Q3 2019 Earnings Call
All participants please standby your meeting is ready to begin.
Good morning, ladies and gentlemen, welcome to the third quarter 2019 conference call for much more no Chapelle Inc. Please note that this conference call will contain forward looking statements, which reflects management's current beliefs and expectations regarding the corporation future growth.
Lots of operations actual results could differ materially from those anticipated I would now like to turn the meeting over to Mr., Stephen <unk>, President and Chief Executive Officer of more No Chapelle Inc. Please go ahead mr. lift truck.
Thanks.
Good morning, Thank you for joining us today on the call with me today is grew culture, our Chief Financial Officer, who joined the company in October and Scott Milligan, who was previously CFO and now our chief Corporate Officer.
Yesterday after market close we released Monsanto's financial results for the third quarter of 2019.
Like always you can access the earnings release financial statement Mdna on our website.
What I should tell dot com.
Today I'll review our performance in the quarter, then degree or will cover off a detailed financials.
Scott is here to participate in the Q and a for any required historical information once we open the call for questions.
Before we dive into the result, I thought it provide a little historical context on where more people is today and what we've achieved in the past decade.
Since 2009, we've tripled the size of our business as part of that we're on track to double the size of our Canadian revenues, but another this year. We also expect the by the end of the or are you S. In international business will be larger than our entire company was in 2009.
During this period of strong growth over the past decade, we continue to be profitable improving EBITDA margins along the way.
Behind all those numbers in growth is a commitment to creating and delivering shareholder value that our commitment remains solid as ever.
Now onto the quarter.
As we indicated in the earnings release, we delivered another quarter of profitable growth in line with our expectations. Our results reflect continued progress with our growth strategy at a focus on strengthening our power brand in employee well these days.
Let me mention a few key business wins in the quarter buyer lines of business.
Beginning with life works are well being business. We're building on our market strength is one of the world's largest providers of total welding solutions and employee and family assistance programs.
Today, we have converted over 1.8 million lives to our core wellbeing platform.
For 1.4 million in the previous quarter, and we anticipate seeing that number continue to grow.
In the quarter Lifers delivered new sales wins, along with up sell opportunities.
In the U.S., our life worst division one several important contracts with global companies to bring their employees onto our well being platform integrates services across a broad continue look here that we believe differentiates us in the market.
One contract is with a global fruit and transportation company operating in dozens of countries.
Another win as a large industrial and aerospace organization also worldwide and scope.
The potential significance of these wins goes beyond growth in or U.S. operations today, we see growth opportunity support North American multinationals that need total wellbeing solutions for their employees globally.
We already support a large number of global companies outside North America, and we will continue to scale or operations efficiently in these growth areas.
In retirement solutions, we had a significant sale to financial services company headquartered in Western Canada, we've been selected to become their record keeper for their retail business clients.
Turning now to our health and productivity solutions business. We're pleased by a major sale to want to Canada's largest transportation companies.
We are working to optimize their approach to workers compensation, which can be a significant cost center as it relates to issues such as long term disability.
The ability to help people return to work healthy and productive.
And finally onto our benefits and pension administration solutions business.
The highlight of the court in the quarter of course is the acquisition Mercer Standalone large market health and defined benefit pension plan administration business, which closed in August .
In addition to bringing in significant and profitable revenues. This acquisition fits with all five pillars of our strategic plan.
For one it accelerates our growth in the us market for health and welfare solutions, particularly in the large corporate space.
Second it strengthens our portfolio technology enabled HR solutions.
Different size, how vital that technology strategy is to our business today and for Tomorrow, We appointed our first chief data in Technology Officer. This year in joining our executive leadership context, Bilsky brings deep expertise in areas, such as cloud computing and digital transformation.
Both vital competencies in delivering technology enabled HR solutions.
Third given the talent in the Mercer organization, we have a tremendous resource for continuing to be a leader in delivering new innovative HR solutions to the market.
Fourth by bringing in the Mercer client base, Dennis Court technological capabilities, we've acquired assets maker operation more scalable and efficient as we keep growing.
And finally, we believe the total package of Mercer clients technology people end market position will contribute to our objective of owning the employee wellbeing space.
We've been very impressed with the Mercer people, joining our team, bringing deep expertise and experience in an important growth market for us.
Finally, a few words as we move towards the end of the year, we expect our Canadian business to keep producing grower in the mid single digit range with low double digit or high single digit growth in the United States and outside North America as we move forward, we do so with the confidence in order to propel is well positioned strategically offer.
