Q1 2021 Morneau Shepell Inc Earnings Call
This conference is being recorded so it's called the homes that don't go as you see.
All participants please standby your conference is ready to begin.
Good morning, everyone welcome to the first quarter 2021 conference call from Ono Chapelle incorporated.
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 can differ materially from these anticipated I would.
I'd now like to turn the meeting over to Mr. Steven The trap, President and Chief Executive Officer of Morneau Chapelle incorporated. Please go ahead, Mr. The trap.
Thank you your Atlanta, good morning, and thank you for joining us on the call with me today is Greer culture, our Chief Financial Officer.
Yesterday after the market close we released more of the Chapelle of its financial results for the first quarter of 2020 one.
Like always you can access the news release financial statements and our MD&A on our website at more of the Chappelle Dot com.
Later this morning at our annual.
The meeting, which is being held virtually as it was last year I will provide a more substantive review of our strategy and the status of our proposed name change to life works, which will be voted on at the meeting.
On this call I will focus on our business highlights for the first quarter Greer will cover off on financials and then we will open the call to questions as we normally do.
We delivered a good quarter to start the year. The featured strong organic growth of $7 one per cent.
An increase in adjusted EBITDA of 11.5 per cent and margins improving from 19.5 per cent to 25 per cent for the comparable period. These.
These results were driven by several factors that had become regular themes on our calls.
To start we continue to accelerate growth of our technology enabled products were recurring revenues increased 15.6% over the comparable period last year. This includes strong growth in clients, adding lives to our core wellbeing platform.
At quarter end, we covered some 14.3 million direct wise through our E. F E P programs.
From 13.8 million lives in Q4 2020.
We also saw the continued adoption of our Lifeworks platform, a key part of our technology and innovation strategy. We increased the lives on the platform to 5.4 million and the increase of 60 per cent from Q1 last year.
We're seeing strong adoption of our digital net of house solutions and additional services on our platform such as our clinically designed and validated I C. B T and telemedicine solutions, where we continue to win market share, we continue to the zest and expanding the range and depth.
Of our platform, it's clear that we are technology leaders in our sector and we see this leadership as the strategic differentiator.
And it's our intention to continue to invest and stay well ahead of our competitors.
From a line of business perspective in the quarter of wellbeing business really pushed through our expectations.
At the same time, we are pleased with the performance of all of our lines of business we.
We continue to see excellent growth in retirement solutions disability management.
Benefit and pension administrations, all businesses with strong recurring revenues.
Well, we're very much focused on growth, we continue to be balanced and profitable across our solutions and geographies.
And finally, we continue to convert strong sales into revenue, while continuing to build our sales pipeline.
We ended the quarter with a record high pipeline of strong indication that our strategy is working as we continue to build on our position as a global leader in total well being.
Our strong first quarter follows several very solid quarters, where we delivered results to expectations, while adapting to the realities of the pandemic.
All in all of our strong quarter, let's turn to some business highlights for the quarter, we had an exceptional quarter and our well being business now called integrated health solutions.
We're very pleased to win multiple integrated wellbeing and telemedicine solutions in Canada over the past quarter and continue to increase our market share with exceptional feedback from clients on our market leading technology.
In the U S. We landed a major E. S E T mandate with one of the largest not for profit health organizations in South Carolina.
Similarly, with another U S based health care company with a global customer base of some 30 million customers. We won an RFP to deliver well being services to their hundred and 10000 employees around the world.
We also expanded our relationship with an existing administration client, adding E. S. A piece of support employees of an international pharmaceutical company.
As we mentioned in our last call in the first months of 2021.
One of our existing clients of health insurer added of telemedicine solution to support its 20000 members.
Overall year to date, we have seen increased interest and sales and of our telemedicine product.
We are also seeing strong interest continue in our ICB T product with more than 35 wins in North America of since the beginning of the year.
In Canada, we were very pleased to build on our partnership with the government of Ontario with additional funding awarded for ICB T contract.
C. B T contract has been a vital component of the provinces mental health strategy to help people during the pandemic deal with anxiety and depression.
