Calian Group Ltd.

Thank you, Olivia, and good morning, everyone. Thank you for joining us for Talion's Q4 and year-end 2025 conference call. Presenting this morning are Kevin Ford, Chief Executive Officer, and Patrick Houston, Chief Financial Officer. They will present our Q4 and year-end results, as well as provide an update on defense and our future outlook. 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, everyone. I'm pleased to report that we close the year on a high note. We delivered record results, the highest revenue quarter in our 43-year history, and the second highest adjusted EBITDA and a return to positive organic growth. Following a period of slower momentum, we've turned the corner with renewed momentum. Our team's dedication and resilience have fueled a solid recovery with both revenues and adjusted EBITDA showing year-over-year growth. Our defense solutions continues to lead the way with double-digit growth, reflecting riser sector investments and our ability to convert demand into results. We finished this year with $122 million in signings, and this translated to over $1 billion in net signings this year, an increase of 48% over the previous year. Shortly after the end, we supported our sign with a large ground system project. with a leading global space company. This project will deliver four QV band antennas and is a sign of our leadership in the space ground segment. Now, I'd like to take a moment to highlight the significant progress we've made in advancing our defense-focused strategy over the past year. This area has been a key driver of our growth and innovation, and I'm excited to share the milestones and achievements that are shaping our future in this sector. Our defense solutions now represent 50% of consolidated revenues. These revenues grew 17% year over year as demand accelerates across Canada, the UK, and Europe. Growth is broad-based, spanning mission-critical healthcare, manufacturing and engineering, cyber, and military training. Over the past year, our team has demonstrated agility in a rapidly shifting defense environment. In Q3 fiscal 24 and into fiscal 25, we successfully navigated $1 billion in Canadian defense cuts, while expanding our European footprint from less than $10 million in revenues in fiscal 23 to over $65 million in fiscal 25. This adaptability not only offset domestic budget pressures, it strengthened our global presence and set the stage for sustained growth in key markets. In fiscal 25, we laid a strong foundation for long-term growth and defense through strategic acquisitions, operational realignment, new contracts, partnerships, and key hires. To expand our northern capabilities, we acquired AMS, strengthening our healthcare portfolio and positioning us for future federal investment in the Canadian north. This, along with our relationships with provincial and territorial governments, sets us up to pursue new contracts as northern programs develop. Shortly after the end, we acquired Enfield Scientific, enhancing our defense offerings and opening new market opportunities. We also refocused our operations to align with growth opportunities, including launching U.S.-focused subsidiary to target federal defense contracts. In parallel, we integrated our defense and space capabilities, forming a unified segment that combines advanced technologies with immersive training allowing us to deliver comprehensive solutions that stand out in the market. Our defense strategy has already yielded significant contract wins, including agreements with NATO and allied countries, and a $250 million expansion to our health services contract with Canadian Armed Forces. At year end, our backlog reached $1.4 billion, with $1 billion in the defense sector. To support growth and innovation, we've forged new partnerships. We've launched Callion Ventures to help Canadian SMEs scale defense solutions and signed our first partnership with Tactical to co-develop ISR software for the Canadian Armed Forces. We also signed a Memorandum of Understanding with Ericsson and Saab to explore collaboration in areas such as secure communications, supporting Canada's defense modernization. Finally, we strengthened our leadership team with key hires, including Major General Rock Pelletier as Regional VP Global Defense and Security, and Chris Pogue, President, Defense and Space. Their expertise will help us build on our momentum and pursue new opportunities. Northern modernization and sovereign space capability have the potential to reshape California's trajectory, positioning us to participate meaningful in the opportunities ahead. Few companies can contribute across connectivity, cyber and digital, training and healthcare, and we can. Our diversity isn't just a feature of the business, it's a competitive advantage. On that note, let me say a few words on the federal defense budget that was announced on November 4th. Overall, we view the federal 2025 budget as positive for Callian. On the defense training side, increased CAF funding and readiness initiatives, including new commitments under Operations Reassurance and Amarna, will benefit Callian's training and simulation business. These initiatives expand Canada's operational readiness commitments abroad, driving demand for enhanced training, readiness exercises, and mission-specific preparation, areas where CALIAN's expertise and existing CAP contracts position us to deliver. In healthcare, the commitment to address workforce