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spk00: Good day and welcome to the Callion Group Q3 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, this call is being recorded. I would like to turn the call over to Jennifer McKay, Director of Investor Relations. You may begin.
spk04: Thank you, Michelle, and good morning, everyone. Thank you for joining us for Callion's Q3 2023 conference call. Presenting this morning are Kevin Ford, Chief Executive Officer, and Patrick Houston, Chief Financial Officer. As noted on slide two, please be advised that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results. As a reminder, all amounts are expressed in Canadian dollars except as otherwise specified. With that, let me turn the call over to Kevin.
spk07: Thank you, Jennifer. And let me start right away with an overview of our Q3 results. After many years of meeting or exceeding expectations and considerable growth, we did not meet our expectations this quarter on some of our key performance indicators. This is unusual for us, and we do not take it lightly. I would qualify our Q3 results as mixed. We had some positives and we had some negatives, but we understand where we need to adjust to get back on track, and in confidence, we will do so quickly. On the positive side, we generated strong revenue growth of 11% as a result of strong organic momentum. Our health segments rebounded nicely and posted its best quarter since the days of COVID-19, and our advanced tech and learning segments continue to show momentum from Q2. We also continue to drive gross margin performance above 30% for fifth consecutive quarter, showing our ability to adapt and deliver consistent performance despite the challenging macro environment. However, adjusted EBITDA and related margin decreased due to various investments we made coming out of our last fiscal year. We have prided ourselves on profitable growth over the last six years and restoring the business to double digit EBITDA margin is our top priority. We believe it can be done and have already, as of this call, taking steps to deliver on this. We have underwent a complete review over delivery capacity and overhead costs and initiated cost reductions in targeted areas to rebalance our investment levels. These measures are expected to generate annualized savings, cost savings of approximately $8 million with the objective of driving a more optimal level of growth and profitability. Remember that we are trying to build a double-digit growth company. That comes with some level of risk as we need to push more aggressive in terms of investments ahead of demand. As we push forward, there will inevitably be some bumps along the way. The important thing is to make adjustments quickly and move on. Our business is still strong despite this temporary setback. Our customers still want Cali by their side and our expansion initiatives are still just getting going. What gives me great confidence is that the top line is there. The organic growth is there. The new contract signings are there. The backlog is there. It's the efficiency in certain areas that's not there, and that's what we're fixing. Following the end of the quarter, we announced two key events. The first being the closing of the Hawaii Pacific Teleport Acquisition, effective August 1st. I welcome that team to the Callion family and believe they will be key contributors in the years to come. I would just like to take a moment to express our condolences to the families of those who lost loved ones in the wildfires in Hawaii. We were relieved to hear that the new members of the Callion team and their families weren't harmed. Our HPT operations are located on the island of Oahu, therefore were not directly protected. We will be donating $10,000 to the Maui Strong, which will support wildfire relief and recovery efforts in the affected communities. The second announcement was the expansion of our credit facility to give us access of up to $250 million in liquidity. This is a sign of our commitment to the continued deployment of our capital on our M&A agenda in the years to come. Before I give you an update on the four segments, I'd like to acknowledge our team. Reducing staff is always difficult, but we believe it was necessary to do so at this time to put us in a better position to continue to invest and grow in our business in the years to come. With that, let's begin with IT and cyber. ITCS had a difficult quarter. Revenues decreased by 6% to $46 million, This short-term revenue shortfall was primarily due to lower shipments in our product resale business based in the U.S. The nature of this business can be lumpy as it depends on customer spend cycles as well as demand for infrastructure upgrades. We benefited during the quarter, or we benefited during the last few quarters due to pent-up demand and some supply chain relief post-pandemic. Recall that we've been working very hard in the last 12 months to address customer backlog, resulting from the ongoing supply chain issues, and we were able to do that successfully. With that behind us, we did see a momentary pause in order intake and deliveries midway through the quarter, which affected profitability. The good news is that towards the end of the quarter, we ramped up new signings, and we believe this sets us up for more normalized performance in the coming quarters. In fact, gross contract signings were $53 million in Q3, outpacing revenues. This is an indication that bookings continue to be healthy, and this quarterly miss is just a bump in the road. However, this revenue shortfall falls straight to the bottom line. Gross margins fell to 34% from 40% in the same period last year, and this gross profit miss combined with their accelerated investments in sales and delivery capacity resulted in our EBITDA dropping by more than 50% to 3.4 million. Part of our restructuring plan implemented subsequent to the quarter end, willing