We cross sold in the absence and disability of managed service two of Texas School District, expanding the scope of our current admin and E. F. E. P. Mandate is a great example of growth coming organically from customers, who view us as trusted partners and experts in total will be.
In Canada for an existing E S. A P client in the telecom space, we've enhanced our partnership to include of systems implementation for benefits administration.
It's worth mentioning two large contracts, we won near the beginning of the year that we are now in implementation mode.
One is the state of South Carolina, and its public employee benefit of authority.
And another U S state, we want of major contract to provide benefits administration services for a state police and firefighter pension plan.
Before handing off to Greer I want to emphasize a few points about our growth as the power brand in the total well being space.
In closing there are three levers for growth in our business model that are really driving our company forward.
One is a solid core of recurring revenues across our businesses.
The second is are accelerating global expansion.
And the third is our proven ability to grow by innovating with new technologies to create market leading solutions and that is why are we are sharing our growth rate of recurring technology revenues on a regular basis.
On that note Greer will review the financials.
Thanks, Stephen and maybe before I begin I will make a general comment about the performance of our business throw it depend on it.
The business has been very resilient and we have continued to grow organically throughout each quarter and I want to clarify the we have not utilized any government subsidies on the regions that we operate in.
But Steven touched on it was a very good quarter for the business, we reported $257 1 million of revenue an increase of five 8% driven by strong organic growth of seven 1%, partially offset by the divestiture of our benefits consulting business last year.
We were pleased with the performance of our lines of business across the board.
Including organic growth of 10% and wellbeing solutions.
And 22% and health and productivity solutions.
And regionally we saw very strong results from the Canadian business, which recorded organic revenue growth of 10% in the first quarter.
Adjusted EBITDA was $52 8 million, an increase of $5 5 million versus prior year due to strong organic revenue.
And lower or lower operating expenses.
Adjusted EBITDA margin for the quarter was 25% versus $19 five per cent in Q1, 'twenty 'twenty and inline with our margin expectations for the year.
Adjusted EBITDA per share was <unk> 75 cents compared to 68 cents from Q1 2020.
Profit for the period was $10 2 million compared to $38 9 million last year and.
Basic earnings per share for the period was 15 cents compared to 56 cents on the comparative period the.
The decrease is predominantly due to the gain recognized on the divestiture of our benefits consulting business in the first quarter of 2020.
During Q1, 2021 of the company generated normalized free cash flow of $26 3 million.
Parents to $24 2 million on the same period in 2020.
Which was driven primarily from stronger adjusted EBITDA in the quarter.
And the company will continue its policy of paying a monthly dividend of $6.05 per share.
And lastly, I will note that we renewed our 100 million dollar sidecar facility that was put in place at the beginning of the pandemic for another year at more favorable rates.
In addition to our $600 million revolving facility, which is roughly half drawn we have the required liquidity in place to execute on our strategic plan.
And with that I will turn it back to you Steven Thanks career Atlanta. Please go ahead and open the line to questions.
Certainly thank you if you have a question and you're using a speaker phone. Please lift your handset prior to making your selection.
If you have a question. Please press star one on your devices coupons.
You may cancel your question at any time by pressing star two.
Please press star one at this time, if you have a question that will be of any possible of the participants register. Thank you for your patience.
The first question is from Stephanie price with CIBC. Please go ahead.
Good morning.
Stephanie.
Thanks for all the detail on organic growth I was just curious you mentioned the member of the U S. And I was wondering if you had of U S growth rates and how would you kind of think about again.
The growth in that region.
Alright.
Yeah stuff, maybe I'll start and if I don't hit the thing that you're asking on it maybe a glut of me again, but the the U S revenue as you know represents roughly a third of our revenue you know it.
It was relatively flat and if you looked at it on a reported basis, but obviously currency currency was on our face a little bit I think the decline was about 6% so.
You know it affected the U S by about 6%. So if you look at the organic would have been between six and seven and then obviously the headwind to the overall portfolio was roughly 2%.
Okay. That's helpful. Thanks and.
And then you mentioned the two large wins in the U S. In the prepared script I'm curious about one of those are coming on line.