shortages across the Canadian Armed Forces, RCMP, and CBSA will increase demand for healthcare and occupational health services. CALIAN is well-positioned to meet this need, supporting the physical and mental readiness. of Canada's public safety and defense communities. In terms of manufacturing, we are among the few companies with proven defense and space manufacturing capability, and we continue to engage with OEMs and the federal government on how best to utilize this capacity. In summary, as a trusted Canadian operational readiness partner delivering mission-critical solutions for national security, we are well positioned to benefit from this budget. The creation of the Defense Investment Agency signals further opportunities So timing of contract awards remains uncertain. While implementation details are still emerging, we remain cautiously optimistic about the longer-term impact for Kalyan and will monitor developments closely. Before I pass it on to Patrick, I just want to provide a brief update on our ITCS segment. After several quarters of reduced profitability, we took material action in Q4 to restore performance. With the departure of previous management team, we streamlined operations to improve efficiency, reducing resources, refocusing on core markets and products, and renewing our partner ecosystem. Most changes were implemented in Q4, so their impact was limited this period, but we expect meaningful benefits in fiscal 26. We also realigned the IT business to better reflect our major markets. Tighter integration with our defense solutions and essential industry customers will enable us to bring more differentiated offerings to market and improve execution across the portfolio. We're already seeing traction and mission-critical applications, including our recent contract win with the Ottawa Airport Authority. I will now turn it over to Patrick to discuss Q4 and year-end consolidated results. Patrick?

Thank you, Kevin. Q4 revenues increased 12% to $203 million as the combined growth of 18% from advanced tech, learning, and health was partially offset by ITCS, which saw revenues down 4%. The growth was 6% and was generated by the contributions of AMS completed this past May. More importantly, we returned to consolidated organic growth. Organic growth was 6% driven by advanced tech, learning and health, and partially offset by ITCS. Excluding ITCS, organic growth would have been 9%, highlighting the strength of our core operations, particularly our defense training momentum in Canada, the UK and Europe. We continue to scale our international presence with 48% of Q4 revenues generated outside Canada, our highest quarter ever, both in terms of absolute dollars and as share of total revenue. Q4 gross margin was 34% compared to 35% in the same period last year, reflecting revenue mix. This marks our 14th consecutive quarter above 30% and the fourth highest quarterly margin in the company's history. Q4 adjusted EBITDA increased to $24 million, driven by strong performance in our core markets of space, defense, and healthcare. These businesses continue to demonstrate resilience and momentum, with adjusted EBITDA up 32% when excluding the lower performance in our ITCS segment. Importantly, adjusted EBITDA grew 32% versus 18% revenue growth, reflecting improved operational efficiency and expanding margins. Given the IPCS underperformance, adjusted EBITDA margins stood at 11.9%, down from 13.1% for the same period last year. Now turning to full year results. Revenues in FY25 were up 4% to $774 million, a new record for Callion. It included 6% growth from acquisitions and negative 2% from organic growth. The decrease in organic growth was primarily due to defense cuts in the first half. delays in major space programs, and uncertainty surrounding tariffs at the beginning of the year. However, as these challenges began to subside, we posted positive organic growth in the second half. Adjusted EBITDA declined 15%, primarily reflecting the underperformance in IPPS. As Kevin mentioned earlier, we have addressed this in Q4. Excluding these impacts, adjusted EBITDA increased 9%, underscoring the resilience of our core business. Despite these headwinds, we maintained double-digit adjusted EBITDA margin and extended our track record of profitable growth to 24 consecutive years. Turning to cash flow and capital deployment. In FY25, we generated $45 million in cash flow from operations compared to $87 million last year, primarily due to lower EBITDA, higher interest expense, and working capital returning to normalized levels. Importantly, we maintained working capital efficiency below 10%, consistent with last year, reflecting disciplined execution. Operating free cash flow was $52 million, reflecting strong conversion of 67% from adjusted EBITDA. Turning to capital deployment, we used our cash and a portion of our credit facility to make capex investments of $11 million and $39 million in acquisitions, including earnouts. We paid the earnout related to our May 2024 acquisition of Mabway, reflecting the strong performance and successful integration of that business. We also provided a return to shareholders with $13 million in dividends and $26 million in share buybacks. This represents the purchase of 563,000 shares, or approximately 5% of shares outstanding. In August, we renewed our NCIB, reflecting our view that Calian shares remain undervalued. We intend to continue repurchasing shares on an opportunistic basis