Operationally and financially to deliver profitable growth.
Now, let me turn the call over to Greer to review the financials.
Thanks, Steven and good morning, it's exciting for me to join the team here more on Chapelle I look forward to working with our partners going forward.
Steven noted the quarter is aligned with expectations, we're pleased with our accelerating growth in the us while maintaining our performance in Canada.
The company reported 224 million in revenue an increase of 22.5%.
Up 41.2 million over the same period last year.
Organic revenue growth in the quarter was 6.2% and that number has been solidly in our range of expectations all year.
These results were primarily due to the impact of the Lifeworks and Mercer acquisitions and from increases in organic growth and our pension and benefits administration business.
Adjusted EBITDA increased by 20.9% to 43.8 million up from 34 million of same quarter last year.
The increase here is primarily due to revenue growth the acquisitions and the impact of adopting it for us 16.
Adjusted EBITDA per share was 66 cents, a 22.2% increase compared to 54 cents per share in Q3 2018.
During Q3, the company generated normalized free cash flow of 24.2 million compared to 23.1 million in Q3 2018.
Turning now to year to date, we reported 641 million in revenue.
23% increase adjusted EBITDA came in at a 134.4 million up 32.7%.
And adjusted EBITDA margins increased to 21% compared to 19.4% last year at this time.
Subsequent to quarter end as part of our strategy to ensure adequate access to capital to support both organic and inorganic growth. We XTRASORB exercised the accordion feature our revolving credit facility and receive pullbacks. Thank support for an additional 100 million capacity.
And finally on our dividend.
The company is maintaining a policy of paying and monthly dividend of 6.5 cents per share.
Before I hand, the call back over to Steven I'd like to briefly state of the company has a solid model for delivering profitable growth and creating shareholder value.
Financially, our revenue and EBITDA growth recurring revenue profile and cash flow generation are all indicators of the company's ability to execute on that strategy, which Stephen referred to earlier and with that I'll turn it back to Steve. Thanks career I'd like to thank everyone on the call for your time, so far today, we'd be pleased to now answer.
Your questions Lori could you go had an open the line.
Thank you.
Please press star one at this time, if you have a question there will be a brief pause while the participants register for questions. Thank you for your patience and the first question is from Stephanie price from RBC. Please go ahead, good morning morning, Stephanie Steven.
Correctly, you mentioned low double digit.
Or high single digit growth in the US if you look for next year in the past I think you've talked about double digit growth in that region can you talk a little bit of but the puts and takes Aaron and that guidance.
And it's really around the fact that as we did the merger acquisition in the U.S. and we've got a much larger base than we did before.
The 10, 12% double digit growth in the us might be 910, 11, something like that so it's fairly close because just on larger based on what we had before you think of that the two pieces that came over with Mercer as well Stephanie.
The defined benefit pension please piece.
On is probably a little bit lower growth and the health and benefits and then piece is probably a little bit higher per site growth.
Okay.
Okay and then.
Credit line being increased by about 100 million post the quarter Green maybe this one's for you welcome.
Can you talk a little bit <unk> capital structure, and the leverage ratios that you're comfortable with going forward.
Yes, Hi, 70, so vis vis exercised the accordion was really just to give us a little more flexibility and you look at where the facility as versus where we are kind of running it.
Longer term I think we'll have a look at.
Other options to terminate but I think there's nothing I would say that that's eminent.
Ultimately we want to side.
The capital structure out to be flexible to to achieve our capital allocation goals and also will do but I think you know nothing really specific I would say.
Stephanie as Stephen just to jump in I think we'd expected continued to be somewhere between two and three times leverage.
Perfect and then maybe just one other quick one for me is giving you mentioned technology coming with the Mercer acquisition can you elaborate a little bit on on that technology.
Yes, it was actually quite an interesting one from our standpoint, because Mercer was actually running a system SBC, which is very similar to.
An acquisition that we get a number of years ago. So we're very familiar with the technology, which is really why we don't have to convert declines over to our system as we did with the Mercer acquisition that we had in 2012 in Canada.
Perfect. Thank you.
Thanks, Stephanie.
Thank you once again, please press star one on your telephone keypad. If you have a question. The next question is from Graham writing from TD Securities. Please go ahead.
Hi, good morning.
Let me address.
Just wanted to start on just some color around the EBITDA margin this quarter.
If I make an assumption on.
16, being roughly 130 basis points it looks like margins are actually down year over year.
Maybe just provide some color on what was what was driving that.
