CGY Calian Group Ltd

Calian® Group Ltd. (TSX:CGY), a diverse products and services company providing innovative healthcare, communications, learning and cybersecurity solutions, today released its results for the second quarter ended March 31, 2024.

Q2-24 Highlights:

• Revenue up 19% to $201 million
• Gross margin at 34.8%, up from 30.9% last year
• Adjusted EBITDA1 up over 50% to $25.7 million
• Operating free cash flow1 of $17.8 million
• Net liquidity of $157 million
• Appointed President, Advanced Technologies
• Completed the acquisition of the nuclear assets of MDA Ltd. on March 5, 2024
• Completed the acquisition of Mabway on May 9, 2024
• FY24 guidance increased

Financial Highlights	Three months ended						Six months ended
(i(in millions of $, except per share & margins)	March 31,						March 31,
	2024		2023		%		2024		2023		%
Revenue	201.3		168.5		19	%	380.4		316.1		20	%
Adjusted EBITDA1	25.7		16.8		53	%	45.2		31.1		45	%
Adjusted EBITDA %1	12.8	%	10.0	%	277bps		11.9	%	9.8	%	204bps
Net Profit	4.9		4.5		9	%	10.5		9.1		15	%
EPS Diluted	0.41		0.38		8	%	0.87		0.78		12	%
Operating Free Cash Flow1	17.8		10.7		67	%	32.0		22.8		40	%

1 This is a non-GAAP measure. Please refer to the section “Reconciliation of non-GAAP measures to most comparable IFRS measures” at the end of this press release.

Access the full report on the Calian Financials web page. Register for the conference call on Wednesday, May 15, 2024, 8:30 a.m. Eastern Time.

We sealed the first half of the year with a record quarter,” said Kevin Ford, Calian Chief Executive Officer. “Revenues, gross margin and adjusted EBITDA all hit historical highs demonstrating the strength of our business model and the successful execution of our three-year strategic plan. Since the start of FY24, revenues are up 20%, profitability and margins have increased significantly and over one third of our 3-year M&A target agenda has been completed with three acquisitions. Given our solid results in the first half, our confidence for the balance of the year and the contribution from recent acquisitions, we increased our FY24 guidance. We are on track to deliver another record year and one step closer to our objective of reaching one billion dollars by the end of FY26,” stated Mr. Ford.

Second Quarter Results

Revenues increased 19%, from $169 million to $201 million. This represents the highest quarterly revenue in the Company’s history and the first time surpassing the $200 million mark in a single quarter. Acquisitive growth was 16% and was generated by the acquisitions of Hawaii Pacific Teleport (“HPT”), Decisive and to a lesser extent the nuclear assets from MDA Ltd. Organic growth was 3% and was driven by double digit growth in Health.

Gross margin reached a record 34.8%, representing its 8th consecutive quarter above 30%. Adjusted EBITDA1 reached a record $25.7 million, up over 50% from the same period last year, driven by revenue growth and margin expansion as well as the benefits generated from the restructuring plan implemented midway through the fourth quarter. Adjusted EBITDA1 margin reached a record 12.8%, up from 10.0% in the same period last year, as a result of a favorable revenue mix and increased volume.

Net profit reached $4.9 million, or $0.41 per diluted share, up from $4.5 million, or $0.38 per diluted share for the same period last year.

Liquidity and Capital Resources

“In the second quarter we generated $17.8 million in operating free cash flow1, representing a 69% conversion rate from adjusted EBITDA1,” said Patrick Houston, Calian CFO. “We used our cash to repay $25 million of our credit facility and to invest in our business with the acquisition of the nuclear assets of MDA and earnout payments on past acquisitions for a total of $11 million and capital expenditures of $3 million. We also provided a return to shareholders in the form of dividends of $3 million. Given the current level of our share price, we will resume our share buyback program after a temporary pause. We ended the quarter with $157 million in net liquidity, well-positioned to pursue our growth objectives,” concluded Mr. Houston.

Mabway Acquisition

On May 9, 2024 Calian agreed to acquire U.K.-based Mabway for up to $46.4 million, including $37.8 million of cash upfront on closing and $8.6 million of earnouts. Mabway is a leader in the management of large-scale defence role-playing environments that simulate real-world operational environments and provides technical engineering education for naval and maritime communities. The company has been a prime supplier to the British Army since 2012. Mabway has several offices across the U.K., a workforce of more than 1,000 ex-military and civilian permanent staff and contractors, and services reaching into Europe and the Middle East. Mabway will be integrated in Calian’s Learning segment.

