Q2 2020 Morneau Shepell Inc Earnings Call
All participants please standby your conference is ready to begin.
Good morning, ladies and gentlemen, welcome to the second quarter 2020 conference call for Mono Chappelle, Inc.
Please note that this conference call will contain forward looking statements, which reflect management's current beliefs and expectations regarding the corporation future growth and results of operations actual results could differ materially from that was anticipated.
I'd now like to turn the meeting over to Mr., Stephen lift truck, President and Chief Executive Officer of Mono Chappelle, Inc. Please go ahead mr. lift truck.
Hi, Good morning, Thank you for joining us on the call with me today is good culture, our Chief Financial Officer yesterday. After the market's closed we released mortal chappelle its financial results for the second quarter 2020.
Like always you can access the news release financial statements and our Mdna on our website.
Portal Chappelle Dot com.
We can all agree that there is more interest than usual in results for this reporting period. As this is the first full quarter since cold in 19 entered the pitcher.
Today I will review, how our business has performed during an unprecedented period in the global economy.
I will then cover off our financials for the quarter and then we will open the call for questions.
As we noted in our earnings release, we're very pleased by our performance in the quarter and year to date due to the efforts of our people and the investments we have made and <unk> infrastructure over many years Oliver operations and systems are performing a pre pandemic levels.
Given coals in 19, I think it's fair to say that our business model is proving resilient to the challenges we face the defensive characteristics of our business and especially our strong recurring revenue profile, our strengths that continue to come through in our results.
For context.
25% of our business comes from government clients.
50% is from our largest 100 clients and 75% comes from our top 400 clients.
For our business that is about 24000 clients worldwide. The lions share of our revenue today comes from Blue chip organizations, continuing to pay their bills and provide critical benefits and support to their people.
Overall, what we're seeing in the second quarter is a continuation of the trends have started to surface at the tail end of the first quarter.
We were especially pleased by how our people came together early independent Meg to rapidly activate our business continuity plan.
What is equally impressive is how our people have continued to adopt through the second quarter in a positive way to the challenges of remote work in supporting our clients. Many clients tell us that they have really leaned on us as a source of stability in providing welding services to their people.
Families and clients during an incredibly stressful time in fact in the quarter, we reported the highest client satisfaction and employee engagement levels and our company's history.
In terms of our business mix the story in the second quarter is consistent with what we saw in the first.
The economic shutdown affected some aspects of our business. We're services provided in person stopped immediately.
For example in person training.
Adhoc pension consulting and some onsite pension administration work.
At the same time other areas have expanded and continue to do so we're covering more lies in our employee and family assistance programs for some existing clients and we've added some new clients.
We have launched new versions of our products to address the reality of social and physical distancing and not to health issues related to coated 19.
Our teams have been innovated inc. innovative in coming up with new solutions and adapting pragmatically to the changing situation.
As well, we're continuing to win business and our sales pipeline is very solid.
We are pleased by the take up other pandemic specific ability CBT solution, including the provinces, the Manitoba and Ontario.
It is being offered for free to people over the age of 16 in those provinces, who are struggling with anxiety related to coated 19.
In a retirement solutions line of business.
When a significant contract to provide a major Canadian bank with the solution to support their small and medium business customers with record keeping for their pension plans.
In the United States, a key focus of our growth strategy, our administrative solutions business is producing strong results.
In the Midwest, we won a large contract with the government agency to implement and manage and automated process to move members more quickly and efficiently from their non Medicare medical plans to Medicare plans. This will result in annual plan savings for the client between 10 in.
$18 million.
In our Lifeworks business, we had a strong quarter that met our expectations with multiple wins in multiple markets.
In Canada, we locked down employee and family assistance program and total well being solution for the Canadian operations of a global retail brand.
In the U.S., we want to mandate to provide support in the area of responsible gambling.
Globally, we want a sizable contract to provide FHC plan for a major consumer beverage company.
In the quarter, we continue to migrate clients to our core wellbeing platform, which increased 19% to 3.4 million lives covered by the ended the quarter. The value of this ongoing migration is first and foremost to give more of our clients and their people at no charge and improve.
You've user experience, while setting the stage for up sell two additional technology modules.
There were other notable developments in the quarter to include the launch of our monthly mental Health Index in April the index tracks factors about the state of mental health and wellbeing in the United States, Canada, The United Kingdom, and Australia, The index as a global benchmark for major sold.
Total economic issue much like the consumer price index for the ATP jobs report.
