Q4 2021 LifeWorks Inc Earnings Call
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All participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.
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All participants please standby your conference is ready to begin.
Good morning, everyone welcome to the fourth quarter 2021 conference call for Life Works Inc. Please note that this conference call will contain forward looking statements, which reflects managements current beliefs and expectations regarding the corporation's future future growth and results of operation.
Actual results can differ materially from these anticipated I would now like to turn the meeting over to Mr. Stephen left dropped.
President and Chief Executive Officer of Life Works, Inc. Please go ahead, Mr lip drop.
Thank you Valerie good morning, and thank you for joining us on the call with me today is Grier Colter, our Chief Financial Officer yesterday after markets close we released Lifeworks financial results for the fourth quarter and full year 2021 today I'll review, our business performance and the highlights Greer.
Will cover the financials and then as usual, we'll open the call to questions overall, a solid fourth quarter that improved on Q3 allowed us to deliver a good 2021 in.
In 2021, we saw record sales record platform adoption significant upselling of additional modules on our wellbeing platform and an unprecedented demand for mental health services.
In addition, we saw over 9% growth in our recurring tech enabled revenues, which is the direction, we have been moving our organization in.
These results were delivered during a challenging period in our world.
<unk>, many rotating lockdowns due to COVID-19.
On previous calls I've talked about a monthly mental health index that tracks mental health in the workplace.
From our research we know that COVID-19 has worsen the mental health of employees and their families that will take years for society to fully recover from.
If there is a silver lining COVID-19 is shining a light unemployed meta health and wellbeing as a strategic business issue. The growing awareness of that reality is helping with a trend that started before the pandemic.
Which is reducing stigma associated with getting mental health support and from that awareness the demand for mental health support in the workplace. We believe we will continue to increase for a very long time to come.
In addition, as organizations look for ways to retain and attract talent, providing mental health and wellbeing solutions will be critical.
The other impact of COVID-19 relates to how we operate our business like many companies the process of coming in and out of hard lockdowns in the past year has impacted our results. While we started last year very strong the impact of COVID-19 on our operations, particularly.
And supporting the higher demand for mental health services caused our own supply chain issue that started in the second quarter and resulted in some cost pressures and our global calculated network. We are addressing those issues hiring more staff counselors and taking pricing on a highly value.
<unk> services.
In our retirement and financial solutions business in the third quarter, we saw a slowdown due to higher vacation usage versus the prior year in the fourth quarter. We saw continued pressure on this business as our clients locked down for the new variant and pension consulting and design was pushed to the back burner.
Sure.
It's not too simple to say that COVID-19 is negatively impacting our consulting business that works best when people are working remotely.
Another contributing factor in the RFS performance in Q4, which we are addressing is that were down a few consultants, which means billable hours that issue is also being fixed.
There is more than enough business out there in this space for us to drive billable hours higher and return this business to growth in 2022.
I say all of this in the context about our margin performance in the past couple of quarters for 2021, adjusted EBITDA margins were down to 19, 1% that is below where we wanted to be but we are now seeing signs of improvement.
For specific context, our adjusted EBITDA margins in the third quarter came in at 18, 2%, but with a lot of hard work. We've done since then resulting in an 18, 5% margin in Q4.
As we said on our last call. This process is going to take some time and we're working through it in a deliberate way.
It's all about using more staff counselors, which we're making progress on quarter by quarter.
Taking pricing, where we have seen early success in our pilot and we will move to full rollout over the next one to two quarters and returning our higher margin RFS business to traditional growth rates.
Another factor that Greer will address has been the impact of currency on our topline.
For the year, we delivered six 7% constant currency growth or six 1% on a constant currency organic basis, which is in line with our expectations.
Turning now to some of the highlights for the year. We saw the continued adoption of our Lifeworks platform with lives on the platform increasing to $6 7 million from $5 1 million a year ago.
Also very positive is that organizations pain for extra lifeworks modules on our platform is up more than 50% from last year in.
In line with our strategic plan acquisitions continue to supplement organic growth and position us stronger in September we deepened our commitment to the European market with the purchase of a center.
A leading psychological service provider and employee health and wellbeing headquartered in the Netherlands and operating across the continent.
