) | ||||
| Net profit for the period | $ 8,006 | |||||
| Nine months ended June 30, 2013 | ||||||
| Systems Engineering | Business and Technology Services | Corporate | Total | |||
| Revenues | $ 50,961 | $ 124,000 | $ - | $ 174,961 | ||
| Profit before interest income and income tax expense | 8,262 | 6,794 | (1,682 | ) | 13,374 | |
| Interest income | 267 | |||||
| Income tax expense | (3,610 | ) | ||||
| Net profit for the period | $ 10,031 | |||||
As at September 30, 2013 | ||||
| Total assets other than cash and goodwill | $ 19,909 | $ 37,001 | $ 99 | $ 57,009 |
| Goodwill | - | 10,781 | - | 10,781 |
| Cash | - | - | 29,782 | 29,782 |
| Total assets | $ 19,909 | $ 47,782 | $ 29,881 | $ 97,572 |
| Equipment and intangible expenditures | $ 412 | $ 323 | $ - | $ 725 |
- 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 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 ongoing 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, 2014, the Company had the following forward foreign exchange contracts:
Type | Notional | Currency | Maturity | Equivalent Cdn. Dollars | Fair Value June 30, 2014 |
| SELL | 57,904 | USD | July 2014 | $ 61,784 | $ 93 |
| BUY | 80 | EURO | July 2014 | 117 | - |
| BUY | 106 | GBP | July 2014 | 194 | 1 |
| Derivative assets | $ 94 | ||||
| SELL | 2,589 | EURO | April 2014 | $ 3,783 | $ 12 |
| SELL | 1,000 | USD | September 2015 | 1,067 | 10 |
| SELL | 1,000 | USD | September 2016 | 1,067 | 10 |
| SELL | 1,000 | USD | September 2017 | 1,067 | 10 |
| BUY | 32,975 | USD | July 2014 | 35,184 | 52 |
| Derivative liabilities | $ 94 | ||||
A 10% strengthening of the Canadian dollar against the following currencies at June 30, 2014 would have decreased other comprehensive income as related to the forward foreign exchange contracts by the amounts shown below.
June 30, 2014 | ||
| USD | $ 2,709 | |
| EURO | 333 | |
| GBP | (18 | ) |
| $ 3,024 |
- 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.
- ACQUISITION
Primacy Management Inc. ("Primacy")
Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Primacy an additional $400 and $600 if Primacy attains specified levels of earnings before interest, taxes, depreciation and amortization (EBITDA) for the years ended February 28, 2013 and 2014 respectively. During the period ended March 31, 2014 (2013), the Company paid $600 ($400) respectively related to the first and second year earn-out.
Med-Team Clinic Inc. ("Med-Team")
On December 31, 2013, the Company acquired all of the outstanding shares of Med-Team for consideration of $930 of which $661 was paid on the date of closing. A discounted amount of $269 is payable contingently. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Med-Team $300 if Med-Team attains specified levels of EBITDA for the years ended December 31, 2014 and 2015. The amount of $269 represents the estimated fair value of the Company's obligation at the acquisition date. Med-Team's principal business activity relates to the management of medical clinics. Med-Team was acquired so as to expand the Company's health service offerings. The acquisition is a business combination to which IFRS3 Business Combinations applies. Acquisition-related costs amounting to $37 have been excluded from the consideration and have been recognized as an expense in the nine-month period ended June 30, 2014, within the general and administration line item in the consolidated statement of net profit.
Amtek Engineering Services Ltd. ("Amtek")
Effective April 30, 2014, the Company acquired all of the outstanding shares of Amtek for a purchase price of up to $5,890. Of this amount $3,490 was paid on the date of closing, $600 was placed in escrow and $1,800 is payable contingently.
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. With the current levels of contracts signed by Amtek and its ability to maintain its market share, management believes that Amtek can achieve its earn-out target in both years. Amtek's principal business activity relates to the provision of engineering services mainly within the Federal Government. Amtek was acquired so as to expand the Company's training and support service offerings.
