Calian Group Ltd.

Good day and thank you for standing by. Welcome to the Calean Group Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we'll open up for questions. To ask a question during a session, you will need to press Star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 1-1 again. Please be advised that today's call is being recorded. I would now like to hand it over to your first speaker today, Jennifer McCauley, Director of Investor Relations. Please go ahead.

Thank you, Victor, and good morning, everyone. Thank you for joining us for Calion's Q2 2025 conference call. Presenting this morning are Kevin Ford, Chief Executive Officer, and Patrick Houston, Chief Financial Officer. They will review our Q2 results and discuss future growth opportunities for Calion. 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.

Thank you, Jennifer, and good morning. Let me begin by recognizing that our Q2 results fell short of expectations. While this is disappointing, it's important to highlight that the shortfall is primarily limited to headwinds in our ITCS segments. The rest of the business continues to demonstrate resilience and performance in uncertain times. Notably, our overall defense business, which remains a high growth area and a strategic priority for us, is performing well, giving us confidence on the broader trajectory of the company. Let me start with our ITCS segments. Year to date, we've experienced a 15% decline in revenue, but a significantly sharper drop EBITDA compared to the same period last year. This indicates that the core challenges are more cost-related than revenue-driven, and importantly, several of these cost pressures are temporary and should start to unwind in coming quarters. Let me take a moment to clarify what occurred during the quarter. First, delayed procurement decisions by the Canadian government due to the elections affected our decisive business unit in its strongest quarter of the year. While we had anticipated some slowdown with the pending election, the impact was more significant than anticipated. The good news is that we believe this is a timing issue, and we will recapture these opportunities in the back half of the year. Second, delayed procurement decisions by the U.S. commercial customers due to longer than anticipated refresh cycles coupled with tariffs. The market uncertainty surrounding tariffs led customers in our U.S. business to delay investments as they assess the impact on their respective businesses. We expect that this uncertainty will continue while businesses absorb the new policies and adjust their operating laws. Third, we are incurring increased costs due to our cybersecurity platform transitions. from our in-house version to the Microsoft platform. Essentially, we are supporting two platforms until the transition is complete, which is expected to be finished at the end of this year. Over just six months, we've made meaningful progress across our North American market. We are seeing strong momentum with a growing number of clients, with over 30 customers now migrating to our next generation AI-infused platform, powered by Microsoft technologies. Concurrently, our data and AI practice has accelerated its pipeline growth, now exceeding 20 million. Some of these customers we have recently actively engaged with include La Vie en Rose, Crescent Energy, and Select Waters. Finally, we are actively investing in future growth by accelerating our pivot towards a services-led organization. Our strategic focus is on delivering AI-driven innovation across cybersecurity, data and AI, application modernization, and business applications. This shift is already creating strong momentum with key customers like Apache Industries who are leveraging expertise to modernize and scale their digital capabilities. As we support our customers through their transformation journeys, we're seeing longer sales cycles than initially forecasted, and these are natural and consultative engagements that drive deeper impact. While this has resulted in a temporary higher cost base, we are confident that our investments in talent, solutions, and delivery capacity will translate into long-term value creation and sustainable, profitable growth. To summarize, ITCS faced headwinds from macroeconomic conditions, the ongoing transition of our cybersecurity business to a new platform, and the challenges of repositioning towards a higher-end margin managed services model. That said, it's important to note that the impact was not uniform across the segment, as our on-demand services, for example, have remained stable and continue to perform reliably. The underlying fundamentals of the ITCS business remain strong. The market opportunities in cybersecurity and managed services are substantial, and we're firmly focused on positioning the company to fully capitalize on them. While the market is increasingly competitive, we believe partnerships with Microsoft and the recent investments we are making, combined with our proven mission critical solution capabilities, are positioning us well to gain market share. While we're in the earliest phases of our transformation, we are highly confident in the long-term outlook for ITCS. A key part of our strategic plan is to improve our margin mix with greater percentage of business stemming from our cyber and aid data and AI practices, and we believe this transition will create a stronger, more resilient, and higher value ITCS while positioned to lead in mission-critical industries. Achieving this requires ensuring the business is appropriately structured and operationally prepared to capture this growth, and that's exactly where our capable team of leaders are driving their efforts. Overall, we've made meaningful progress, but given the evolving dynamics and broader market uncertainty, it's clear that ITCS will need a few more quarters to complete its transformation and return to a sustainable growth path. In the meantime, we expect continued volatility and pressure in this segment. Elsewhere, our other three segments have felt some impact of the federal election and tariff-related uncertainty, though to