Yes, Sir Graham So why don't I take a shot to this on my guys can jump in.
So you've got it right on the IRS 16 piece I think.
The margin in the Mercer businesses, a little bit lower I'm not sure how much we talked with us at the time, but.
This is a great deal it just happened to be lower margin business. So there's no call. It 100 basis points on a run rate basis headwind on that and then the other side of that assist efficiencies museum kind of year over year. So those are kind of the three buckets. So net net.
Year over year, there is an improvement, but you're right off for us is as part of that and others that went on Mercer and then improvements that we've made the efficiency of businesses.
So if we were to strip.
The Mercer head with because it was not a full quarter Ray this is to.
Six or seven weeks I believe so for your strip that out what was the like what would the margin lift have been year over year, excluding ideas. So with outerwear. So let me say here without Mercer. So we had a one 1% or 100 basis points year over year without Mercer just gotten because there is two to three months.
At 100 basis points, Uniclic 60 to 70 basis points or something like that right. This is just real technical background will now okay.
Okay.
And then I guess, what's your expectation going forward.
Theres a few me moving parts here you've got.
$50 million I think of cost synergies that you've targeted for 2020 from life works and then you've got.
Transformational savings, which I think are approaching.
$10 million run rate is there any overlap fairly I have those numbers right is there any overlap there between those two pieces of efficiencies.
No I think other side it does but I think there just on ongoing the way we think what this other efficiencies that we take note of the businesses efficiency, but we're expecting to see it's kind of early days youngest getting on getting my hands around this thing, but and we're also just putting together our forecasts and budgets for next year.
I think.
Again, we're going to see headwind on.
The Mercer acquisition as it becomes more of a full year, so you'll see a little bit of that and then some of the work that we've done.
To date that hasn't been kind of full year appreciation, we'll see some of the offset of that so if we could achieve kind of more or like what our full year to date margin level is that's kind of what we're looking at so in this quarter is not necessarily representative of what we did see going forward.
Okay. So just to be clear year to date I think you're at 21% is that.
That's a reasonable target at this point unless you.
So unless your revised is higher.
You got to occur.
Okay.
I think thats it for me thank you.
Thanks.
Thank you next question is from James Gordon from National Bank Financial. Please go ahead.
Yes. Thank you good morning.
Just one follow up on clarify that that loss line of questioning the the 21% that you're talking about.
That would be a reasonable run rate for 2020 inclusive of all of the.
Huh.
All of the items here I have for while I guess I first succeeds on a factor any more than 2020, but mercer and transformation.
Yes, Dan its career so.
Keep taking the grain of salt the right I mean, we're early on in the dividing processors lot of pieces that comes together, but I'd say that's at this stage that's kind of what we see is as our target for next year.
Okay.
Can you can you talk about the the transformation plan just a little bit.
The the expenses related to that project continue to sort of pop up I think last quarter, we talked about those expenses nearing an end here in 2019.
But still there.
Pretty elevated I'm, just looking for a little bit more color around where you see those expenses trending by the end of the year and will it for sure be done in 2019 or will some of the spill into 2020 as you move forward.
Yes, Jim Steven Let me start and then I'll turn it over to here I think the first thing I would say is the project will be done. This year. We're just in the midst of wrapping it up.
A little bit in Q4, but will be fully wrapped up in Q4.
The project was really focused on two things. It was focused on first of all really dealing in with our working capital and we've seen some nice improvement there were down a couple of days DSL.
So that was very good and then there is some run rate savings in our businesses that pretty much are starting to show up in the bottom line as well so yes, we're through.
That project and it will be down by the end of the or.
Okay, Thanks and related to life works.
Little bit of change in in disclosure. So it's hard to pull out with Lifeworks generated this quarter able to give us a little bit more color around the performance.
VAT units in terms of revenue growth on an organic basis, and I'm thinking back to previous quarters were where you've disclosed lifeworks generated sort of around the 30 million dollar mark per quarter, I'm wondering where that sits today.
Yes, let me start it's Steven here I, a couple of things. So I think we are on that run rate with life works as you can imagine as we win new deals.
It's hard to figure out what's attributable to lifeworks or whats attributable to our old FSS business. So we really look at as a combined entity, but I think the run rate is very consistent and then the new stuff, we're adding on top and obviously to help you much cleaner as we move into next quarter.
A couple other quick comments on Lifeworks. So I think on the strategy is dead on we're very excited by that the client feedback has been tremendous.