Appointed President, Advanced Technologies

On March 27, 2024, Calian appointed Valerie Travain-Milone as President, Advanced Technologies. Travain-Milone brings extensive leadership experience across GNSS, telecom, space, cybersecurity and digital services. Known for her purpose-driven approach and passion for technology, she has consistently nurtured teams towards success and growth. Holding an MBA in aerospace and with global experience in the Pacific, Europe and North America, her visionary leadership in her past role as CEO of Atos Canada fuelled the company’s expansion and accelerated revenue growth.

Acquired MDA Ltd. Nuclear Assets

On March 5, 2024, Calian and MDA Ltd. (MDA), a trusted global mission partner, have completed a transaction in which Calian has purchased assets associated with MDA’s nuclear services. MDA has provided professional services to the Canadian nuclear industry for more than 30 years, supported by a highly specialized team of engineers delivering complex project planning and management for large nuclear outages and refurbishment projects, including experience in nuclear outage tooling. MDA’s nuclear team will be integrated into Calian’s existing Nuclear business within its Advanced Technologies segment.

Normal Course Issuer Bid

In the three-month period ended March 31, 2024, as part of its Normal Course Issuer Bid, the Company did not repurchase shares for cancellation. Since the launch of the Normal Course Issuer Bid on September 1, 2023, the Company repurchased 59,320 common shares for cancellation in consideration of $3.0 million.

Quarterly Dividend

Today, Calian declared a quarterly dividend of $0.28 per share. The dividend is payable June 11, 2024, to shareholders of record as of May 28, 2024. Dividends paid by the Company are considered “eligible dividend” for tax purposes.

Guidance Increased

(in thousands of $)	Guidance for the year ended September 30, 2024			FY23 Results	Growth Midpoint vs FY23
	Low	Midpoint	High
Revenue	750,000	780,000	810,000	658,584	18	%
Adj. EBITDA1	86,000	89,000	92,000	65,987	35	%

1)	This is a non-GAAP measure. Please refer to the section “Reconciliation of non-GAAP measures to most comparable IFRS measures” at the end of the press release.

This guidance includes the full-year contribution from the Hawaii Pacific Teleport acquisition, the Decisive Group acquisition, closed on December 1, 2023, the nuclear asset acquisition from MDA Ltd., closed on March 5, 2024 and the Mabway acquisition, closed on May 9, 2024. It does not include any other further acquisitions that may close within the fiscal year. The guidance reflects another record year for the Company and positions it well to achieve its long-term growth targets.

At the midpoint of the range, this guidance reflects revenue and adjusted EBITDA1 growth of 18% and 35%, respectively, and an adjusted EBITDA1 margin of 11.4%. It would represent the 7th consecutive year of double-digit growth and record levels.

About Calian

www.calian.com

We keep the world moving forward. Calian® helps people communicate, innovate, learn and lead safe and healthy lives. Every day, our employees live our values of customer commitment, integrity, innovation, respect and teamwork to engineer reliable solutions that solve complex challenges. That’s Confidence. Engineered. A stable and growing 40-year company, we are headquartered in Ottawa with offices and projects spanning North American, European and international markets. Visit calian.com to learn about innovative healthcare, communications, learning and cybersecurity solutions.

Product or service names mentioned herein may be the trademarks of their respective owners.

Media inquiries:pr@calian.com 613-599-8600 x 2298

Investor Relations inquiries:ir@calian.com

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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 · Head Office · 770 Palladium Drive · Ottawa · Ontario · Canada · K2V 1C8 Tel: 613.599.8600 · Fax: 613-592-3664 · General info email: info@calian.com