Yeah. The two large admin wins are really at the beginning of the year of Stephanie and then we've been working to get them implemented and so they would have come on are within the quarter. So our revenue has started showing up in the past quarter and will continue going forward from there.
Okay, perfect and then on the conversion rates.
The platform it sounds like you had another good pick up on the quarter. Just curious about you know what the drivers are there on what you're seeing going forward.
Yeah really good question and as you know, it's one of the most important things to me as I look at the business and it just keeps validating for us our strategy on where we're going around the more we can create a place call. It on the front of the phone where employees go every single day for everything they need.
The better experience will create for the employee of the easier it is for the company too.
Pushed their employees to the area that makes the most sense of they were able to communicate and get information out I think what's really happened over the last few years. When you think about us, creating the platform talking to our clients getting them exposed to AD and then being able to go back and add additional modules I think it really is exposure.
At the end of the day I think it's the opportunity to come into an EAP us rolling out of the core platform.
No additional costs people getting the opportunity to test it with different populations different pilots really appreciating what's there and then adding on additional modules. We do know as we got into the pandemic people have been very interested in the recognition module. How do you recognize people when they're working virtually it's been fantastic for that.
And I know personally just as CEO of our company. The first thing I look at every morning is our Lifeworks happen. It just gives me a great view as to what our employees of doing around the world as I read the recognition stories that we're hearing that come back from a lot of others as well.
Thanks, that's good color.
Final one from me the year ago quarter, I think was impacted by in person of the work.
I'm curious about how the in person of work kind of this quarter.
And how would you kind of think about.
On your Lockdowns yeah.
Yeah, Let me start Stephanie and then I'll turn it over to Greer for some specifics I think the first thing I would say is the team has done an incredible job on pivoting a little bit from things that we would have been done in person before thinking about some of the training to can you do that training virtually and I think we've been able to add some of that back by doing it.
We've also seen a lot of things happened in the world that are clients of us for our help and support with that a lot around diversity and inclusion of lot of around resilience in the organization of.
A lot of round, how do we bring people back to the office and things like that so we've been creating modules and solutions that we've been able to deliver virtually so that's been part of that however, there have been some pieces of business for example of children's supporting the things that we have not been able to come back. So I think greer can saves share of some of the numbers, but I would say.
Some of that's come back from virtual someone's come back from some of in person services and some that have not come back yet.
Yeah, so exactly right and to give you some numbers around and stuff. So it's been obviously better than what we were seeing kind of on Q1, and Q2 of last year and as I am.
I made the remarks in my notes during the call the organic growth rate for the wellbeing of division was 10%.
And the recurring revenue so the the.
The Tac or the non face to face actually grew at 9%. So it was actually very close. So if you look at the year over year. It was really not a not I mean, not a major factor so were in prior quarters, where we've seen it was quite a headwind to this business that actually was.
But in line with the general organic growth of that business for the quarter.
Okay, great. That's good color. Thank you okay. Thanks Stephanie.
Thank you. The next question is from AT&T card width of BMO capital markets. Please go ahead.
Thank you good morning, good morning.
If we could come.
Come back to the.
The Lifeworks platform, it's good to see.
You know the continued migration of of life's there could you share the progress on the up selling rates I think it was at a.
15% last quarter, if you could just a share of progress on that front that would be great.
Yeah really good question and I know the way I always think about it for a little bit of context is how many people have come in to quote unquote. The EAP system. How many have we been able to get on the core platform. Then how many have we been able to move over to our enhanced platform, which is where the additional upsell and.
We normally think about an EAP somewhere around two to $4 per employee per month, and then when we move them on to the broader platform and adding modules and things we add another one to $2 per employee per month. So from a number of standpoint, just going quarter over quarter rather than year over year.
We moved from about $13 8 million lives in our EAP system up to 14.3, which was really nice to see them and then when we take a look at the overall platform. We've moved from $5 1 million lives on the core platform up to 5.4, and then to your specific question around Upselling, we'd been upsell.
The rate of about 15% are we saw that increase to 17%. So we're just under a million were about 930000 lives.
<unk>, who are paying additional modules and that additional one of $2 per employee per month.
Okay great.