Around both the product where we are they work we've done to put it together, but also what we see going forward and I think I've talked before about starting to put other data from our other lines of business onto the platform think about pension think about benefits.
And there's a tremendous amount of interest from our clients and the teams are working really hard.
To get that done for early next year.
The teams are fully together the synergies are nicely on track.
I've said before the sales cycles, a little bit more complicated rather than the ABS shop, selling a full suite. So it might be a little bit slower than what we would have seen in the old the world.
But now we're pleased with where we are.
Okay. Thanks.
And just last one for me I wanted to just go back to the to the margin outlook.
As I look at my previous forecast, that's coming in probably about 80 to 100 basis points below that.
You know in terms of going back to where you thought 2020 might be are there any areas that.
Haven't delivered as much margin expansion as you expected whether it be life works for this transformation project.
Hi, Stephen again, Jim I think that big one in the numbers is really the Mercer piece to be honest is Greer said, we had a pick up from I have progressed, we had a pickup from.
On the transformation work and we had a pickup on the Lifeworks energies on and those are all on track and then Mercer, which was a phenomenal business.
This operates at a lower margin and is picking up the large corporate clients in the U.S.
But I think as we've said before that's probably on new bases points in total.
But from what we paid and what we got and the key clients and the opportunity.
I would do that deal any day.
Okay, Yeah, just clarify that I had that 100 basis points built into that forecast as well. So there's there's just feels like there's something not.
On point right now that's all.
Okay. The one other thing I would say Jan to keep in mind is on.
You know the and you guys can pull up the numbers, but the quarter was relatively flat in our retirement solutions business, which as we've talked before we expect it because we had a large project from number of years ago, Our regulatory project kind of rep ramping down this year.
So that would have been down in our administrative solutions business had a very strong quarter that would have been up and the margins between those two businesses are quite a bit different right retirement solutions being a consulting business has quite a bit higher margins than the administrative solutions business, so that might be the difference as well.
Okay. Thanks.
That's helpful. There and then.
Last one for me just in well being noticed in that quarter over quarter decline in the revenues. There is is there some seasonality at play.
That that may not have been there and in the past.
I think seasonality would be similar to what we would have seen in the past.
In a few of our businesses Q3 tends to be a little bit softer, we see that both in well being for the number of cases, we just get less cases.
When people have time off in the summer.
And we didn't last consulting business in Q3, so we really do look at quarter versus quarter in the prior year versus sequentially. Yes, okay. Thank you very much.
Thanks.
Thank you. My next question is from Graham running from TD Securities. Please go ahead.
Hi, just wanted to follow up on just the free cash flow.
When I look at it on a last 12 month basis.
Including working capital.
Itself this quarter Im just wondering if theres any color there on what was driving sort of that.
The higher working capital excuse me and is there anything thats in your outlook does expects us to normalize or.
What's your free cash flow sort of.
Thank you.
I mean, theres you talking DRAM you're talking.
Q2 versus Q3.
Yes, like you know the payout ratio I think what to 86% or something 89% or something on a last 12 month basis and it just seems to be that if you look at that drag of working capital on your free cash flow it seems too.
Has increased.
Sort of relative to last couple of quarters. So just wondering what's what's driving that.
So I think I mean again I think this another one that there is some seasonality in the working capital I don't know if that's what's driving this here, but if you'd better way to look at this I think as the year over year, and we're pretty happy with the working capital year over year as one of the things that we've made good progress on with the transformation items, but I think when you look at it Q2.
Q3 is maybe not the best way to look at no I was looking at sort of on a trailing 12 month basis.
Why the why the trend districts declined I think it's $60 million free cash flow last 12 months versus 75 million.
Last couple of quarters.
Why don't I suggest we because of the working capital items got a lot of stuff going on right. So.
I wonder if when it is take us from offline sure.
Thank you.
Okay. Thanks.
Thank you there are no further questions registered at this time I'd now like turn the meeting back over to Mr. Trump.
Thank you bye I'd like to 10, but especially my thanks to everyone on the call. We continue to appreciate your interest in our company and we look forward to other opportunities in the future, including these calls keep you up to date on what we're doing to drive our growth and success as the business. Thank you.
Thank you. The conference has now ended please disconnect your lines at this time, we thank you for your participation.
This conference is no longer being recorded.
No. This is paramount is that okay, how does that.
50 for them.
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Okay opinion, because it had been.
Okay that closely with funding.
Okay fair enough on 50, though.
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Okay.
Yes.
She was pending.
So I don't process before.
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Okay. That's good for that.
I mean.