Also in the quarter in the area of thought leadership, we launched a new media channel with a podcast to support our clients employees to keep building our brand as a global leader in employee well being the Livingwell podcast is starting to reach people not just our clients, but prospects in others.
Issues as speak to net oil.
Another accomplishment relates to our commitment to inclusion and diversity, we comprehensively updated our internal action plans, it's area of workforce culture to fight systemic racism in society.
Our updated plan is being well received by many clients and our own people.
At this point in the year, our business is performing solidly and our sales funnel continues to be strong.
Arguably our technology enabled welding solutions have never been more relevant in today's workplace organizations everywhere are struggling to support the well being of their people and to help.
Moving forward, we are focused on three growth strategies.
On the wellbeing space.
To accelerate growth through the U.S. and global expansion.
And to drive World class delivery through people and technology.
Before I hand things over degree or I would say today, we are navigating a convergence of significant for us is affecting all markets in businesses I'm thinking of three in particular coated 19.
Related economic challenges and anti systemic racism.
In this context, we're proving that morning Chappelle is both a resilient as socially responsible company that is committed to delivering results our shareholders expect and making a real difference in the world for the greater good.
On that note career will review the financials.
Thank you Stephen and good morning.
To build on what Stephens said, we delivered revenue growth of 33.5 million to 246.2 million a 15.8% increase over the same period last year.
The growth is primarily due to revenue from the Mercer acquisition and offset by the divestiture of our benefits consulting business.
Organic growth was approximately 2% for the quarter.
Of course, our long term goals are well north of but in the context of a pandemic and the shift in the business mix required by the Lockdowns across our markets. This was a satisfactory results.
Adjusted EBITDA increased by 13.5% to 52.1 million versus 45.9 million in the same quarter last year.
Adjusted EBITDA per share of 75 cents is up 8.7% from the same period last year. These increases are primarily due to revenue growth associated with the Mercer acquisition.
Our adjusted EBITDA margin was 21.2%.
Versus 21.6% in the same quarter last year, the slight decline in margin is due to the divestiture of the benefits consulting business margins were still higher than we anticipated and we're still estimating margins in the 20.0% to 20.5% range for the full year.
Profit for the quarter was 8.3 million compared to 6.3 million while earnings per share for Q2 was 12 cents compared to 10 cents per share in 2019.
Normalized free cash flow for the period was 30.8 million compared to 27.6 million in Q2 2019.
Year to date, we are aware, we expected to be would be in terms of revenue profitability and margins. We reported 489.2 million in revenue an increase of 17.2% over the same period last year, along with adjusted EBITDA of 99.4 million up 9.7%.
Again, the growth is primarily due to the Mercer acquisition offset by the divestiture of our benefits consulting business.
In the first half of the year adjusted EBITDA margins were 20.3%.
Our overall liquidity position remains very strong our credit facility utilization is in line with our expectations for Q2 with capacities to support acquisitions and growth initiatives as required.
We have not experienced any slowdown in payments from our customers to date.
And our working capital remains comparable to pre pandemic levels and inline with our internal targets.
And with that I'll turn it back to you soon.
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. Melanie. Please go ahead and open the line.
Thank you once again, please press star one at this time if you have a question there will be of response, where the participants register thank you for your patience.
The first question is from Stephanie price and CNBC. Please go ahead.
Hi, Good morning morning, Stephanie.
I was hoping you could summarize the changes that you're seeing in the pipeline and the demand environment, maybe now versus the beginning of the pandemic.
Sounds like you mentioned you prepared script that you saw pretty solid demand right now.
Yes, really good questions Stephanie I would say our sales are up quite substantially from last year. In the same period are what I would describe as our quality pipeline, which is where we are responding to an RFP, arguing a presentation is up quite a bit from last year as.
Well, our long term pipeline is down slightly.
But it tends to move quite a bit because you put stuff in.
That isn't as sure early on so overall, we're quite pleased with the pipeline and the teams continue to sell in this environment.
Thanks, and then on the organic growth in the quarter, obviously solid giving the environment, but im just curious about the puts and takes and where you're seeing maybe a bit of a slowdown versus where you kind of expected to be.
And how you think is that the rest of year.
Yes, let me start Stephanie as Stephen and then I'll pass it over to Greer, where we think about organic growth as you know our long term targets or that we set are really around mid single digit Canada higher than that U.S. and global what's interesting is we continue to see organic growth us in global.
Nicely in or above what we would expect.
Were down a little bit from what we would expect in Canada, and thats purely related to the face to face stuff.