to realign our sales and marketing delivery capacity with a run rate level of business. Looking forward, macro conditions are neutral with a hint of conservatism from customers due to recession fears. Realistically, we will not be able to make up the shortfall in the fourth quarter, especially since we're already expecting a lower Q4 than last year, giving significant deliveries in the final weeks of the quarter last year. But we do expect to return to more and more of these liabilities in the coming quarters. Turning to our health segment. In the third quarter, a whole segment rebounded and posted its highest revenue since the third quarter of 2021 in the peak of the pandemic. Revenue increased 23% to $49 million, primarily driven by existing customers increasing their requirements for healthcare services, as well as new programs being launched across Canada. We have now built a run-rate business of approximately $200 million in reoccurring revenues. Similar U.S. margins and EBITDA margins increased to 27% and 18% respectively. as our recent investments in recruiting and various outreach initiatives have helped us address customer needs across our portfolio. Our ability to fulfill contracts at higher utilization levels and lower turnover were key in achieving higher gross margins. In the quarter, we signed new contracts valued at $27 million. Amongst these new signings was our first software-as-a-service customer under the Nexi solution. For the fourth quarter, we expect continued momentum in the business, and we see continued strong demand signals for our existing customers for pharmaceutical CRO services that are gaining increased traction. Turning to our events technology segment. In the third quarter, we continued our momentum from Q2. Revenue increased 14% to $45 million, primarily driven by stronger telecom product sales with existing customers and increased demand for GNSS products. In fact, GNSS products generated double digit growth again at 22% this quarter. and our book-to-bill ratio so far exceeds two times. This growth comes from new large-scale customers as well as increased demand from existing customers as they include our products into more of their offerings. During the quarter, we continue to make progress on orders and projects that were delayed due to supply chain issues. We continue to see delays in certain products, but the delays have started to ease. We are optimistic that we can make further progress in the fourth quarter as we chip away at our product backlog. Gross margins improved from 29% to 35% due to a better mix of higher margin business. The contribution of more Callium products will continue to drive higher gross margins in the longer term. This gross profit margin improvement flowed to EBITDA line with EBITDA margins increasing from 14% to 16%. In the quarter, we signed new contracts valued at $50 million, outpacing our revenues. Key wins included upwards of $15 million for GNSS antennas, as well as some significant deals for defense and space products. We were also selected by the Canadian Space Agency to receive half a million dollars in funding to further develop RF over IP technology. RF over IP is the ability to digitize and transport RF signals over an IP network without data loss. This technology will be a key enabler for the introduction of virtualized satellite ground systems. For the fourth quarter, we expect to continue on this momentum given the continued easing of supply chain restrictions, delivery of ground system projects for the student loan, and strong demand for GNSS products. Turning to our learning segment. In the third quarter, Topline continued its year-over-year revenue growth momentum displayed in the last few years. Revenue increased 20% to $27 million. driven by recent investments in technology and geographical diversification as we take advantage of strong demand in the military training market due to geopolitical issues and renewed focus on readiness. Gross margins temporarily decreased to 25% as the cost of our delivery increased in advance of the contractual rate increases with customers. Predetermined increased intervals are set to take place in Q1-24. Similarly, EBITDA margins went down to 14% as we invest to support growth in new area countries in Europe. The learning segment is a perfect example where we don't want to hit the exit button in investments. The issue is that the demand signals from military training in Canada and Europe continues to be high. The procurement process is a challenge to keep up. Global defense takes time. Our strong position with our legacy contracts allow this to continue to grow revenues while we wait for procurement activities to catch up. We made the conscious decision to continue to invest in our assets to position Calion in the market because we see significant global opportunity down the road. For example, we are seeing positive growth signs in our Simfront software assets and are investing in R&D to get more features and functionality to be able to address a wider customer set in the future. In the quarter, we continue the expansion of our training globally with projects in Poland, Germany, the Netherlands, Australia, and Switzerland. This is a strong indication of our pedigree and ability to be a global training partner in defense. We also diversified inside of defense and signed contracts with academic clients, including the University of Guelph and Sioux College. For the fourth quarter, we anticipate continuing on the same momentum. As a result, we believe we are on track to break the 100 million revenue mark in learning for the first time ever. This continued growth is giving us more confidence to continue to invest to make sure we are well positioned to capitalize on the macro environment where military training has become mission critical. Now, I'd like to turn the call to Patrick to discuss cash flow balance sheet and our guidance. Patrick.