Subsequent to year end, we announced the acquisition of breaking free one of the world's best software as a service or SaaS platform providers of digital treatment options for substance use disorders.
As the pandemic enters its third calendar year use of addictive substances has increased tremendously.
One example is that the percentage of working adults drinking over 15 alcoholic beverages per week has increased from 2% to 8% much of this growing issue was hidden during the pandemic as workers worked remotely.
Two years later, we have significant levels of employees struggling to gain control over substances breaking free is a must have self guided and fully anonymous substance use treatment program for organizations everywhere.
It also furthers our ability to use clinically proven.
And effective strategies, coupled with digital technology to service the ever growing global demand for mental health solutions.
We believe acquisitions like these are a very good use of our capital both acquisitions fit with the goal of bringing in early stage companies and scaling them through our Lifeworks wellbeing platform, our global capabilities, including access to our client base of approximately 25000.
<unk> organizations and more than a 160 countries supporting more than 36 million employees.
Another accomplishment in the mental health space was winning Knox Keene certification, allowing us to provide counseling to people directly in California, one of the largest regional markets for our services that we offer.
By year end as a result of our Knox Keene license, we won 24, new client mandates extending our services by about 17000 lives in California.
One new client in fact selected us prior to US receiving certification. They told US they were confident our license will be granted based on our clinical knowledge and professionalism and for that reason, we were uniquely capable of supporting their national growth strategy. The new client relationship was launched successfully in can.
To show strong growth in revenue month over month.
I should mention that our results for the year included a restructuring charge in the fourth quarter related to several factors, but mainly to combining our health and productivity solutions business with our integrated health solutions business, which going forward will be called integrated health solutions.
Career will talk about the restructuring provision, which is focused to save money and offset returning expenses such as travel and client promotion, but also to cover investments needed to support the growing demand for mental health services, and attracting and retaining the right talent.
Let me talk to the significance of combining these businesses as the main driver of our mental health growth strategy.
We were early leaders in introducing digital delivery of our services and combining it with in person care, creating what we believe is the most comprehensive and personalized continuum of care in the market.
<unk>, not only digital but with a wide array of in person solutions.
In our combined business, we are now better able to offer everything our clients won for the care. There are people need in the way they want it digital chat video telephonic and in person.
Everything within easy reach and within the daily flow of their lives and work.
Our approach in the combined business meets the market demand for integrated services across our mental health continuum of care.
Our focus in the simplest terms is really about helping people with the right support at the right time and the right delivery for them.
Whether it's a short term need for advice on managing stress or something more serious and long term clinical depression bottomed.
Bottom line, our model is unique and differentiated and as we go forward. We believe it has so much more to offer our clients that are digital only competitors.
Before I wind things up here, a few highlights from the fourth quarter, let's.
Let's start with integrated health solutions, which had a very strong year of growth.
As you know, we generally don't press release, when we win a new mandate as it would be too many press releases, but let me share that we had a significant win where a digital only competitor was excluded for bidding as this now clients realize the importance of helping their employees and the way they needed help.
Both digital and in person.
In addition in Canada, we won a significant new mandate to provide mental health support to the agricultural and farming community in Ontario.
In Quebec, we picked up a new public sector contract with society, Quebec Quad infrastructure that combines our EAP program with our telemedicine solution.
We've also been building our presence in the higher education market, providing students and university employees with mental health support and employee assistance programs.
In the U S. We had two new sales of significance to universities, the University of Texas at Austin, and Texas, A&M University, along with one new mandate for the University of Saskatchewan.
Internationally in the large corporate market, we're very pleased by two major contract wins, we won a global SAP.
Program with Siemens Health in years, we also had a major cross sell with.
Leave and absence management solution for one of the world's largest beverage companies.
We won a new mandate for actuarial strategic consulting and administrative services for an important new program being launched by Scotiabank, which they announced yesterday.
As we reported last quarter, our Lifeworks platform became available in the Microsoft teams App marketplace. There are now more than 100000 users on the App.
Well published metrics are not available information we have been given indicates that we are the top well being up in Canada and among the top seven overall apps globally.
Let's turn to our administration business turned in another solid year as fourth quarter highlights had a strong U S focus.
We won a major defined benefits upsell to a global healthcare company.