a much lesser extent. Despite these challenges, they continue to demonstrate resilience and remain steady and are still in certain operating environments. While we have challenges, we are supported by a solid backlog of $1.1 billion, and I'm happy to report that's now $1.4 billion with the closure of the AMS acquisition. Patrick will share more details on our Q2 results shortly. Let me provide you an update on our defense opportunity. Last quarter, we provided you with an overview of our new go-to-market strategy for defense, which we are currently executing. Our overall defense business, which represents close to 50% of our revenues, continues to grow. In fact, trailing 12-month revenues reached $363 million, up 10% from FY24. More specifically, year over year, our international learning business has grown 395%. Our health business has grown 10% and our advanced technologies business has grown 19% in this area. We're seeing growing momentum in defense, particularly in Europe, where we've recently secured several net new contracts. While we are unable to disclose the details such as deal size, duration, or customer names to the security sensitivities, what matters most is the strength of our current pipeline now exceeding $1 billion which highlights sustained demand for mission-critical defense solutions. We are positioning the company to capture this growing demand by assembling a strategic leadership team with the experience, networks, and track record needed to drive results. As you may recall, last quarter we appointed a regional VP of global defense and security and a managing director for our UK defense, which has strengthened our bench. With this team in place, we're confident in our ability to turn high-potential opportunities into concrete outcomes. In the U.S., we continue to strengthen our brand presence and expand our commercial footprint in defense. We've begun generating incremental revenue by successfully cross-selling our existing products and services to U.S. commercial customers. At the same time, we're actively progressing towards FOCOT compliance, which is a key milestone. Once achieved, it will position us to begin marketing our defense products and services to the U.S. government, an important step in our long-term growth strategy. Turning to Canada. With the Canadian Armed Forces budget costs starting to taper off in the third quarter and the federal election behind us, we expect investments in defense to gradually increase. A major driver is Prime Minister McCartney's defense spending plan, which is expected to reach 2% of GDP by 2030. In fact, the Liberal election platform promised an additional $30.9 billion in new defense spending over the next four years with a commitment to buy Canadian, where possible, and prioritize Canadian raw materials. The plan includes filling this cash shortage of 14,500 members, who inevitably will require training and health care. While the timing of the contract awards is difficult to predict, the tailwind is undeniable. As we have said many times, defense is a marathon, not a sprint. Overall, the defense segment continues to act as a strong tailwind for the company. The global need for defense capabilities aligns with Galliance Defense Operational Readiness Platform, which delivers a comprehensive suite of services backed by decades of proven experience. These include training, IT infrastructure, health services, cybersecurity, space communications, and manufacturing. With all of these defense opportunities in the works, we strongly believe we're set up to participate in a meaningful way as the activity racks up. Besides defense, we believe space and health are backed by strong fundamentals and favorable tailwinds. In line with our strategy to sharpen counties' focus and drive sustainable value creation, we are taking steps to simplify our operating model, and align the business with high potential mission-critical markets. Recent cost-based adjustments and the launch of a portfolio review aligned to our growth markets will better position us to capitalize on strong industry tailwinds. These measures reinforce our commitment to operational excellence and long-term shareholder value. We are actively reviewing our assets, investments, and business lines to ensure alignment with our long-term strategic growth objectives. This portfolio review may include exploring options for non-core assets, refining our go-to-market approach, doubling down on high-growth areas, optimizing our cost structure, and reassessing capital allocation priorities. Our goal is to focus resources where we see the greatest potential for greatest value and value creation. Earlier today, we announced the acquisition of AMS, a provider of healthcare services to the Canadian North, including the Northwest Territories, Yukon, Nunavut, and parts of Canadian Northern Province. AMS is a great fit for Italian health for a number of reasons. It broadens our healthcare solution service offering into primary care, paramedicine, and air and ground ambulance, expands and strengthens our geographic footprint and competitive position in northern Canada, and it will enable cross-selling opportunities for both government and industrial customers. It's established brand in northern healthcare, its contract backlog of roughly 250 million, Combined with its key partnerships with Indigenous communities will be an asset as we work to scale the business over the next several years. AMS provides kind with the strategic footprint in the north at a time when the federal government is making substantial investments in the region. Our presence in the north, coupled with our strengthened relationships with provincial and territorial governments, will position us favorably to secure new contracts as northern investments are rolled out. In the coming years, we believe there will be increased demand for health and defense products and services in Canada's northern strategy and planned federal investments. Our portfolio review will position us well to gain from this. Now, I'll turn the call over to Patrick to give us consolidated results for Q2 and our outlook for FY25.