Ottawa’s Calian continues profit streak into 2019 despite hit from acquisition costs

Kevin ford
Calian Group CEO Kevin Ford. File photo.

Ottawa’s Calian Group stretched its streak of profitable quarters to 69 in the first earnings period of fiscal 2019, the company reported Wednesday ​– though its bottom line took a hit due partly to costs related to its recent acquisition spree.

Calian (TSX: CGY) booked first-quarter revenues of $79.9 million, up five per cent over the $76.2 million it reported in the same period a year earlier. However, its net profit for the quarter was $3.3 million, or 43 cents per share, a drop of almost 20 per cent year-over-year.

The company said its spate of acquisitions over the past several months boosted operating costs and depreciation expenses in the quarter, while the firm said it also spent more on sales and marketing compared with a year earlier.

In addition, Calian said it put more money into facilities such as its new headquarters on Palladium Drive, leading overall operating expenses to jump by more than $1.7 million over last year.

CEO Kevin Ford told analysts on a conference call he expects the firm’s M&A strategy and continued investments in new products to pay dividends over the long term.

“I really believe that Calian is at a pivot point in the company’s history as we continue to invest in R&D and headcount to drive long-term growth for the company,” he said, noting the company invested $650,000 in new product development in the first quarter. “We continue to proactively search for companies to support our growth objectives as we look to diversify our customer base as well as evolve our services.”

Seasonal markets blamed sales drop

While revenues at the firm’s Ottawa-based Business and Technology Services division were up 13 per cent year-over-year to nearly $61.7 million, Calian’s Saskatoon-based Systems Engineering division ​– which specializes in satellite components and has also expanded into the aerospace and agri-tech sectors ​– saw its sales drop 16 per cent to about $18.3 million.

The company blamed the fall in systems engineering revenues on the seasonal nature of its products and services and the fact the division spent much of the quarter ramping up production for new contracts.

“I don’t really think it’s a slowdown,” Ford said. “I think we’re just dealing more with a timing issue.”

Calian also said two of its key acquisitions over the past nine months – local cybersecurity agency Secure Technologies International and Regina-based agri-tech outfit IntraGrain Technologies – typically generate most of their revenues in the second and third quarters, meaning the deals’ true impact on the firm’s bottom line won’t be felt until later in the year. If the expenses related to those buys were taken off the books, Calian’s net earnings for the quarter would have been about 50 cents per share, CFO Jacqueline Gauthier told analysts.

Ford said the acquisition of IntraGrain is just the first step in a long-term strategy to strengthen Calian’s agri-tech capabilities.

“We believe we’re just at the start of that journey and very excited,” he said. “That market, by our market research, is growing 12, 13 per cent a year, and we’ve just started entering that segment. So we believe there’s huge opportunities there.”

Executives also said the firm continues to enjoy robust organic growth.

Recent deals such as an agreement to provide training services to the Department of National Defence that could be worth up to $170 million over nine years have boosted Calian’s contract backlog to more than $1.3 billion, Gauthier said. Overall, the firm booked more than $200 million in new long-term contracts during the first three months of fiscal 2019.

“The general business environment in 2019 is strong in both divisions,” she said. “The company’s healthy backlog and its recent acquisitions should provide for a solid year.”

Calian, which cracked the $300-million mark in revenues for the first time last year, is projecting overall revenues of between $330 million and $360 million for fiscal 2019, while calling for a net profit in the range of $2.10 and $2.40 per share.

CFO transition ahead

Ford took a few minutes during the conference call to praise Gauthier, who is retiring next month after more than 18 years as the company’s chief financial officer. Ottawa’s 2017 CEO of the Year thanked his longtime colleague for her “dedication and years of service” to the organization.

“Anyone who knows Jacqueline respects her work ethic, her passion for growth and her outstanding ability to manage a complex, financial publicly traded organization,” he said, adding the Kanata company will be in good hands under the guidance of incoming CFO Patrick Houston.

“Patrick is a seasoned CFO and I’m confident he will bring an excellent tool kit in the CFO role to support Calian’s profitable growth strategy.”

Shares in Calian were down about 3.8 per cent to $29.07 in mid-afternoon trading on the Toronto Stock Exchange.