We also won a significant up sell for one of the largest grocery companies in North America.
And finally, we sold a large multi year integrated defined benefit and health and welfare system solution or SaaS to the board a pension of the Presbyterian Church.
In our retirement solutions business, which is a consulting business driven by billable hours.
Hard Lockdowns and other COVID-19 issues resulted in a year that was essentially flat compared to the previous year, we expect a better year in 2022, particularly as we exit lockdowns.
In that regard in the fourth quarter. The highlights included three sizable contracts in Canada, all for large brand name companies.
We want to cross sell with the Canadian operations, and L'oreal to provide retirement consulting and administration services.
And for the Canadian operations of global brands in luxury cars, we up sold a contract to evaluate and execute a shift from a defined benefit pension plan to defined contribution pension plan for its employees and.
In closing, we continue to execute against our strategic plan and are very excited by the future.
Our goal now is to build on our global reputation for trusted leadership for mental health and wellbeing solutions, we have some amazing strengths to build on we are the leading mental health and wellbeing provider trusted by some 25000 organizations and there are 36 million people.
We offer the most comprehensive range of mental health and well being services available to our clients and there are people, we make a substantial positive impact on our clients and there are people every day and previous quarters Ive talked about the four levers for growth that gives us confidence in our business model.
One is a solid core recurring revenues across our businesses and those are increasingly tech enabled.
The second is are accelerating global expansion from a strong North American base.
Third is our proven ability to grow by innovating with new digital technologies to create market leading solutions and.
And fourth is a much stronger growth opportunities, we expect in the global mental health market.
That note Greer will review the financials.
Thanks, Steven and good morning.
Like Steve and I will lead with our results for the year and as we go along I would we then comments on the quarter in terms of revenue for the year. We were pleased with six 1% constant currency organic growth and four 1% reported revenue growth taking us over $1 billion for the first time.
If we look at total growth not just organic including acquisitions from a constant currency perspective, six 1% turns into six 7%.
Which isn't a metric in our MD&A, but it shows the currency headwinds over the previous year, which were quite meaningful.
In Q4, we delivered three 5% in constant currency organic revenue growth and three 5% reported revenue growth, it's not fully where we expect to be asked.
And as Stephen mentioned, there were factors that negatively impacted our revenue that relates to COVID-19, and a year of coming in and out of Lockdowns.
Tech enabled revenue grew nine 2% for the year and 9.0% in the quarter and we continue to be happy with that.
Adjusted EBITDA was $194 8 million for the year and $47 8 million in the quarter, both down compared to the same periods in 2020.
Adjusted EBITA margin for the year was 19, 1% down from 24% in 2020.
As discussed on previous calls we've seen cost pressure in our counselor network as demand for in person services for mental health increased.
And fourth quarter, we saw adjusted EBITDA margin of 18, 5%, which was consistent with our expectation as.
As we've said we have a plan to return margins to historical levels through operational and pricing related initiatives.
We're on the right track, but this will take several quarters to achieve.
We continue to believe that the positive trends in mental health remain and this bodes well for our business over the longer term and we experienced strong growth in 2021.
From a retirement financial solutions business, which was essentially flat on the year underperforming relative to our expectation.
Clearly so in Q4.
In Q4, we incurred an $11 6 million restructuring charge, primarily comprised of employee severance.
And attributable to the restructuring and combining of two businesses into a unified integrated health solutions business.
The HTS and IHS businesses had many commonalities and this combination will help us make the product set and more seamless to our clients from a continuum of care standpoint, while also making the operation more efficient.
In terms of profit for the year, we showed a loss of $24 1 million or <unk> 34 per share, which was driven primarily by the accelerated amortization of the chappelle trade name as we rebranded the company to Lifeworks.
During the year the company generated normalized free cash flow of $107 9 million.
Compared to $101 2 million in 2020.
Normalized free cash flow increased by 7.0.
During the fourth quarter compared to Q4 2020, primarily due to lower capex in the current period.
Although working capital was negatively impacted by an increase in accounts receivable, which was temporarily impact but impacted by the name change which caused a small delay in collections and which we discussed at Q3. This will reverse and we are pleased with our management of working capital overall.