in FY26. At the same time, we are actively evaluating opportunities across defense, space, health care and energy. We will continue to prioritize capital towards strategic acquisitions alongside the NCI. In early October, we acquired NCO Scientific, a small but strategic addition that strengthens our relationship with the Royal Canadian Navy and Lockheed Martin. This expands our presence in international defense markets and positions us for future naval opportunities. Looking ahead on M&A, our pipeline remains strong. We're engaged in multiple discussions and remain optimistic about completing several strategic transactions in FY26. Let's take a look at the balance sheet and cash availability. As of September 30th, we had drawn $131 million on our debt facility. During Q4, we repaid $10 million on our facility as we didn't close any acquisitions and only repurchased a small amount of shares. We ended the quarter with net debt of $85 million, representing a net debt to adjusted EBITDA ratio of 1.1. This is well below our threshold of 2.5 times. At the end of September, we renewed and expanded our debt facility. The new three-year revolving credit facility totaled $350 million, compromising a committed $200 million and an accordion feature of $150 million. This provides us with ample financial flexibility to support our growth strategy. As I transition into the CEO role on January 1st, I want to share a few thoughts on our future direction. My focus will be on leading the next phase of growth through a refreshed strategic plan to accelerate Calion's evolution as a leading Canadian industry champion, one designed to drive long-term shareholder value. My vision centers around three objectives, targeting high-growth vertical markets, driving lean and efficient operations, and investing with discipline and purpose. We'll begin by focusing on vertical markets with strong growth momentum, specifically defense-based and essential industries, strengthening and expanding our existing portfolio of products and services, which has already generated a backlog of 1.4 billion. To create a leaner, more competitive organization and unlock greater convergence across our markets, starting in FY26, we will reorganize into two core segments, defense and space led by Chris Pogue and essential industries led by Derek Clark. This streamlined structure will enable us to move faster, seize emerging opportunities, and continue delivering solutions our customers truly value. Our next phase of investment will prioritize divesting non-core assets outside our primary vertical markets while leveraging our track record of strong M&A to acquire businesses that strengthen our position in these core markets. Kalyan enters this next phase from a position of strength. We're well positioned to benefit from a significant period of growth and investment by our largest customers, supported by favorable domestic environment for Canadian companies. To highlight our refreshed strategic direction and introduce our new leadership team, we plan to host an investor day in the spring. This event will give investors the opportunity to engage directly with our executives and gain insight into our long-term growth plan and priorities. On that note, I want to provide some thoughts on our FY26 outlook. Looking ahead to FY26, we're optimistic about recent government commitments to defend spending. In the interest of visibility and transparency, we will not be issuing guidance as we have in the past years. Instead, we will provide long-term view of the business and short-term directional growth indicators. Over the next several years, we are targeting annual revenue growth of 10 to 15% driven by both a combination of organic growth and strategic acquisition. This aligns with our historical 12% revenue CAGR over the past decade. As we pursue this growth, our focus will be on enhancing EBITDA, free cash flow, and return on invested capital by prioritizing high growth verticals, streamlining operations, and investing with discipline. Accordingly, we aim for adjusted EBITDA expansion as we deliver top line growth. For FY26 specifically, based on our existing business, and recent developments, we expect double-digit growth in both revenue and adjusted EBITDA relative to FY25. This positions us at the low end of our long-term growth target range. This outlook is supported by the momentum we've displayed in Q4 in our defense and space and essential industry segments and the full-year contributions from racing AMS and in-field scientific acquisitions. Future M&A we complete would be incremental. In terms of capital deployment, we expect working capital usage to remain aligned with revenue growth. We plan on maintaining CapEx in the $10 million to $11 million range, supporting both core operations and targeting growth initiatives. Our dividend policy remains unchanged with a payout target of 25% to 30% of operating free cash flow, underscoring our commitment to shareholder value while preserving flexibility for strategic investments. M&A will continue to be our primary use of cash as we expand our capabilities and market reach. We'll also evaluate share repurchase on an opportunistic basis, taking market conditions and capital priorities into account. Before we begin the question period, I want to let everyone know that Kevin will share some parting words afterwards, so please remain online until the end. And with that, Livia, I'd like to open the call to questions.