CALIAN GROUP LTD.UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONAs at March 31, 2024 and September 30, 2023(Canadian dollars in thousands, except per share data)
	March 31,			September 30,
	2024			2023
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	45,866		$	33,734
Accounts receivable		231,379			173,052
Work in process		16,137			16,580
Inventory		25,015			21,983
Prepaid expenses		24,727			19,040
Derivative assets		41			155
Total current assets		343,165			264,544
NON-CURRENT ASSETS
Property, plant and equipment		38,420			37,223
Right of use assets		35,239			34,637
Prepaid expenses		9,997			10,386
Deferred tax asset		1,551			967
Investments		3,673			3,673
Acquired intangible assets		119,804			75,160
Goodwill		193,333			159,133
Total non-current assets		402,017			321,179
TOTAL ASSETS	$	745,182		$	585,723
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Debt facility	$	—		$	37,750
Accounts payable and accrued liabilities		188,680			105,550
Provisions		2,148			2,848
Unearned contract revenue		39,410			32,423
Lease obligations		5,106			4,949
Contingent earn-out		27,948			11,263
Derivative liabilities		108			353
Total current liabilities		263,400			195,136
NON-CURRENT LIABILITIES
Debt facility		69,000			—
Lease obligations		32,942			32,057
Unearned contract revenue		21,561			15,592
Contingent earn-out		2,806			2,535
Deferred tax liabilities		20,106			12,031
Total non-current liabilities		146,415			62,215
TOTAL LIABILITIES		409,815			257,351
SHAREHOLDERS’ EQUITY
Issued capital		228,617			225,540
Contributed surplus		5,631			4,856
Retained earnings		99,840			96,859
Accumulated other comprehensive income (loss)		1,279			1,117
TOTAL SHAREHOLDERS’ EQUITY		335,367			328,372
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	745,182		$	585,723
Number of common shares issued and outstanding		11,854,851			11,812,650
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

CALIAN GROUP LTD. UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF NET PROFITFor the three and six months ended March 31, 2024 and 2023(Canadian dollars in thousands, except per share data)
		Three months ended						Six months ended
		March 31,						March 31,
		2024			2023			2024			2023
Revenue	$	201,268		$	168,543		$	380,447		$	316,086
Cost of revenues		131,231			116,452			252,192			218,776
Gross profit		70,037			52,091			128,255			97,310
Selling and marketing		15,014			11,831			27,365			22,974
General and administration		26,636			20,493			50,270			37,893
Research and development		2,695			2,922			5,414			5,343
Profit before under noted items		25,692			16,845			45,206			31,100
Depreciation of property, plant and equipment		2,496			2,252			4,804			4,549
Depreciation of right of use assets		1,468			1,015			2,931			2,022
Amortization of acquired intangible assets		6,149			3,450			11,384			6,811
Restructuring expense		1,495			—			1,495			—
Deemed compensation		911			50			1,515			147
Changes in fair value related to contingent earn-out		4,088			2,562			4,814			3,304
Profit before interest income and income tax expense		9,085			7,516			18,263			14,267
Interest expense		1,734			95			3,281			218
Income tax expense		2,426			2,904			4,532			4,956
NET PROFIT	$	4,925		$	4,517		$	10,450		$	9,093
Net profit per share:
Basic	$	0.42		$	0.39		$	0.88		$	0.78
Diluted	$	0.41		$	0.38		$	0.87		$	0.78