And lastly, the company will continue its policy of paying a monthly dividend of $6.05 per share and with that I'll turn it back to you soon thanks, Gary I. Appreciate your comments Valerie. Please go ahead and open the line for questions.
Thank you we will now take questions from telephone lines. If you have a question and you are using a speaker phone. Please lift the handsome if we're making your selection.
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Press Star one at this time, if you have a question there will be responsible to participants register for questions. Thank you for your patience.
Our first question is from Scott <unk> with CIBC. Please go ahead.
Hi, good morning.
My first question for you Scott.
My first question is on pumping Steven touched on in his comments, but I wanted to ask about the competitive environment for the integrated health business, both in U S and in Canada.
We had a competitor announce a decent sized VIP win in Canada. So I'm interested to hear what youre seeing in terms of renewal and new business situations.
Yes, great question Scott.
Nothing overly different than what we would've seen over the years I think we've always had competitors come in and go out of that space, We've had U S competitors come into Canada.
With some new offerings, we've had as you know digital competitors show up.
Here and there.
But what we tend to see as our pipeline continues at historic levels or sales hit a record level last year.
And as I mentioned I mean, we don't press release, when we win things but.
Shortly after that press release came out we had a win that was actually larger than that as I mentioned, our digital competitor was actually.
Sure.
Banned from bidding on that because they didn't provide in person services. So I think at the end of the day, we're very confident of our offerings, we believe that having a broad spectrum and a full continuum of care delivers better services to our clients, it's not to say that you know.
The odd time somebody won't try and buy business and get a logo or something like that we've always faced that in history, but at the end of the day, we see many of those clients end up coming back to us to make sure that they get the right level of quality of service to their employees.
Okay. Thanks for that and then maybe sort of a related follow up.
On the last call you had there you mentioned taking price in your comments can you give us some more detail on that on that pilot projects, you mentioned and how that's getting rolled out more broadly.
Yes, no problem I'll start in Greer might have a couple of comments.
As we mentioned as we're kind of moving into from Q2 to Q3 last year, we saw a significant increase demand.
For our mental health services, which obviously had an impact in margins because our revenues are per employee per month, so essentially flat and as we provide more services are up more people. Our costs go up so that gives us an ability to go back to our clients and have a conversation about us helping more of their people.
Rather than just going out with an across the board increase or something we wanted to take a very thoughtful and deliberate approach. So we actually brought in some.
Outside help on this we did a full analysis of our total book of business, we compared average rates to utilization.
We then launched a pilot, which we are just coming out now and we picked up some learnings from that pilot.
Around messaging what is most important to clients best ways to implement and we're moving that from pilot phase into the broader book of business and that will occur over the next couple of quarters.
Yes, maybe I'll just say a couple of things Stephen said most of it but it's kind of three ways that we get that pricing.
And this primarily in the IHS business.
These are <unk>.
Causes we haven't contracted get inflation, but you need two experienced long periods of like you can't just experienced one month of inflation and adjusted the contract. So we are seeing inflation, we will get it but you do need to kind of see an appropriate period for you to make that adjustment, but we will we will get these thing second thing is those contracts rollover and and this.
S business.
Between two and three years, probably average contract and we will see these rollover and obviously, having conversations with our clients of both.
The cost environment and embedding item.
Contracts and I guess the.
This pricing initiative as Stephen said is it's not something where we're just going out and applying a blanket type approach for literally customer by customer looking at the margin how large they are historic conversations.
So it's pretty good adoption and as I said, we've done pilots.
We will apply that as we kind of go through the year. So our view is to do this right and.
Not just tried to accelerate it by a couple of months, but to do it right and.
And that's what we're doing so I think we will see the impact of this.
Realistically a little bit in Q2, but more it'll be really Q3 Q4, but what we see.
Anything really out of that at the end of the day.
We actually in Q4.
Saw really good growth.
The business, we would expect overall, so forget getting anti itch.
On an aggregate basis for the.
The company, we would expect us to grow kind of mid single digit five 6% and if you look at.
The two things that impacted that to kind of take us from 5% to three 5% the way I would look at it is two main things. The first is that the RFS business did not perform.
An expectation that was about 100 basis points. If you look at the impact of that.
Expectation.
And the second is the ICT line.
The business is actually performing very close to where we expect.