A portion of the amount placed in escrow and a portion of the contingent payment totaling $1,914 are subject to the retention of the principal shareholders for a period of two years. These amounts are deemed to represent deferred compensation payable to such shareholders and therefore are excluded from the total consideration of the purchase and will be expensed in the Company's consolidated statement of net profit as deemed compensation related to acquisitions on a straight-line basis over the retention period.
Acquisition-related costs amounting to $65 have been excluded from the consideration and have been recognized as an expense in the three and nine-month periods ended June 30, 2014, within the general and administration line item in the consolidated statement of net profit.
DWP Solutions Inc. (DWP)
Effective June 30, 2014, the Company acquired all of the outstanding shares of DWP for a purchase price of up to $1,757. Of this amount $750 was paid on the date of closing, $225 was placed in escrow, $107 is payable during the fourth quarter of 2014 and $675 is payable contingently.
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. With the current levels of contracts signed by DWP and the ability to grow in its selected market segment, management believes that DWP can achieve its earn-out target in both years. Therefore, the amount of $675 represents the estimated fair value of the Company's obligation at the acquisition date. DWP's principal business activity relates to the provision of IT cyber security professionals mainly within the Federal Government. DWP was acquired so as to expand the Company's IT service offerings.
The amount placed in escrow totaling $225 is subject to the retention of the principal shareholders for a period of two years. This amount is deemed to represent deferred compensation payable to such shareholders and therefore is excluded from the total consideration to the purchase and will be expensed in the Company's consolidated statement of net profit as deemed compensation related to acquisitions on a straight-line basis over the retention period.
Acquisition-related costs amounting to $50 have been excluded from the consideration and have been recognized as an expense in the three and nine-month periods ended June 30, 2014, within the general and administration line item in the consolidated statement of net profit.
These acquisitions are business combination to which IFRS 3 Business Combination applies.
| Consideration: | Med-Team | Amtek | DWP |
| Cash | $ 661 | $ 3,490 | $ 750 |
| Prepaid | 600 | 225 | |
| Liability | - | - | 107 |
| Contingent consideration | 269 | 486 | 675 |
| Contingent payments | - | 1,314 | - |
| Total purchase price | $ 930 | $ 5,890 | $ 1,757 |
| Less: deemed compensation | - | 1,914 | 225 |
| Consideration to allocate | $ 930 | $ 3,976 | $ 1,532 |
The following are the assets acquired and liabilities recognized at the date of the acquisitions:
| Current assets: | Med-Team | Amtek | DWP | |||
| Cash | $ 56 | $ 818 | $ (120 | ) | ||
| Accounts receivable | 171 | 3,272 | 1,344 | |||
| Prepaid expenses | - | 4 | - | |||
| $ 227 | $ 4,096 | $ 1,224 | ||||
| Non-current assets: | ||||||
| Equipment | $ 4 | $ 15 | $ - | |||
| Intangible assets | 381 | 1,719 | 765 | |||
| $ 385 | $ 1,734 | $ 765 | ||||
| Current Liabilities: | ||||||
| Accounts payable and accrued liabilities | $ (125 | ) | $ (1,068 | ) | $ (967 | ) |
| Deferred tax liability | (100 | ) | (456 | ) | (203 | ) |
| $ (225 | ) | $ (1,524 | ) | $(1,170 | ) | |
| Net assets acquired | $ 387 | $ 4,306 | $ 819 |
| Goodwill arising on acquisitions: | Med-Team | Amtek | DWP | |||
| Total consideration allocated | $ 930 | $ 3,976 | $ 1,532 | |||
| Net asset acquired | (387 | ) | (4,306 | ) | (819 | ) |
| Bargain purchase gain | - | 330 | - | |||
| $ 543 | $ - | $ 713 |
Substantially all of the goodwill that arose on acquisitions relates to the value of the taxable temporary differences attributable to the acquired intangible assets. None of the goodwill arising on the acquisitions is expected to be deductible for tax purposes. The bargain purchase gain on the Amtek acquisition relates to the fact that a significant portion of the purchase price was deemed to be compensation as described above. As a result, the identifiable tangible and intangible assets on acquisitions were higher than the consideration allocated which resulted in a bargain purchase gain.