And on the topic of ICB T. I think you mentioned in your in.
On your comments you had about 35.
Contract wins a.
Year to date.
How should we think about the impact on on a on the revenues because if I recall correctly I think cash last quarter. Your your run rates for IC BT was about close to a $10 million. So just an update on that.
Yeah, probably the easiest way to think about it as I see BT is within our health and productivity business on an organic basis that business grew about 20 per cent a that was primarily driven by ICT.
Within that so that's probably the easiest way to look at it.
And on the 20 <unk> just makes it a 20% that is for health and truck productivity as a as the whole on the year over year basis that is correct.
And you know you would've seen the reported a lower number just because of the divestiture of the benefits consulting business that was in there it'll be a clean quarter for next quarter, but the health and productivity business. If you took out the benefits consulting piece would have seen growth of 20 per cent, primarily driven by ICT and just to be absolutely clear.
In the ICT business, obviously much of the you know, it's not a huge business for us and the relative scheme of things you know that business is growing on hundreds like triple digit per cent.
Okay. Thanks for that and last one from me.
On on your joint Ventures can you share progress on on what you've achieved.
To date with your partner on this front and why.
What are you seeing in terms of mental health.
Awareness day in emerging economies.
Yeah, and great question, it's Stephen here and for context of anyone who's on the phone we've got joint ventures in some markets that we think could be large wellbeing markets in the future I always think about the Ms seedlings.
Because they're very very small, but we want to be in these markets for when well being does take off in those joint ventures tend to be in Russia in China in Brazil, and in Eastern Europe. So that's where we're spending time again all of these are very small from a revenue standpoint, we're seeing very strong growth.
And all of them, it's not material.
Anything we report on and they're all in of different place. We're seeing continued D. E. F E. P adoption in China, we're seeing very strong growth right now on in the Brazil market, where we won some large contracts eastern Europe continues to grow on.
So we're quite pleased with all of them are but again the numbers of very very small, it's more about being there and learning and getting exposure to those markets for when they really do take off at some point in the future.
Great. Thanks for your comments.
Yeah.
Thank you once again, please press star one on your device of keypad. If you have a question.
Next question is from Graham Ryding of TD Securities. Please go ahead.
Hi, good morning plenty of Green.
Ed.
Can I just start on the on the ICT it sounds like you're.
That's some pretty good momentum on that front can you give us an idea of like the mix of your business between the government mandates because I know he of Manitoba, and Ontario, I believe and then corporate mandates.
Yeah, the I the way I kind of look at it probably in two different ways Gray and when I think of that that business. So the first thing I think about is Canada and the U S where we created this.
Solution within Canada, we've been out there are we have been winning mandates in both of the public sector and private sector of.
Obviously, the larger chunks of revenue or in the public sector and it was really around Ontario, and Manitoba, making it available to all citizens. So the scope of that is obviously much larger so that is the majority of but we do have a number of corporate wins and they continue as people really added on to an EAP contracts, so they're saying.
E. P is for shorter term, but I I don't want my employees to have just the short term solution. So let me add on something that is a little bit longer term. So they'll add on ICB T. We think the competitive advantage for US is obviously offering both of it nothing at all in an integrated fashion for the employee coming to us.
On the second piece to me on is really about where we've taken this solution down to the U S. A as we moved into this year. We've got strong interest we've already had some strong wins in the U S and I would say, we're really talking to the three different groups and we're talking to health plans in the U S about integrating in with them.
Ah, we're talking to corporations down to the U S and we're talking to some public sector and were having wins across the board. So but primarily the revenue is Canadian public sector, but we're seeing a lot of growth in the all the different pieces.
Yeah, that's good color I appreciate it.
No I think you mentioned that you've added to your digital mental health platform.
Provide some details there and then is there anything else in here.
On your product pipeline or anything you're looking at on the mental health side.
Yeah, we've got a really robust product pipeline believe it or not for the next five years, obviously that will we tweak that every quarter depending on our.
We have with clients, what's happening in the markup uptake of different programs.
We do have the new modules coming out every single quarter and.