spk02: Thank you, Kevin, and good morning. In the third quarter, we generated $3 million of cash flow from operations compared to $20 million for the same period last year. The main variance this quarter is explained by a temporary increase in working capital. More specifically, working capital was negative $12 million in Q3, which puts us at negative $6 million on a year-to-date basis. They expect to return a positive working capital in Q4, and depending on the timing of some larger collections, we could end the year with working capital increase in the double-digit range. Operating free cash flow is $11 million this quarter, and represents a 78% conversion from adjusted EBITDA. In the third quarter, besides funding working capital, we used our cash to pay dividends and invest in CapEx. We do expect over $50 million in cash flow on our M&A agenda in the fourth quarter. The first of these being the closing of the acquisition of Hawaii Pacific Teleport on August 1st for about $38 million. As well as the scheduled earn-out payments related to the acquisitions of Deep Soft and iSecurity, as well as Alio Health for approximately $17 million. Recall that these earn-out amounts are recorded in full on our balance sheet at the end of this quarter. We continue to have a robust pipeline of acquisitions and are looking to continue our strategy of capital deployment going into FY24. We maintain our dividend rate at $0.28 per share. We continue to see the dividend as an important part of our balanced capital deployment strategy. We will reevaluate the size of the dividend in future quarters. We invested $3 million in CapEx in the quarter and continue to manage our spend within our target of $7 to $8 million for this year. At June 30th, 2023, our $80 million credit facility was unused and we had $41 million of cash on hand. As a result, we ended the quarter with a net cash position once again. To the end of the quarter, on July 24th, we extended and expanded our credit facility to a committed amount of $180 million, with an accordion taking it up to $250 million. This new three-year term will give us the access to additional liquidity to fuel our growth strategies. Our cash on hand combined with the new expanded credit facility provides us with $221 million of net liquidity at the end of the quarter. Given our strong cash flow generating ability and liquidity position, we are operating from a position of strength as we continue to execute both our organic growth plan and our M&A strategy. Let's take a look at our guidance for FY23. In light of our third quarter results, we are updating our FY23 guidance. Note that this guidance has been updated to include the impact of the acquisition of Hawaii Pacific Telecom starting on August 1st. It benefits from the restructuring plan for the final month of the quarter. It excludes the one-time restructuring charge of approximately $2 million to be recorded in our fourth quarter. We have not made any changes to our revenue guidance. We expect revenues in the range of $630 million to $680 million. At the midpoint, this reflects revenue growth of approximately 13%. At the end of Q3, our trailing 12-month revenue was $643 million. Turning to EBITDA, we expect EBITDA in the range of $60 to $65 million, down from our previous range of $70 to $75 million. With one quarter left to go, this range may seem a bit wide. Although we have a strong backlog for Q4 of $151 million, the range reflects the timing and deliveries of products in our advanced tech and IPPS segments. The objective of our cost reduction measures is to restore EBITDA in line with recent performance levels as we enter FY24. And finally, we expect adjusted net income in the range of $36 to $40 million. I must caution that revenues and profitability realized are ultimately dependent on the extent and timing of future contract awards, customer realization of existing contract vehicles, and potential recessionary pressures. Our guidance does not incorporate any additional M&A activity, and should we close any new opportunities, their contributions would be incremental. We see our press release in MDMA for a detailed reconciliation of our guidance. I'll now turn the call back over to Kevin to conclude our prepared remarks.