Net cash outflow during the current year-to-date related to the acquisitions:
| Primacy | Med-Team | Amtek | DWP | ||
| Consideration paid in cash | $ 600 | $ 661 | $ 4,090 | $ 975 | |
| Less- cash balance acquired | - | 56 | 818 | (120 | ) |
| $ 600 | $ 605 | $ 3,272 | $ 1,095 |
Impact of the acquisitions on the consolidated result of the Company:
Had the business combinations been effected at October 1, 2013, the revenue and net profit of the Company for the nine-month period ended June 30, 2014 would have been higher by $13,578 and $750 respectively. Management considers these 'pro-forma' numbers to represent an approximate measure of the performance of the combined group for the nine-month period ended June 30, 2014 and provide a reference point for comparison in future periods.
Management Discussion and Analysis - June 30, 2014:
(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 2014, revenues were $53,839 compared to $58,123 reported for the same period in 2013 representing a 7% decrease from the prior year. For the nine-month period ended June 30, 2014 revenues were $156,827 compared to $174,961 for 2013, a decrease of 10%.
Systems Engineering's (SED) revenues were $14,160 in the quarter and $41,070 on a year-to-date basis representing a 17% and 19% decrease respectively when compared to the $16,980 and $50,961 recorded last year. As we near the site acceptance phase on certain large engineering projects, the mix of materials and subcontracts decreases. Accordingly, while engineering utilization remained very high, actual revenues generated from engineering projects were down from the same quarter last year. Manufacturing related revenues were similar to the third quarter last year, however, they represent a significant uptick relative to last quarter. Consistent with the last number of quarters, we have experienced another strong showing in the area of ancillary product sales. Due to the project nature of its business, the SED division is susceptible to significant variation in volumes of activity from period to period.
Business and Technology Services (BTS) revenues were $39,679 in the quarter and $115,757 on a year-to-date basis representing a decrease of 4% and 7% respectively from the $41,143 and $124,000 for the same period last year. The demand for services in most of the BTS market segments continued to be affected by the government spending cuts. Compared to the prior year, we were most affected in our operations and maintenance group as DND wound down our existing vehicle maintenance contract at the beginning of this fiscal year and decided not to re-compete the work requirement. Our short term staffing group also experienced revenue declines due to overall reduced demand as well as significant competitive pressures for available work. Our health group continued to provide comparatively positive results with revenue gains in both the quarter and year to date. Our Amtek acquisition generated revenues as expected and thereby helped to mitigate some of the shortfall in other sectors.
Management expects that the marketplace for the near term will continue to be unsettled and very competitive. SED is expected to face a challenging environment in the manufacturing area at least for the near term. Also, the timing of new engineering opportunities is always subject to delay. Our backlog provides a reasonable level of revenue assurance on existing contracts and new opportunities continue to arise. However, continued cuts in federal government spending are expected to have a prolonged effect on near term revenues. The nature and extent of future government spending constraints remain uncertain and therefore, future revenues ultimately will be determined by customer demand on existing contracts as well as the timing of future contract awards.
Gross margin
Gross margin was 18.2% in the third quarter of 2014, compared to the 18.0% reported in the third quarter a year ago. On a year-to-date basis the Company reported margins of 18.3% compared to 18.4% for the same period last year. The consolidated gross margin for the third quarter 2014 reflects the successful execution of projects tempered by general downward margin pressure being experienced in both of our divisions.
Gross margin in Systems Engineering was 27.2% this quarter compared to 21.6% in the same quarter of 2013 and was 26.5% for the nine-month period ended June 30, 2014 compared to 24.2% for the same period last year. The successful execution on projects nearing completion provided excellent margins for the quarter, especially when compared to the prior year where cost increases on a certain project had negatively impacted margins.
Gross margin in Business and Technology Services was 15.0% compared to the 16.5% reported in the third quarter of 2013. For the nine-month period ended June 30, 2014 gross margin was 15.4% compared to the 16.1% reported for the same period last year. The acquired Amtek business is characterized by lower gross margins but with correspondingly reduced costs of business development and delivery. Accordingly, the inclusion of such revenues this quarter has had a dilutive effect on reported margin percentages. The traditional BTS business which is concentrated with the federal government continued to experience margin pressure. Strong competition on new work will likely negate any significant improvement at least for the near 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:
Selling and marketing, general and administration and facilities totalled $18,137 or 11.6% of revenues on a year-to-date basis compared to $18,905 or 10.8% of revenues reported in 2013. Through continued cost containment efforts, management was able to reduce its operating costs compared to fiscal 2013. However, with the decrease in revenues, total operating expenses as a percentage of revenues increased slightly. Management will continue to challenge discretionary spending; however, prudent investments in marketing and business development are still required in order to continue the evolution of our service lines and broadening of our target markets.