Slowing down or stopping.
We are seeing some of that come back, but I think it will always be muted Intel were through co that on a group. If you went out a little bit no nothing to add I agree on a percent soon.
Great. Thanks, and then maybe just one where semi for Greer I just in terms of the life works.
Integration costs in the quarter, just curious how would you kind of think about those and in future integration expenses here.
Yes so.
These these are really primarily related to us.
Consolidating operating systems.
I'd say that.
We're not finished but we're really close so.
I would say that you could expect this should continue to move downward.
We're focused on getting this.
Project complete, but I suspect there'll be a number that is smaller and Q3 and hopefully we can wrap it up by then but anyway. So it is coming to a close it's in the next quarter to I would say Stephanie.
Great. Thank you very much.
Thank you.
The next question is from Gran Graham roadmap of TD Securities. Please go ahead.
Hi, good good morning, the last comment there was that in relation to.
Works for.
Mercer US you talked about.
The adjustments.
Hi, Graham his career so.
That was in relation to the Lifeworks.
Integration, so that should come to a close a relatively soon the mercer.
Integration, we're still in the middle of that that will continue for a couple more quarters at least so I'd say that one's not as close to winding down as the life works.
And what is.
The Mercer what actually are you what's involved there and the integration.
Operating systems, one though.
I'll take a try this and Steven me clarify, but if you think about this I mean, we bought this business from a huge global organization. So it's really the way I would describe it on a super high levels extracting this business.
From Mercer and you think of all these locations.
Taking these people out getting them into our own separate distinct locations and getting them set up on our systems with our gear and kind of stuff. So that's really what it is.
Okay.
And then just to clarify.
Appreciate the comments on the outlook.
Canadian growth versus us growth.
Am I right that your organic growth this quarter was around 2%.
Yes, Thats thats, what it was Joe's.
About 2% overall as Stephen said in the organic growth internationally and.
In the us was.
Was a little bit better and.
That's because it's less impacted by the face to face or onetime revenue sources that we rely on here in Canada, but yes overall, 2% that's right.
So that could be reasonable run rate for what you're seeing in the business now and you are certain sales cadence given the.
I guess, the remote work environment sort of social restrictions.
Yes fair comment.
Graham as Stephen here.
I would say longer term, we're very comfortable with our organic growth rate in the mid single digits and you as a global being a little bit higher than that.
I would say that we will move towards that as things start coming back. So it do you think about the first quarter less than 2% because we only had one month of co that you think about this quarter around 2% organic.
We are starting to a little bit more training virtually we do have some of our services in different parts of the world, where we're doing some in person counseling and things like that so.
You know it will continue to increase in come back as we move coming out of covered whatever that looks like.
Got it and as it is that the piece side of your business that is feeling this.
Sort of.
Social restriction is the most or is it is that across all of your business lines, yes to some extent grimace across all of our business lines.
I'll give you a couple examples if you think about what we would call our well being business, which is traditionally our EAP business.
It would have seen the low single digit organic growth, we did do the exercise that.
If we didnt have the face to face stuff stopped what would that have been and that would have been in the 5% range, which is what we would have expected.
You think about our admin business.
Some clients are less comfortable with us going on site and doing the work. So there are some projects that are a little bit delayed, but we do continue to sell new projects and then you think about our health and productivity business.
We are seeing tremendous growth in our IC B T solution, but on the other side, we are seeing less work around.
Adsense management and workers comp with less people in the office.
So it really does span across our businesses to different expense.
Got it and if I, if I could be greedy just on the whole you plan to try to up sell towards total wellbeing around the life works.
Platform any any color our progress.
On that front.
Yes that is probably.
What is the metrics that I stay close this too because I do fundamentally believe that long term. This is about as having a platform. This is a platform that hosts all of our services that are clients employees are going to for everything they need and us continuing to put more on that platform and create a better experience for our.
Clients, and obviously drive more revenue for us.
So it is a critical measure as you know somewhere around just over 10 million employees associated with their clients are directly.
Associated with us from an ERP standpoint.
Of those we've now got 3.4 million on what we would call our core platform. That's up from 2.8 million. The last quarter. So we continue to see substantial growth in that number quarter after quarter end than we have the ability to up sell those were seeing the up sell rate continue at about 10% so as.
Those numbers go up we tend to be able to move 10% on two additional modules.
And we're taking more of a modular approach as well.
That's perfect. Thanks.
Thanks, Greg.
Thank you.
The following question is from James Glenn National Bank Financial Please go ahead.