And we continue to launch some of them and we also have upgrades of the platform. So the way I think about it you know in the past quarter. Our life works platform, which is our broader platform that we offered the clients. We've added on obviously tell of medicine people really appreciate the integrated experience we've added on I C. B T.
We've in the past we've added on physical fitness training. So you can actually get on a coach on the kind of help you through that and we continue to upgrade on a regular day says and then we have a couple of pilots that were running with smaller groups right now that we'll be announcing a probably in the next quarter as those kind of get rolled out, but we're really excited.
Aided by the pipeline the interest of what we're able to add and then in the ICT space.
Not only were we able to integrate that with the Lifeworks platform, but we continue to add new modules on to the area and we continue to provide more solutions to people coming to us for help every single day.
Okay great.
And then.
You mentioned your lives lived on that.
Being side increased.
In the quarter, what what drove that was that previous wins that you announced sort of a rolling on or where that was actually new wins in the quarter.
Yeah, So our lives coming into the EAP system, where we went from the $13 8 million direct lives up to the 14.3 will be a combination of contracts one of the previous quarter that the implementation was in this quarter or contracts of one one in the quarter that we were able to implement so it's a mix of the two but it always.
As Graham that never really changes and then upselling from there.
It is again the next right. So sometimes the new client will come in and buy total well being which is all the modules and they will want to start on that and many other clients will come in they want the core platform. The one who experience at the one of the pilot it in different jurisdictions or with different parts of their population see how that experience goes in.
South from there. So it really is the mix of all of those things.
Okay great.
On last one if I could what qualifies to fall into your pipeline.
That you talked about and then what's your typical conversion rate of that pipeline into the new business.
Yeah, So I like tracking two pipelines actually several of the first is our total pipeline, which we load up anything that becomes an opportunity for a salesperson. So they're in they have the meeting someone's interested in something that gets loaded into a total pipeline. We then look at the one that I probably spend even more.
I'm on which is the quality pipeline, which means there's a formal process in place we put in the bid on and we know of quote unquote that there is a real opportunity out there both of those pipelines are running at record levels right now.
Which is really nice to see as we look at going forward.
And then some of your other question about sell through from those pipelines is actually quite different by line of business. So the way we look at it.
As we look at historic win rates, which tend to depending on the business to be between 30 and 40% of.
And then we apply those win rates depending on the opportunity in the country in the stage that is in and from that that gives us. The projection is that were fairly comfortable with around our revenue as we think about going forward.
Yeah.
Okay I appreciate that that's great.
Great. Thanks, Scott.
Thank you.
Next question is from Jim Mcgloin with National Bank Financial Please go ahead.
Okay.
Yeah. Thanks, Good morning, good morning, Jim.
I got kicked out there for a second but just trying to check the transcript. If you answered the best I did hear that the upsell rate increased from 15 to 17 per se.
230 lives on the the higher revenue enhanced platform.
So that's about an increase of let's say like 20% a quarter over quarter can you just give us some context as to is that is that accelerating or is that about the same pace.
You know, what's the pipeline look on that upsell rate.
Yeah, Great question, Jamie on your numbers are exactly right on the first thing I would say is it is accelerating.
All of them you can see that the number of lives has increased as you said up from the previous quarter up to 930000, right now, which is great and that's where we get the additional dollar to two per employee per month. It does continue to accelerate it is ahead of what I thought it would be you would have if you listen to me a year ago.
Probably the thinking.
If we could regular but we keep adding lives and up sell another 15 per cent or something that would be great and as we're up to 17% now and you know that will probably continue to increase I. Just don't know of it'll be smoother it'll be a little bit chunky, but I know as we're out there talking to clients there continues to be.
<unk>, a tremendous amount of interest and I think as we integrate more and more of services and we created an integrated experience for employees of our clients at the end of the day are that will continue to be up more interest.
Okay, Great and one of those are products that you've added recently is the is the telehealth.
Solution that are that you think of your white labeling can you give us any indication as to the adoption of that product.
Yeah, we had a number of wins in the quarter.
And we are seeing that accelerate I think the advantage that we have at least from what our clients and what frankly, new prospects of told US is they really like the fact that it's fully integrated and that one of their employees can come into quote unquote, our platform and they can come in from what I call of continuum.