Certainly did slow in Q4.
Okay.
Okay. Thanks, I'll pass along.
Thanks Matthew.
Thank you. Our next question is from Graham Ryding with TD Securities. Please go ahead.
I'm not sure if it was me or not but I missed your comment on the <unk> do you mind repeating.
The peanuts I couldn't I couldn't hear you.
On a piece of your answer yes.
Yes, Thanks Graham it's Stephen here, let me start and then grew might have a couple of comments as well I think a couple of things on <unk>. As you know this is very small.
That has been growing very quickly for us and a year ago, we provided a tremendous amount of support with everything that where people were going through and this year was a little bit less and as you know those contracts on a per case basis. So that would be the first the second thing is Manitoba had put in place ICT on an emergency fund.
<unk> basis, and that emergency funding ended which we were expecting as well what I would say is three things as we look at that at this business going forward. The first is we have some significant Canadian rfps.
In front of us.
We have a very strong pipeline in the U S.
Again as government is going to be slow.
They are significant and very large and the third as we pull these business together, which is what are the reasons that we really wanted to do it was we can really integrate and provide that full continuum of care and we're going to we've ICT into the broader mental health solution. So that we're able to provide that full.
Continuum of care and frankly also has a positive impact on cost as well.
Graham sorry, it sounds like it might have might have cut out there for a little bit so what I was saying at the Andaz in Q4.
Like over the longer run, we kind of expect us to be in the 5% to 6% for all of the businesses combined.
Obviously, we are in the three 5% zone in Q4.
What I was saying is.
The Delta on that really is made up of two things in my mind. The first is.
The underperformance of the RFS business relative to what we would've expected, which was close to 100 basis points of that Delta.
And then ICT performing.
Lower than our expectation was it represented around 50 basis points. So if you if those businesses had performed relative had performed close to our expectation we would've been in the 5% zone, which would have been closer to how we expected the business to perform that's that was the comment I mean, I'm, sorry that I cut out there.
Thanks.
Okay. So.
<unk>.
Taking a sort of.
The color that you've provided around new mandates that you've brought on.
Offsetting some larger mandates that you've lost or do we think about that in your pipeline. What's your near term expectation for organic growth you still thinking you can hit the 5%, 5% to 6% range or is it going to be lower over the near term here.
Yes, <unk>, it's Stephen here and again, I think quarters can be up and down as you know and <unk> been far harder to predict with the pandemic and Lockdowns and we have some businesses every time there is a lockdown that slowed down and then you open in those businesses come back again, so it's been harder.
To predict on a quarter over quarter business, but I'm very confident that you know.
Over regular periods of time call it years.
We're going to be into our normal range of mid to higher higher single digit growth.
There is nothing in our plans, our strap plan or anything that.
That would leave me feel differently. So in fact were very positive going forward, but again my only caution is quarters will be a little bit up and will be a little bit down.
As a result of it will be easier when we get out of this pandemic fully for sure.
Yes.
Sure that's fair understood.
Jumping just to that.
Margins in the labor mix piece.
Working hard to adjust by hiring more full time staff, so maybe an update on where you're at with that process.
Are you still on.
Targeting to complete that by Q2 two.
2022.
Graham so.
As Youll recall and just to kind of give the rest of the group some of the background, we kind of our old kind of legacy mix was that our salaried providers would represent kind of 50% of how we would deliver cases in our preferred provider group.
35% and on the affiliates, we use for around 15%.
What happened was when we saw the preferred provider which was.
Very is continues to be a very efficient and effective.
We saw the increase in demand kind of reduce our ability to get access and so that one kind of almost overnight in Q2 from 35 two.
Down to 20, and we immediately increased our affiliate to compensate for that 30% and that's what's caused.
The cost pressure.
As you recall in Q2, our salaried providers were 46%.
We increased that to 54% in Q3.
Q4, that's 56% so we've made some headway not as much headway as we made in Q2 and as we said I think.
There will be quarters, where we'll make more progress on some of them will make glass, but ultimately our target is to get the new mix, assuming that preferred provider availability is going to keep us at 20% of the Max then we're going to refill that 15% gap to get the affiliates back down to 15 and on a salaried would make up the other 64.
Five so we've got a little ways to go.