spk07: Thank you, Patrick. To sum up, our top-line organic growth was a positive, but our efficiency in doing so in certain areas was lower expectations. We have acted quickly and decisively to adjust our business and believe we'll be back in the double-digit EBITDA range in the short term. This should be seen as a minor setback and not the start of a trend. We will still end fiscal 23 with a sixth consecutive year of record revenues and gross profit. The cost reduction measures we have taken will restore EBITDA levels in line with recent performance levels as we enter FY24. and our trend of over 20 years of profitable execution remains. When I look ahead, I'm very enthusiastic about the future. Since January, I've been traveling across Canada, the US, and Europe, visiting our customers. What I've found is that our solutions continue to resonate with our customers, and what we do for them remains mission critical. Customers do choose Calium when they cannot fail. Looking to FY24, we see the opportunity for another record year. While we only provide official FY24 guidance next quarter, there are a few factors that I'd like to highlight that I believe will positively impact the new year. Expected cost savings of $8 million from the restructuring plan to restore our EBITDA margins. The full year impact from the acquisition of Hawaii Pacific Teleport, which is characterized by high margins and recurring revenue streams. Continued organic growth momentum driven by a solid demand in our four operating segments. a robust backlog of $1.1 billion and strong contract signings of $568 million in the last 12 months, and a strong pipeline of acquisitions supported by a pristine balance sheet and available liquidity north of $200 million. Finally, I want to thank our team. First, we said goodbye to some of our team members. I'd like to thank them for the hard work and dedication as they made Callion a better place to work. For employees who continue with Callion, I know we can count on you to deliver on our mission to help the world communicate, innovate, learn, and lead safe and healthy lives. At the end of the day, we are very confident that our Q3 miss was a bump in the road, and over the next quarters, we'll unwind. And we'll be back to double-digit EBITDA margins and continue our growth momentum on our journey to $1 billion. And with that, Michelle, I'd like to now open the call to questions.
spk00: Thank you. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 11 again. Our first question comes from Maxim Matyshansky with RBC. Your line is open.
spk01: Yeah, good morning. I just wanted to touch on the cost reduction. Can you maybe just give a bit more color in terms of how this came about, why now, and maybe what parts of the business will be impacted the most?
spk07: Yeah, thanks, Maxime. I think we have a few questions there. I think from the why now and how it came about, you know, we obviously monitor monthly, quarterly, in real time most times, the performance of the company. And, you know, I'll take the hit with regard to an agreement in the business at the beginning of last year that I thought we were going to put us in a position to continue our growth momentum in certain areas. And some of those are not coming to fruition. There's some macro conditions we're dealing with. So why now is that I felt that I don't see some areas, the macro conditions, you know, changing dramatically. And I thought it was prudent to make those changes now and do so quickly and do so decisively so that our staff, our team, our customers know this is a blip and it is something we're moving on from. So right now is it was the right time. I felt it does position us to continue the growth momentum and a proper growth momentum. And frankly, at this time, I think it was prudent to do so to ensure we align our capacity to the performance areas that we see growth opportunities. So that's the why now. Please continue with your other questions.
spk01: Just in terms of maybe what parts of the business this will impact maybe if there's any particular segment.
spk02: Yeah, we tried to be, you know, when we looked at the performance, certainly some of the segments were performing quite well in some of the divisions within them, and other ones, the efficiency wasn't where we wanted. So, we tried to target the reductions in those areas. So, I think there was reductions in all the segments, but we tried to be targeted so that it wouldn't impact the revenue as much, given that they're in areas where we thought either the capacity was too high or the efficiency wasn't there.
spk01: Okay. And then just on the lower product resale shipment, is there any portion of that that's lost to competitors or maybe customers deciding not to upgrade or refresh their technology for a while? Or do you have confidence that that's all just timing issues?