Deemed compensation related to acquisition and Bargain purchase gain:
These unusual items result from a portion of the purchase price related to the Amtek and DWP acquisitions being deemed as deferred compensation payable to certain shareholders under IFRS and therefore are excluded from the total consideration of the purchase. The amounts totaling $2,139 will be expensed in the Company's consolidated statement of net profit on a straight-line basis over two years, being the retention period required under the agreements. In addition, as a result of excluding a significant portion of the purchase price in the Amtek acquisition, the identifiable tangible and intangible assets on acquisition were higher than the consideration allocated which resulted in a bargain purchase gain.
Income taxes:
The provision for income taxes on a year-to-date basis was $2,724 or 25.4% of earnings before tax compared to $3,610 in 2013 or 26.5% of earnings before tax. The effective tax rate for 2014, prior to considering the impact of non-taxable transactions and adjustments to reflect actual tax provision as filed, is expected to be approximately 26.5%.
Net profit:
As a result of the foregoing, in the third quarter of 2014 the Company recorded net profit of $2,866 or $0.39 per share basic and diluted, compared to $3,276 or $0.43 per share basic and diluted in the same quarter of the prior year. For the nine-month period ended June 30, 2014, the Company reported net profit of $8,006 or $1.09 per share basic and diluted compared to $10,031 or $1.32 per share basic and diluted in the same period of the prior year. Adjusted net profit(1) for the third quarter were $2,698 or $0.37 per share basic and diluted, compared to $3,276 or $0.43 per share basic and diluted in the same quarter of the previous year. On a year-to-date basis, adjusted net profit(1) was $7,838 or $1.06 per share basic and diluted compared to net profit of $10,031 or $1.32 per share basic and diluted in the previous nine-month period.
(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. Adjusted Net profit and adjusted earnings 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 2014 | Third Quarter 2013 | Year-to-date June 30 2014 | Year-to-date June 30 2013 | ||
| NET PROFIT | $ 2,866 | $ 3,276 | $ 8,006 | $ 10,031 | ||
| Deemed compensation related to acquisition | 162 | - | 162 | - | ||
| Bargain purchase gain | (330 | ) | - | (330 | ) | - |
| Adjusted Net Profit | $ 2,698 | $ 3,276 | $ 7,838 | $ 10,031 |
BACKLOG
The Company's backlog at June 30, 2014 was $437 million with terms extended to fiscal 2018. This compares to $450 million reported at September 30, 2013. 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 2014, 2015 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 $156 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 2014 | Fiscal 2015 | Beyond 2015 | Estimated realizable portion of Backlog | Excess over estimated realizable portion | TOTAL |
| Contracted Backlog | $ 56 | $ 108 | $ 35 | $ 199 | $ 138 | $ 337 |
| Option Renewals | - | 28 | 54 | 82 | 18 | 100 |
| TOTAL | $ 56 | $ 136 | $ 89 | $ 281 | $ 156 | $ 437 |
| Business and Technology Services | $ 41 | $ 103 | $ 64 | $ 208 | $ 156 | $ 364 |
| Systems Engineering | 15 | 33 | 25 | 73 | - | 73 |
| TOTAL | $ 56 | $ 136 | $ 89 | $ 281 | $ 156 | $ 437 |
FINANCIAL CONDITION AND CASHFLOWS
Operating activities:
Cash inflows from operating activities for the nine-month period ended June 30, 2014 were $5,547 compared to cash inflows of $10,071 in 2013. This year's decrease is the result of lower cash earnings coupled with the 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, 2014, the Company's total unearned revenue amounted to $5,506. This compares to $4,059 at September 30, 2013, with the increase primarily attributable to advance billings for work to be performed in a future period.