I would say that our we start still targeting to have that done by Q2, absolutely. We do have a ways to go but that's the update and we did make progress over the last quarter added another couple of percent to that number. So it is going into the right direction for sure.
Okay.
Okay. That's helpful.
And then one last if I could just.
On your outlook for Capex in 2022.
In particular, just spending on technology.
What are you thinking are you in a phase in sort of maintenance spending or are there.
Specific initiatives that you want to invest in them and if so then what's the Angola with those investments.
Yeah, maybe I'll start and then Stephen can jump in but I'd say firstly.
Look at kind of.
Projects that we are working on.
Last year, and I think a workday so workday went live in <unk>.
November and there's always some small kind of rats and mice things as I always say that needs to get fixed but the system is live and running in all of us in order. So that was a huge initiative.
It is now substantially complete second is our office build that we did and were sitting on a new office right now.
We've moved in so that work is done and behind us.
Then of course, we've spent some money to integrate digest and HTS businesses. So as we look into 2022.
Whether it's capex or some of these opex items that were kind of onetime or unusual there is certainly more cash flow.
It's a question now of.
Whether we'd go back to a maintenance.
Capex or whether we.
Advance our product roadmap so.
That's really what we're going through right now I think there'll be more to come in.
In future quarters on that but that's really what we're discussing right now is whether we advanced the product roadmap and use some of the excess cash flow. That's come from these initiatives winding down and so yeah as I said, we'll be back on that.
Okay. That's it for me thank you.
Thanks, Greg.
Thank you. Our next question is from <unk> with BMO capital markets. Please go ahead.
Thank you and good morning.
Good morning.
And wellbeing, we have previously discussed about <unk> ability to offer both the in person and digital resources.
Do you have a sense as to what percentage of employees.
Prefer in person counseling solutions, and and how would that compare.
So pre pandemic levels.
Yes, great question.
And Youll recall.
When we came out of one of the Lockdowns previously we saw a 30% increase in cases, where we're delivering and I always called that the pent up demand of people that wanted in person support and we're not able to get it through the pandemic because of Lockdowns. So we did see that bulge hit.
And kind of move through the easiest way to think about it is <unk>.
Pre pandemic, we would have been somewhere around 60% 65% in person.
Depending on the year and depending on the issues.
We just did a study, which we release, which would say that.
35% of people.
For the foreseeable future will one in person services, another 15% to 20% will want to blend. So you think again about in person is I'm at home that I'm in a relationship where I'm being abused the last thing I want to do is get on the phone get on zoom or get on our.
Our proprietary video chat system, and having a conversation that I might be overheard and again a number of people just prefer that relationship with in person.
Next set that we talked.
<unk> talked about and we did a study on it was really around people that want to meet that counselor establish the bond to start with and then maybe have future calls on the phone or on video whatever it is and don't forget we've been delivering digitally for over 20 years.
And then maybe they have a fall back and they want to get in front of the counselor again, but I think for the foreseeable future, it's probably going to be somewhere around that 50% number it's hard to imagine it wont, but frankly, it doesn't really matter to us.
As I said, we've been delivering digitally for over 20 years, we have a state of the art solution there.
And we are in person and at the end of the day, it's really about what's the right solution.
And what's the right carrier to provide the person coming in for support.
Understood.
You also announced last month some enhancements to.
Your Tele medicine offering.
Could you share some details.
As it relates to the new features and how should we think about the incremental revenue and cost impact of that.
Initiatives.
Yeah. So we continue to look at all of the services that are attached to our well being solutions are generally our strategy is we have a wellbeing solution that is out there that people are going on they are using every day every week every month.
And when they are on that because theyre getting a personalized news feed about things that they care about or they are on their to recognize a colleague or they're on there to watch a video.
Around maybe dealing with kids at home or educating kids or whatever the case might be they are going to our platform every single day and we look month.
After months on a roadmap what are the other things that we want to put on that platform and were informed on that by industry trends were informed in that from our client groups client counsels and what people are looking for.
And what people are asking for as well and we will continue to add services to that platform if they make sense for clients to do it.
Telemedicine was one of those.
Particularly at the beginning of the pandemic we added at.
It very quickly to meet the needs of our clients and what we've been doing over the last year is continue to integrate it more has it feel more like a totally seamless experience for anyone that's going on using it.