Yes, thanks, and good morning.
So some interesting.
Client wins in the.
But you mentioned in your prepared remarks, Stephen I'm, just wondering if you can give us a little bit of context as to how much you would expect that to move the needle companies, obviously getting a lot larger now than what it was.
All of years ago. So I'm just wondering the if you could frame what these client wins could mean for for revenues in the next couple of quarters.
Yes, Thanks, Jim and I think for the most part on as we take a look at those wins those wins are in line with our growth expectations. So each one of those wins you know moves from the funnel that moves into.
Sale and it moves into revenue and I think those just support our outlook for the business as we go forward on and we always like giving a little bit of an example to show that winds are coming across our lines of business and they are coming from different geographies.
Yeah, great understood in terms of the headwinds from some of these face to face revenue drivers.
We would expect goes to persist.
Until were ultimately through cobot impacts.
When when would you expect the revenues from other business lines and other other drivers to begin.
Those drag so that we see organic revenue growth picking up a little bit from the.
The 2% level and then I guess on the on the flip side is what do you see from clients headcount reduction that could impact revenues in 2021.
Yes on the first one I think we're already seeing yet where we're seeing improvements month over month, we're seeing more of our technology solutions.
There are a little bit better margin to be Frank.
We continue to sell and I think Thats why were seeing stronger organic growth in the U.S. and global than Canada, where we don't have those face to face services and those face to face services tend to have lower margin. So that plays into the margin profile a little bit.
From a head count standpoint.
We continue to monitor that on a weekly basis.
And we are still seeing those numbers flat to increasing.
Which really means that one of two things that one or services are very critical and even as clients may furloughed employees, they're keeping the money, it's not a very expensive thing.
And they're able to get them critical support or they're keeping them on on benefits and were administering the platform and obviously pension as well.
So we will continue to monitor those but we're seeing them flat to going up.
And we also believe that we've got enough in our pipeline.
That we should be able to in the short term.
Declines that take place if coven continues for multiple years than I think that becomes a different conversation.
Right, Okay that sounds really positive.
Shifting to to the to the M&A outlook.
Few quarters ago, we were talking about tuck ins and.
In various industries or technologies.
That said there would be attractive where where would you say the company is today now that were serve reopening transactions are flowing a little bit more freely would you say the company is on that on the M&A fronts as it relates to tuck ins.
Yes, hi, Jamie its career, maybe I'll start with this one on Stephen can jump in if he wants but.
And what I'd say.
Is that we're not going to get too detailed on things that we've got going on but what I would say generally is that.
The flow has been wider for sure. So there are opportunities that are certainly on the front end of the pandemic. There were things that were in motion that.
Diligence continued and where you had.
Deals that were no.
Reasonably far along that starts happened.
We saw a lot of processes that were even just kind of getting going that have been stopped and we haven't seen come back yet so.
We may see some of that stuff restart, but yes generally flows loss.
But there are things we continue to walk.
We're very prescriptive and clear in terms of what were.
Looking to do I mean, we we want to theres different geographies that we want to be more meaningful armies or geographies that.
Got what we're doing generally the more developed markets and we're really focused on that scale is important in certain of our in summer business lines. So that's.
Something we're working on and.
Obviously product and technology.
Adding things to our platform in these are kind of the.
The three kind of major areas and I know thats very broad but.
That's the stuff we're looking at it will continue to do that as we said on the in the script. We're the balance sheet I think is set up nicely to do.
Tuck ins I mean to the extent, we have to access capital markets and do something larger I think we've we've got the opportunity to do that was the way that we're set up so.
But we are positioning while we will be patient as I said, a couple of times the flow has been a little bit loss, but will stay sharp we know exactly what we want and.
We'll be patient will find it.
And Jane as Stephen just to build on that I think we're probably further ahead than we've ever been in terms of what we're looking for and what nicely fits our strategic plan.
Both organic and inorganic growth is key to our strategic plan and the team spent a lot of time talking about them and we've given our team.
Green lights to look at anything out there and the only other thing I would say.
There were a couple of things in the quarter that we did end up say no to do to valuations and that just signals a little bit that there is still some flow taking place, even though as growers as a flow is slower.
Thats great. Thank you very much.
Thank you.
And there are no further questions registered at this time I'll turn the meeting back over to Mr. that.
Thanks, very much Melanie I'd like to end by expressing my thanks to everybody 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 to keep you up to date on what we're doing to drive our growth and success as a business. Thank you.
Thank you.
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