The carrier so I could come in one of ended I'm, feeling really lonely and I wanted to be recognized I wanted to feel part of something we've got a platform and we of personalized feeds the people to do that they can come in and they can get help with issues that might be working with colleagues working remotely zoom fatigue you name. It we can help without within the REIT.
A P or they can get help with call it anxiety or depression or things relating to the pandemic they might click on I C. P. T to get that helped or frankly, they've got an issue and they want to talk to a nurse practitioner of doctor and they can click on a button and immediately get access to a nurse practitioner of Doctor and then they can move between those.
Things and I think there is a massive advantage to having that as an integrated experience for people who are coming in rather than them having to go to this one company for telemedicine solution. Another company for the ICT Another company yet for the EAP and other for the recognition and I know our clients are really appreciating that integrated experience.
Okay, great and speaking of the integrated experience.
We spoke a few quarters ago about the pension and benefits.
The data and information being made available to employees how is that project progressing.
Yeah, and again that one's a little bit more of a customized because as you can imagine.
If the per.
If the organization is the benefit of pension client.
Then we essentially take their data that sits on our of men reported over and we make it accessible to them in the Lifeworks platform. So it is that one is on a per client basis, rather than just getting rolled out to every single client as you can imagine and it's got great. I mean, the first client that we rolled it out to was as we mentioned before in north.
The day and that is up and running for their employees.
And we continue to do it for clients that are interested in that service. So we're quite happy with how well it's working.
Okay. So maybe a follow up again in the little bit after that you get the sort of initial kinks out of the way with the first client.
Last one the last one from me just on the organic revenue growth at 7% this quarter in Greer I think I heard you say that the the FX headwind might've been about 2%. Overall, so is that did I get that rates of organic growth would've been more like 9%.
This quarter.
Yeah, Jamie you've got it spot on so yeah, what I was saying was you know the U S revenue.
As a percentage of our overall revenue is about a third.
And we saw about 6% headwind year over year, just on the core FX rates. So yeah. It was about 2% headwind to our overall business. So yeah, that's 7% organic would've been closer to nine.
Okay, great and that and in terms of looking at the Q2.
Number is obviously there were some headwinds last year because of the COVID-19 in the face to face another shut downs.
You know are you are.
We are we tracking like we should see as something of a similar number ex but ex the the foreign exchange.
Or should we see even like items or chance of us could pop up over 10% of because of that headwind last year.
James Let me maybe start and then I'll pass it over the Greer to talk more specifically around the corner I think on a high level as you can imagine with things opening up and then getting locked down opening up getting locked down again.
It's really hard to forecast you know a couple of months out of a quarter or something like that so I go back to where I'm really comfortable which is in the long run when we think about it we would expect mid single digit organic growth within Canada due to the the size of our market share we would expect mid to high single digit.
Organic growth in the U S probably on a constant currency basis, and then our global operations, we would expect north of double digit organic growth I think with things up and down.
With everything happening around the pandemic, we're fairly comfortable with that but that's a little bit on the longer term I don't know Gary if you want to talk.
And much to add I mean, I think you know what even from the the face to face standpoint, as I said before.
It was hurting us quite a lot of particularly on the first half of last year, we didn't see that as a factor of this quarter. So it really it actually helped the tiny bit and the wellbeing business, but it is it's almost week to week right. I mean, it's very very difficult to predict but I think yeah like Steven said of we're really kind of more focused on the the longer term.
The general targets that we have.
Yeah, that's a that's good for me thanks.
Great. Thanks, Jay next Gen.
Thank you.
No further questions registered at this time I will turn the meeting back over to Mr of the trap.
Great. Thank you very much Atlanta in summary, we started the year strong our performance built on driving total growth organic growth and profitability across all of our solutions and all of our geographies.
The end by expressing 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 and our AGM. This afternoon to keep you up to date on what we're doing to drive our growth and success as the business. Thank you.
Thank you mention of trap the conference has now ended.
Please disconnect your lines at this time and we thank you for your participation.
Yeah.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Okay.