Just make it easier and continue to increase the speed and make sure that we are one of the very best telemedicine solutions in the market. So that says Greer talked to that capital to make sure that we continue to lead other organizations, we spend $150 million on.
Every year, we have a significant capital outlay and that really is about.
Creating phenomenal experiences for our clients and their employees.
Going forward telemedicine is a very small piece of what we do.
But it is an add on we see wins on a regular basis from that business, but it's pretty immaterial to the overall growth of the organization.
Okay and on margins in Q4.
Year over year increase to salary costs was broadly comparable to revenue growth.
And if you compare that to the prior two quarters. That's that's.
That's quite an improvement so.
Sure.
Into 2022 should we expect.
Salary costs to increase more in line with revenue growth.
Yeah, So John Theres no doubt that.
We saw this line item increase a lot faster than certainly what we would expect it in.
The business can't tolerate that over the longer run the pressure as we've talked about a reasonable anchors. This mix of how we deliver and that's really what's driving the majority of it.
Certainly we are seeing.
<unk>.
Inflation similar to other businesses, but our expectation is that the top line growth needs to be something well in excess of that line item, particularly when you look at the quantum.
<unk> expense that we have that comes from people, it's a significant line item and obviously it needs to be less so.
For sure that is what we expect is that the growth from the top line would be higher than the growth.
The people line.
Thank you very much.
Okay. Thanks.
Thank you once again, please press star one at this time you have a question. Our next question is from Jimmy <unk> with National Bank Financial. Please go ahead.
Yes, good morning.
Good morning, Jay.
Just want to follow up on that last question.
To start.
And I wanted to just dig into the salary.
Components. So in in Q4 can you can you break out some of the moving parts around.
Compensation and variable compensation for for example was with variable comp, perhaps lower this year than maybe expected or in other years that could've helped that number in Q4.
Walking through some of the moving parts around variable comp and how we should think about that in in 'twenty two off of this year.
So I'm not going to do and all the granular details of the.
The comp gain but I think directionally, yes, there would have been.
On the variable side it would have been <unk>.
Slightly lower but it's relatively immaterial I think what youre seeing here is that.
The margin in the IHS business was better in Q4.
And we made we made some progress on the mix of how we deliver the cases in the.
The pressure on a number of cases was.
Was off of a touch as well.
So I think lots of vote.
Certainly yes.
The performance of the business in some respects wasn't where we had expected. So you have a variable it would have been off a touch but again, it's not a key driver.
Okay. Good.
And following up on another question around the Capex.
So not ready to provide some guidance today around the specific numbers, but if I'm thinking about the last couple of years running in the mid to high Seventy's range.
Should we expect a material step back to like maybe 2018 to 2019 levels or is it more likely that we're going to still run fairly close to where we are today, maybe not higher but.
Not a material step back that up.
Fair rough characterization.
Yes, let me, let me say it like this Jim I think the certainly the with where our Capex has been running the last two years.
If we just go back to kind of.
Our base run rate Capex, given that these kind of onetime projects have come off then it will go back into the 55% to 60 type range.
I think.
I was alluding to when Graham asked the question is we've got some excess cash flow here and we have a decision to make and obviously, we can go through the various capital allocation alternatives.
Look at that.
Acquisitions.
Share repurchase these other things that any other company would look at.
Thank you.
We have some opportunities to advance our product pipeline.
So that's it.
That's what we will be back on and I think that's I think we look at that is.
As a very good alternative in terms of where we put our our excess capital. So that's kind of the.
The discussion we're going through right now what would that number be.
Would it be all of that excess so if you look at where we were before and if I said, we couldnt bring it down to 55 or 60.
And we were running last year at 75.
Is it is it taking that back up to 75, I don't know that I necessarily saying that.
But we'll be back on.
Kind of what that announcement would look like but I don't think necessarily is to use us all I mean, we may even want to advance at a little bit from that so.
As I said, we'll be we'll be back to provide more color on.
What we do but there is this excess cash flow, which we had said there would be these initiatives kind of came to a close and we just are going through.
The various alternatives and just making sure that we use the capital in the wisest way.
Okay, So im sorry.
That's kind of where we're at.