Financing activities:
During the nine month period ended June 30, 2014 (2013), 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.
During the nine-month period ended June 30, 2014, the Company repurchased 64,500 common shares through its normal course issuer bid at an average price of $19.79 compared to the previous year when the Company repurchased 196,570 shares at an average price of $20.33.
Investing activities:
During the nine month period ended June 30, 2014 (2013), the Company paid $5,572 (400) for various acquisition as described in the interim financial statements.
Capital resources:
At June 30, 2014 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 $612 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
| Q3/14 | Q2/14 | Q1/14 | Q4/13 | Q3/13 | Q2/13 | Q1/13 | Q4/12 | |
| Revenues | $ 53,839 | $ 51,186 | $ 51,802 | $ 57,502 | $ 58,123 | $ 58,932 | $ 57,906 | $ 58,137 |
| Net profit | $ 2,866 | $ 2,364 | $ 2,776 | $ 3,024 | $ 3,276 | $ 3,354 | $ 3,401 | $ 3,364 |
| Net profit per share | ||||||||
| Basic | $ 0.39 | $ 0.32 | $ 0.38 | $ 0.41 | $ 0.43 | $ 0.44 | $ 0.45 | $ 0.44 |
| Diluted | $ 0.39 | $ 0.32 | $ 0.38 | $ 0.41 | $ 0.43 | $ 0.44 | $ 0.45 | $ 0.44 |
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 continues to believe that the Company is well positioned for sustained growth in the long term. The Company operates in markets that will continue to require the services that the Company offers. To further assure itself of a stable source of revenues, the Company will continue to focus on increasing the percentage of its revenues derived from recurring business while pursuing new business in adjacent and non-government markets. The recent strengthening of the company's backlog provides an added degree of confidence for the realization of future revenues.
The Systems Engineering Division has been working within a sustainable satellite sector and the division is expecting new opportunities to arise as systems adopting the latest technologies will be required by customers wishing to maintain and improve their service offerings. Custom manufacturing activity levels will continue to be directly dependent upon SED's customers' requirements. Continuing volatility in orders is anticipated as both government and commercial customers are curtailing traditional spending patterns. While capital procurements by DND are relied upon to provide upcoming manufacturing opportunities, recent delays, deferrals and cancellations are creating intense competition for available work. Changes in the relative value of the Canadian dollar will impact the Systems Engineering Division's competitiveness on projects denominated in foreign currencies.
The Business and Technology Services Division's services are adaptable to many different markets. Currently, its strength lies in providing program management and delivery services to the Department of National Defence. Management believes that in the long term, this department and many others within the federal government will continue to require more support services from private enterprises to supplement their current workforce. However, current cost cutting initiatives in the federal government have already had a negative impact on traditional BTS revenue sources and it is anticipated that the continued roll out of these initiatives could further impact demand, at least in the short term. Management believes that the types of service the division offers will continue to be attractive to government agencies in the long term and the division continues to assess how it can address new markets and seek new opportunities outside of the Federal Government. Recent acquisitions have bolstered the division's performance and it is expected that overall, the acquired companies will continue to meet and exceed the financial targets established as part of the acquisitions.
GUIDANCE
The company's third quarter performance was below that of last year and reflects constrained government spending and the related increase in competitive pressures. While we have seen some improvement over the last quarter we still expect that it may take some time to experience any significant rebound in certain market segments. Fortunately recent contract signings have helped to solidify the backlog and provided for added revenue confidence. Ultimately, revenues realized will be dependent on the extent and timing of future contract awards as well as customer utilization of existing contracting vehicles. In addition, the requirement to categorize certain acquisition payments as compensation expense will also negatively impact fourth quarter earnings by approximately $0.04 per share. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2014 to be in the range of $210 million to $230 million and net profit per share in the range of $1.40 to $1.60 per share.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the most recent interim quarter ended June 30, 2014, 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 2014, and with the Management Discussion and Analysis in the 2013 annual report, including the section on risks and opportunities.
Date: August 6, 2014
Contact Information:
President and Chief Executive Officer
306-931-3425
Jacqueline Gauthier
Chief Financial Officer
613-599-8600