spk02: Yeah, I think it was more timing than not. Given that we saw some of the signings come back on, you saw the signings in the quarter were still good and they came in towards the end of the quarter. So I think When we reviewed it with the team, I think it was more timing than loss to any particular person. Certainly, our bar business is very diversified. We're in seven or eight different verticals with a lot of customers. So we're diversified there. We did see a bit of a slowdown, but it picked back up. So I think it's more timing than anything more long-term.
spk01: And just a final one for me, just in terms of the profit margins in that ITCS business, they seem to be significantly lower than at least in the past few quarters. Is that all from the lower product resales? Is there something else impacting margins? Was that the investment that you were referring to earlier?
spk02: No, it was really almost entirely on that. Our recurring revenues were stable, similar to prior quarters, and then our on-demand business was also stable. So it was really... of our business, and given we've got some fixed costs there when we didn't have the gross margin from that, it flowed down to the EBITDA, which is why you saw the lower profit margins. Some of the reductions we made obviously kind of reduced some of the capacity there, and we're expecting to see better demand in the coming quarter. So I think it'll normalize, as Kevin said, back to kind of performance we've seen in the last couple of quarters. Okay, great. I'll pass the line. Thanks.
spk08: Thanks, Spencer.
spk03: thank you our next question comes from doug taylor with canaccord genuity yeah thank you uh good morning um you speak to reducing the cost to optimize the balance of growth and profitability i think the cost side pretty well articulated and understood here maybe i could get you to expand upon what you think the you know, related growth impact is that you're trying to offset on the other side of that and maybe put that in the context of your 5% organic plus 5% acquisitive, you know, growth model that you've established at various points in recent years.
spk07: Yeah, thanks, Doug. So I think it's important to recognize that the fundamentals haven't changed as far as our philosophy or approach. The five and five is still very much intact. You see the organic growth momentum we've had right now across three of the four segments. It's actually in double digits. So very strong. It also demonstrates the value of the diversity, frankly, that we've got with regard to one segment, you know, hitting some headwinds, but the others. And frankly, I think the performance was slightly overshadowed in the context of the overall EBITDA performance. But again, three segments, double digit organic growth. M&A, we just finished up with Hawaii Pacific Teleport, a very busy M&A pipeline right now as well. And then, again, seeing the progress in areas such as health and advanced technologies and learning. So I'm confident, Doug, that the fundamentals of what we've put in place and what I've been talking to the market since I've taken on this show haven't changed at all. And I was I really want to reiterate that this is this is a bump. This is not a trend and this is not something that takes us off our game in any way. We continue. We've made the adjustments and we move forward.
spk03: Okay, so let's talk about the M&A pipeline. You, at certain points, I think, hinted at the prospects of additional meaningful M&A beyond HPT by the end of this fiscal year. I mean, looking at the date here and in light of some of your comments, are you signaling much change at all in that outlook or potentially a change in your focus areas as in which sectors might be most attractive in light of some of the challenges facing ITCS, for example?
spk02: Yeah, we're pretty active, Doug, on the M&A side. We've got multiple processes going, so we're optimistic on a few of them that we can get to where we want to be. Realistically, I don't think those closed before September 30th, but to the extent we're able to follow through on some of the ones that are very active right now, they would be likely in Q1 or early in Q1. So we're optimistic there. We've got the liquidity in place. We're spending a lot of time on the M&A agenda and I think our priorities hasn't really changed. We've got strong strategic initiatives in each of the four segments and we're trying to find M&A that's successful. So I think it's continuing on there and we're optimistic about keeping pace on capital deployment here going into FY24.
spk03: Perhaps one last one then for me. You mentioned your intention to review your dividend again at some point in the near term. It's something I think you've talked about increasingly. Perhaps I can get you to potentially expand on what you think an appropriate framework might be for how you balance that dividend against your need for capital, for M&A, and the current interest rate and debt environment and all that. Could you just expand a little on your thoughts there? Thank you.