No that's clear from the from the $55 60, plus organic growth initiatives perspective.
That helps frame it.
In terms of those onetime items.
P implementation restructuring.
Hi.
I believe the previous guidance was that we'd be done ERP in 'twenty. One. So I just wanted to confirm I think is that the case should we see.
Should we not expect any adjusting items in 2022 from the best of your visibility today.
Yes, I think Thats fair I mean, we are we.
So workday as I said is it's in it's live it's running but there is always going to be a few small costs. If I look at what first quarter will be might be 1 million or two or something like this note. The question would be like is it worth putting an adjusted line item, which you know Steven and myself and the rest of the team and the board will have to have a discussion about weather.
That's what we do there might be small enough, where we say whatever and not have an adjusted line item, but it's it's very small.
On the office there is zero so thats completely done and then this combination of IHS and <unk> done all of those costs were in Q4, So I think that would be our expectation and I think there is unless there is a transaction or something like you say, we can foresee at this point then.
That's kind of our view is that we anticipate Q1 to be.
Clean safe for transactions and that kind of thing.
Yes, great good to hear.
The.
The contingency reserves.
In Q4 around normal course legal matters I called out in the MD&A as if they were.
Yes, higher this year than in 2020.
Can you maybe offer up some color as to why that is.
Is that somewhat temporary or.
Are there some more Permian factors driving that just a little more details around contingency legal reserves.
Yes.
From time to time, we have matters with our clients.
It will be one of those.
We provided for it we've probably been now maybe arguably a little bit conservative, but thats really whats driving them, obviously going to get into details, but yes. These things kind of come up from time to time and that's about it.
Okay.
Okay. Okay got it and then last one for me just and I.
Apologize if I missed this.
Round the.
Client departures that haven't been announced from Scotia in Sun life.
Did you quantify or can you quantify revenue and margin impact from from those client departures and then in terms of.
Forward looking commentary or are there any are there any other large.
Clients such as those that would be in an RFP process today that that might be.
At risk I guess, let's say.
If you could walk us around that.
Yes, Jim it's Steven.
As I mentioned before we will we're in a competitive business, we have clients, who RFP stuff we have over the years, we always have competitors who.
Frankly, we will try and buy some business so that they can get a logo.
We have seen over the year many many.
Those come back to us because at the end of the day they need to provide the very best quality care that they can for their people and that really makes a difference.
And we invest in doing that.
I would say no nothing abnormal so when we take a look at our retention rate, which you know as you would know has always been 95% to 98%.
We are easily in that range. So there's nothing that has happened which takes us outside of that range.
I think the only thing different here is normally we'll have a bunch of wins and again, we'll talk about them on quarterly calls, we're not going to press release them when they happen and we'll have the odd loss here and there.
We just never had competitors in the past press release.
Losses, So I don't think they're overly different I think it's just maybe a different process happening within the marketplace, but everything from our pipeline our growth and our retention is in line with what we have seen historically.
Yes.
Okay, great. Thank you that's it for me.
Thanks, Tim.
Thank you.
We have a follow up question from Graham Ryding with TD Securities. Please go ahead.
I just wanted to follow up on the seasonality of your margins I think historically they've been stronger in the first half of the year and then lower in the second half is that still.
Something that you would expecting your business I'm, just trying to connect that.
Back to sort of the improvements from the initiatives that you've got.
It sounded like youre going to be more backend weighted in terms of margin improvement.
Yes, I think all other things equal yeah, you're right Graham certainly there is.
Seasonality there is other stuff honestly going on Thats, probably more impactful, but just as we look at the operational improvements and as we get our pricing a little bit I think those are probably larger but if you took those patricia.
The traditional seasonality still applies for sure.
Okay.
Understood. Okay. That's it for me thank you.
Thank you.
There are no further questions registered at this time I would like to turn the meeting back over to you Mr with traps.
Thank you Valerie in summary, we had a solid year in 2021, not fully where we want to be but trending in the right direction as we make investments in high potential areas in line with our strategic plan and our commitment to driving profitable long term growth I'd like to 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 to keep you up to date on what we're doing to drive our growth and success as a business. Thank you.
Thank you everyone.
France has now ended please disconnect your lines at this time and we thank you for your participation.