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

CALIAN GROUP LTD. UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the three and six months ended March 31, 2024 and 2023 (Canadian dollars in thousands)
	Three months ended								Six months ended
	March 31,								March 31,
		2024				2023				2024				2023
CASH FLOWS GENERATED FROM (USED IN) OPERATING ACTIVITIES
Net profit	$	4,925			$	4,517			$	10,450			$	9,093
Items not affecting cash:
Interest expense		1,426				(27	)			2,524				(15	)
Changes in fair value related to contingent earn-out		4,088				2,562				4,814				3,304
Lease obligations interest expense		308				122				757				233
Income tax expense		2,426				2,904				4,532				4,956
Employee share purchase plan expense		134				138				296				301
Share based compensation expense		1,010				575				2,023				982
Depreciation and amortization		10,113				6,717				19,119				13,382
Deemed compensation		911				50				1,515				147
		25,341				17,558				46,030				32,383
Change in non-cash working capital
Accounts receivable		(49,996				(27,455	)			(61,185	)			7,259
Work in process		1,341				758				443				7,583
Prepaid expenses and other		(3,483	)			(2,879	)			(3,557	)			785
Inventory		3,570				2,942				980				(5,023	)
Accounts payable and accrued liabilities		59,181				19,729				74,697				(7,539	)
Unearned contract revenue		4,534				472				4,740				2,901
		40,488				11,125				62,148				38,349
Interest paid		(1,734	)			(95	)			(3,281	)			(218	)
Income tax paid		(2,966	)			(4,827	)			(5,541	)			(6,605	)
		35,788				6,203				53,326				31,526
CASH FLOWS GENERATED FROM (USED IN) FINANCING ACTIVITIES
Issuance of common shares net of costs		945				865				1,639				1,775
Dividends		(3,319	)			(3,280	)			(6,633	)			(6,542	)
Draw on debt facility		(24,750				(7,500	)			31,250				(7,500	)
Payment of lease obligations		(1,429	)			(913	)			(2,600	)			(1,922	)
Repurchase of common shares		—				—				(1,357	)			—
		(28,553	)			(10,828	)			22,299				(14,189	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Investments		—				—				—				(2,689	)
Business acquisitions		(10,840	)			(5,735	)			(58,297	)			(8,660	)
Property, plant and equipment		(2,796	)			(1,931	)			(5,196	)			(2,731	)
		(13,636	)			(7,666	)			(63,493	)			(14,080	)
NET CASH INFLOW (OUTFLOW)	$	(6,401	)		$	(12,291	)		$	12,132			$	3,257
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		52,267				58,194				33,734				42,646
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	45,866			$	45,903			$	45,866			$	45,903

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

Reconciliation of Non-GAAP Measures to Most Comparable IFRS Measures

These non-GAAP measures are mainly derived from the 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 nonrecurring. 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.

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 EBITDA excludes 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.

Adjusted EBITDA

		Three months ended						Six months ended
		March 31,			March 31,			March 31,			March 31,
		2024			2023			2024			2023
Net profit	$	4,925		$	4,517		$	10,450		$	9,093
Depreciation of equipment and application software		2,496			2,252			4,804			4,549
Depreciation of right of use asset		1,468			1,015			2,931			2,022
Amortization of acquired intangible assets		6,149			3,450			11,384			6,811
Restructuring expense		1,495			—			1,495			—
Interest expense		1,734			95			3,281			218
Changes in fair value related to contingent earn-out		4,088			2,562			4,814			3,304
Deemed Compensation		911			50			1,515			147
Income tax		2,426			2,904			4,532			4,956
Adjusted EBITDA	$	25,692		$	16,845		$	45,206		$	31,100

Operating Free Cash Flow

		Three months ended								Six months ended
		March 31,				March 31,				March 31,				March 31,
		2024				2023				2024				2023
Cash flows generated from operating activities	$	35,788			$	6,203			$	53,326			$	31,526
Property, plant and equipment		(2,796	)			(1,931	)			(5,196	)			(2,731	)
Free cash flow	$	32,992			$	4,272			$	48,130			$	28,795
Free cash flow	$	32,992			$	4,272			$	48,130			$	28,795
Adjustments:
Change in non-cash working capital		(15,147	)			6,433				(16,118	)			(5,966	)
Operating free cash flow	$	17,845			$	10,705			$	32,012			$	22,829
Operating free cash flow per share		1.51				0.91				2.71				1.96
Operating free cash flow conversion		69	%			64	%			71	%			73	%

Net Debt to Adjusted EBITDA

	March 31,			September 30,
		2024			2023
Cash	$	45,866		$	33,734
Debt facility		69,000			37,750
Net debt (net cash)		23,134			4,016
Trailing twelve month adjusted EBITDA		80,093			65,987
Net debt to adjusted EBITDA		0.3			0.1

Operating free cash flow measures the company’s cash profitability after required capital spending when excluding working capital changes. The Company’s ability to convert adjusted EBITDA to operating free cash flow is critical for the long term success of its strategic growth. These measurements better align the reporting of our results and improve comparability against our peers. We believe that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers. Management also uses non-GAAP measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and working capital requirements. Non-GAAP measures should not be considered a substitute for or be considered in isolation from measures prepared in accordance with IFRS. Investors are encouraged to review our financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-GAAP measures and view them in conjunction with the most comparable IFRS financial measures. The Company has reconciled adjusted profit to the most comparable IFRS financial measure as shown above.