spk02: Yeah, absolutely. We've always said to try to get the payout down to kind of 30% of our free cash flows. We're kind of in that range now, which is why we've kind of gotten to where we wanted to be. It took us a couple of years as we just grew the business. So we're kind of in that range now. To your point, we've been prioritizing the deployment of capital on M&A because the return's been good and we've been getting really good results there. So that's been our top priority. But then going into next year, we keep watching it as long as the M&A targets are there. We likely hold a dividend, but we're always looking, and to the extent that that 30% starts to reduce as we continue to grow, then I think we look at it more seriously. So I think that's our short-term outlook on the dividend. Thanks for that, Keller. I'll pass the line.
spk07: Appreciate the questions.
spk00: Thank you. Our next question comes from Benoit Poirier with Desjardins. Your line is open.
spk06: Yeah, good morning, Kevin. Good morning, Patrick. With respect to the shortfall in EBITDA, you're calling almost a $10 million reduction in fiscal year 23, but on the back of the restructuring plan that will bring about $8 million of benefits, how should we be thinking about the EBITDA for fiscal year 24? Yeah, good morning, Benoit.
spk02: you remember last quarter we said we thought we'd be at the bottom of the range on the guidance um and if you take the midpoint of our new guidance that we spoke to this morning we're you know we're seven to eight million off and that's why we feel with the reductions we've made it kind of puts us back to where we thought we would be um which i think is what we wanted going into fy24 and then it's really you know looking to the to the elements kevin pointed to the m&a we just closed the organic growth and the pipeline which you know puts us back to the growth position going into next year. So I think that was the purpose of the restructuring and the size and that's why I kind of realigned our business.
spk06: Okay, that's great caller. And when you're looking at your backlog was down 8% sequentially, it looks like booking was software for health and learning. Could you provide some color about what you're seeing out there in terms of booking activity, bidding pipeline and Any slowdown in demand?
spk02: Yeah, actually, the demand has been going up. Obviously, a lot of our core contracts don't come up for renewal a lot. We've been using those and the customers have been using them to greater extent. But we do see a pretty strong pipeline, so we're expecting strong signings here going into next year in health and learning, Kevin.
spk07: Yeah, I think so. And I think actually just to comment on health, you know, we're seeing very high demand on our core health services contract with defense. Probably 100 levels of high levels we've seen in a while. So I think that's also contributing just to the backlog there, burning on health quicker than normal. On the learning side, really what we're seeing is, again, with my travels now between NATO, Europe, Canada, is Strong demand right now on our current contracts for sure. And then lots of procurement activity. But as I mentioned in the past, it's just timing. The government procurement cycles are complex and they take time. So we're so confident there's quite a few opportunities for us. We have a good pipeline of opportunities. It's just the ability for the customer to get it to the street. And as we know, the customer's under significant stress right now with regard to the reductions in capacity, the lack of capacity in the military, as well as the operational tempo. So we're trying to work with them as best we can to optimize their current contract vehicles, and then obviously we'll be ready to respond for these new procurements as they come out. And we expect that's going to unwind over the next two, three quarters.
spk06: okay okay that's great caller kevin and patrick uh if we look at the net cash it ended at 41 million and looking at q4 uh there's the upfront payment for hpt uh with the share issuance and if i'm right there are still 15 million of earnouts for that stuff so i'm just wondering if my calculation for cash outflow is okay uh in q4
spk02: Yeah, so we've got HPT as well as the tour now, so that's outflows of a little over $50 million. I think we're going to have some positive working capital impact. The collections have been stronger here starting in the quarter, and our AP payments were a bit higher in Q3, so I think we'll see some positives there. So we'll likely have some debt at the end of Q4 just because we need some cash on hand to run the business, but we'll certainly start to already between the free cash flow as well as positive working cap on Q4, which did start clawing back some of the payments they made on EMA.
spk06: Okay. And in terms of working cap reversal, do you still feel comfortable about an overall 20 million positive working cap reversal for the whole year, Patrick?
