Calian Group’s Earnings Call: Mixed Sentiments and Strategic Moves

Calian Group Ltd. ((TSE:CGY)) has held its Q2 earnings call. Read on for the main highlights of the call.

Calian Group Ltd.’s recent earnings call presented a mixed sentiment, marked by robust performance in the defense segment and strategic acquisitions, yet overshadowed by significant challenges in the ITCS segment and economic uncertainties prompting the withdrawal of FY ’25 guidance.

Strong Defense Segment Performance

The defense segment remains a cornerstone of Calian’s business, accounting for nearly half of its revenues. The segment reported a 10% increase in trailing 12-month revenues, reaching $363 million. Notably, the international learning business within defense saw an impressive 395% growth, while the health business and Advanced Technologies grew by 10% and 19%, respectively.

Strategic Acquisition of AMS

Calian’s acquisition of AMS, a Canadian healthcare service provider, is a strategic move to enhance its healthcare solutions and strengthen its competitive stance in Northern Canada. AMS brings a substantial contract backlog of $250 million and offers significant cross-selling opportunities within Calian’s existing operations.

Successful Share Buyback Program

Calian has embarked on an aggressive share buyback program, planning to repurchase up to 6% of its outstanding shares in FY ’25. The company has already spent $14 million on share buybacks over the past year, utilizing both daily purchases and block trades under the NCIB.

Record International Revenues

In Q2, Calian achieved record international revenues, with 42% of total revenues derived from international customers. This marks the highest quarter for international revenues in both dollar terms and as a percentage of overall revenues, highlighting the company’s expanding global footprint.

ITCS Segment Underperformance

The ITCS segment faced significant challenges, with a 25% decline in revenue and contributing $8 million to the $10 million decrease in adjusted EBITDA. These declines were primarily due to platform transition costs, delayed procurement decisions, and broader macroeconomic conditions.

Withdrawal of FY ’25 Guidance

Due to ongoing economic and geopolitical uncertainties, Calian withdrew its FY ’25 guidance. This decision was heavily influenced by the challenges within the ITCS segment, which faces limited visibility and timing to key opportunities.

Decreased Cash Flow from Operations

Calian reported a decrease in cash flow from operations, which fell to $10 million in Q2 from $36 million in the same period last year. This decline was attributed to lower net profit and increased working capital usage.

Increased SG&A and Corporate Costs

The company’s SG&A expenses rose from $40 million to $45 million, while corporate shared services costs reached $11.6 million, indicating potential inefficiencies that may need addressing.

Forward-Looking Guidance

Despite the withdrawal of FY ’25 guidance, Calian remains optimistic about its strategic focus on defense, space, and healthcare to drive future growth. The company is transitioning to a Microsoft platform for its cybersecurity services, expected to complete by year-end. The defense segment continues to show strength, with a pipeline exceeding $1 billion, and the AMS acquisition is set to bolster healthcare services in Northern Canada.

In conclusion, Calian Group Ltd.’s earnings call highlighted a mixed performance, with strong growth in the defense segment and strategic acquisitions countered by challenges in the ITCS segment and broader economic uncertainties. The company’s focus on strategic areas such as defense, space, and healthcare positions it for potential future growth, despite the current headwinds.