spk02: think we might miss out a bit right now we're negative six on the year-to-date basis i think q4 will be positive so depending on some of the collections we could get you know over 10 million by the end of q4 but i think it would be uh depending on the time right towards the end of the quarter and collections okay would you say 10 million for the year or 10 million positive just for people for the year okay perfect that's great color and any color about the uh or comments about the buy back these days given the valuation uh multiple yeah it's a good question it's always something that we look at um but right now you know our our main priorities just continue to deploy the capital on the agenda we're seeing good momentum there so i think that's our top priority and we're just going to focus on that obviously it's If suddenly it would change drastically on the shares or we continue to see misalignment between the growth we're driving and the stock price, I think we'll look at it more seriously. But right now, we're focused on our operational plan.
spk06: Okay. Thank you very much for the time.
spk02: Thanks, Benoit. Thanks, Benoit.
spk00: Thank you. Our next question comes from Amir Zat with Industrial Alliance. Your line is open.
spk05: Good morning, Kevin. Good morning, Patrick. On the IT side, I just wonder, did the weakness in the quarter, both on the top line and the margin performance, come as a surprise to you? Or could you start to see that like last quarter in Q2 when you guys were signaling like probably the lower ends of the guidance range? then do you feel like this weakness is due to the macro environment or part of it is also due to the leadership transition in IT?
spk07: Yeah, no, thanks. Thanks, Amber. Nice to hear from you. Maybe I'll start with your last question first. I don't in any way believe this is related to the transition team we have in place with the IT group. They're strong. I'm meeting with them. Even as of yesterday, we continue to look at every opportunity and pipeline, and they have reassured me this is a blip. And as we saw, there are strong signs in the end of the quarter that we expect to pick up. So I believe it's a blip and it doesn't in any way limit my or do I worry about that transition team. They're very strong, they're committed, and I'm confident that they're going to turn this around. And with regard to the, you know, with regards to the beginning of the quarter, we started to see some slowdown, clearly. and the resale elements and work with the team proactively in capacity, looking where the opportunities were. And we saw in the last month of the quarter a turnaround. So I just want to reiterate that this isn't something you just wait for the end of the quarter and hope results happen. We're monitoring this all the time. So we were actually working with them in the mid-quarter looking at the opportunity funnel and saw a strong pick up again in the last month of the quarter, obviously not enough to reflect in the full quarter. So we're confident to flip. I have total confidence in that team. And their macro, whether it's macro, it trends clearly on recession and that. longer term here. So our IT business will be back and running. It's also important to recognize that our cyber business was very strong, continues to be very strong, and the recurring revenues continue to be very strong. So it does reflect more on our resale than our cyber. Cyber is very strong. Our government business continues to see new wins. So it's really a piece of our IT business. I don't want the whole IT business characterized, but somehow it's having some issues here. I expect this will come back in the quarter.
spk05: That's great color, Kevin. Then I guess what I'm thinking about Q4 for this business line, last year we had a very large quarter. Can you maybe remind us how to think about seasonality in IT and cyber?
spk02: Yeah, I think there's less seasonality more than just it's a bit lumpy. Like you saw last year, obviously when we were unwinding some backlog because of supply chain issues, we were on the The positive side of the lumpiness, I think this quarter we were on the other end. I think the performance you saw kind of in Q1 and Q2 were kind of more normalized levels, and I think that's what we're trying to get back to here in the coming quarters.
spk05: Okay. Then I just wonder, on the cost savings initiative, I sort of, I guess from your prepared remarks, I thought the implied methods was that with targets ITC, but it seemed like it targets more than one area. I just wonder how it impacts your delivery capacity at all.
spk07: Yeah, great question. It was important, and it's important for people to realize that when we looked at this, this wasn't in any way a blanket reduction. This was target reduction working with each of my senior leadership team members to find areas either where we had additional capacity or it just wasn't aligned to market reality. So it was targeted, it was not just IT, it was across our business in certain areas, in corporate support services, learning, healthcare, IT, the whole business we looked at with regard to where we needed to make those tough decisions. So in no way, the important thing is areas that we have seen great demand and good growth they were basically left untouched and we wanted to make sure that in this process we did not impact our ability to meet our customer requirements or ability to meet our growth objectives so it was very surgical it was it's never fun to go through those but it was necessary it's done and we move forward then maybe one last one on health appreciate your comments on
spk05: The growth visibility going forward, so I understand the investments you are making, but just wondering on the gross margin side, a nice jump in the quarter, are these levels sustainable or how do we think about that going forward?
spk02: Yeah, we're seeing good demand. We had some new contracts come online in the second half here, so I think that's helped the margin. I think we'll see a little bit of it come back off and normalize a bit, but I think we are seeing as some of these new contracts come on, we're able to generate a bit higher margins than we had in our legacy business. So not a huge increase, but I think we're slowly trying to get better there. And I think as we've crossed this kind of $200 million run rate business and health, which is a new level for good job about looking at the business and building a more efficient health segment.
spk07: I just want to jump in on that, because I want to echo what Patrick says. Derek's been here almost six months now and really been impressed by his ability to take a look at what we have in the truck. We've reorganized some of the healthcare digital assets. We're sitting in IT under his watch. We now have a healthcare digital team. We're seeing lots of progress there. As I mentioned in my results summary, we've got our first Nexi sale. So very, very optimistic. He's got a great vision, and the team's aligned to that vision. So I think we're going to continue to see good things from our health business. Thanks. Thanks for the color. I'll pass the mic. No, that's great, Amber. Thanks for the questions.
spk00: As a reminder, to ask a question, please press star 1-1. Our next question is a follow-up from Benoit Poirier with Desjardins. Your line is open.
spk06: Yes. In the press release, there are some mentions around the timing of deliveries of products for advanced techs and IT segments. So could you maybe provide more color about those comments, and is there any relation to issues at the Viasat?
spk02: No, right now, Benoit, it's really just we had some good findings. You saw in both ITCS and AP in Q3. We need to turn those around and deliver it to people. So it's really going to come down to the timing in the last month and how much of that we can shift. So I think that's why those certainly have higher margin and impact on us. So that's why the range is bigger going into that. But the good thing is the business is there. We've got the order. We just need to turn around and order.
spk06: Okay. And last one for me, Kevin, could you give us an update on the president's search for ITCF and what you're looking for in terms of key attributes for the new president.
spk07: Yeah, thanks, Ben. So we've been a couple months into this. We had, frankly, almost over 100 applicants. So we've worked down to the last few. We're finalizing interviews now with those candidates, and my goal is still to have a new president in place in time for the beginning of our new fiscal year and sooner if I can, but we're not going to rush the process. We want to make sure we get it right. Key attributes clearly are continuing to look at our IT and cyber business, how we position that in the marketplace, with regards to increased cyber demands, cloud migration, the ability to continue to generate and increase our recurring revenue streams with our team, the global expansion that we see, obviously North America focused initially, but obviously going to Europe. So I'm looking for somebody that can bring positive energy to a track record on transforming and continue the transformation of our IT business. and that's somebody that can work across Callion with our cross-business unit updates with regard to cross-sell opportunities. So we're getting there, and I think we'll be close soon to announcing who that will be.
spk06: That's great. Okay. Thanks for the time.
spk07: Thanks, Benoit.
spk06: Good night.
spk00: Thank you. There are no further questions at this time. I'd like to turn the call back over to Kevin Ford for any closing remarks.
spk07: Thank you, Michelle. I think it's important for me to restate my confidence that this is a blip, my confidence that we're on track. For another record years, as I start looking ahead to 24, summarized, the 8 million restructuring is done. It's not something we're planning on doing, it's done. We do have HBT now on the team, I'm excited by that. We do have the organic growth momentum, you saw that in the quarter. We have the backlog still of over a billion dollars. over $568 million in signings, and now with our M&A pipeline strong and our balance sheet, I do want the market to understand I believe this is a blip and in no way a trend. Our team is committed to working through this. It's been a very busy couple of weeks, as you can imagine, and I've seen nothing but everyone putting their shoulder into this to make sure that we right-size on the CPITDOT margin. So with that, I want to thank you all for the questions and attending today. I look forward to providing an update on our next quarterly call. And with that, Michelle, we can close the call.
spk00: Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.
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