Calian Group Ltd

TSX:CGY

Earnings Call Transcript 2018-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to Calian's First Quarter Results Conference Call. As a reminder, this conference is being recorded.I would now like to turn the conference over to Mr. Kevin Ford, Chief Executive Officer. Please go ahead, sir.

[Kevin Ford, President, CEO & Director]

Thank you, Melanie. Good afternoon, ladies and gentlemen. With me today is Jacqueline Gauthier, our CFO. We'd like to welcome you to Calian's First Quarter 2018 Conference Call. I'm extremely proud of the team's effort in the quarter, delivering a new record high for our Q1 results. This quarter's results mirror our strategy of both organic and acquisitive growth, and all service lines are positively contributing to these results.We're also very pleased with the contribution of ISR, acquired in May 2017, which represents 4% of our revenue growth this quarter. ISR is a long-standing and trusted partner in the nuclear industry. At this early stage, ISR's performance has met our expectations, and integration efforts continue to go well. The complementary markets of ISR present an excellent opportunity to bring our collective capabilities to bear, and I'm confident that our combined team will be successful in future pursuits.It also confirms that our M&A process continues to find and select quality companies to support our growth objectives. I'm also pleased to announce changes to our executive ranks to support our growth strategy.First, Jerry Johnston, currently the Business and Technology Services Division, VP of Training & Engineering Services, will be taking on the role of Chief Information Officer of Calian Group. Increasingly, technology's becoming a key enabler to our growth objectives, and Jerry is uniquely positioned to lead Calian Group in the delivery of our technology enablers. Jerry's transitioning into the new role while we conduct a search for his replacement.Also, at the heart of our growth objectives are clearly our employees. I've asked Lynn Stevens, currently in the BTS Division, VP of Human Resources, to join our corporate ranks as the company's Chief Human Resources Officer. Lynn will be working with both divisions to ensure that continued evolution of our HR function and leveraging best practices and development of our employees that are being executed while providing a focal point for integration of employees for future acquisitions. Lynn's current role at BTS will not be replaced.I view these appointments as critical as we continue to align our internal capacity to the pace of our growth agenda. I will now ask Jacqueline to review the quarterly numbers. Over to you, Jacqueline.

[Jacqueline Gauthier, VP, CFO & Corporate Secretary]

Thank you, Kevin. The results for this quarter continue to show the benefit of the combined strength of our 5 service offerings. The increase in revenue this quarter, both from organic and acquisitive means, allows the company to report record quarterly revenues.In addition, with significant improvements in gross margin percentages, the company was able to continue investments in its business development and delivery capabilities while continuing to increase its EBITDA level and provide a solid return to shareholders. Net profit was $4.1 million or $0.53 per share, a 20% increase compared to the same period of last year.Revenues for the quarter were $76 million, a 10% increase from the $69 million reported in Q1 of 2017. SED's revenues increased this quarter from a steady state of work in all areas of the business. Several programs are now in full swing, including RF system, projects, product developments, as well as defense and commercial contract manufacturing. With the increase in projects requiring expert labor resources, SED continues to increase its workforce, especially in the area of software developers, which will ultimately help ensure sustainable growth in areas of higher margin potential.BTS also increased its revenues by 12%, half from the inclusion of ISR and half from organic growth with demand -- with the division's mainstay contract continuing to run strong.Gross margin for the company was 19.4% compared to 18% recorded in Q1 of last year. SED reported gross margins of 23.8% this quarter, which is in line with the 23.4% reported in margins last year. The similar margin is indicative of a similar mix of the labor versus nonlabor portion of revenues and reflects the continued solid performance of all of SED's business units.With BTS, gross margin increased by almost 2% in comparison to the prior year. This margin improvement is a result of including ISR, which attracts higher margin, and solid execution on existing contracts, including proactive gross margin improvement action.Operating expenses increased in absolute dollars and as a percentage of sales compared to the prior year, to ensure continued business development and service line evolution capabilities. Although costs increased, they are still in line with our objective to keep operating costs at/or below 11% of sales. Management will continue to challenge discretionary spending. However, prudent investments are required to support the evolution of the company's service line and our top and bottom line growth objective.Our cash position decreased approximately $20 million as a result of timing related to milestone billings against work performed at SED.Finally, please note that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results.I'll now turn the call back over to Kevin.

[Kevin Ford, President, CEO & Director]

Thank you, Jacqueline. Last May, I presented a 3-year strategy and vision for the company to embrace our diverse service offerings in the domestic and global markets. I continue to be extremely positive in all our long-term growth opportunities. We will continue to execute across our 4-pillar growth framework, and this quarter had many examples of wins across the pillars of customer retention, customer diversification, service line evolution and continuous improvement.An excellent example of our service line evolution aligns to the press release we issued yesterday. Leveraging more than 20 years of experience in the design and delivery of large, complex emerging management solutions and conducting training exercises in a synthetic environment for the military through the Canadian Army Simulation Centre, Calian is now providing scalable, affordable solutions to small and large municipalities.Calian Emergency Management Solutions come with advanced tools, including a proprietary social media simulation platform, allowing customers to experience true-to-life social media communications during an exercise.The world-class software tool was developed by Ottawa-based ISR, acquired by Calian last year. Our Emergency Management solutions team have already been working with customers, including the City of Ottawa, City of Whitehorse, City of Nanaimo, City of Kingston, City of Burlington and Ottawa Fire Services. The goal is delivering quality and affordable Emergency Management solutions that allow customers at all levels to become more resilient to a range of hazards and risks and includes service options within the key pillars of prevention, mitigation, preparedness, response and recovery.As communicated -- as communities and organization face more challenging and complex threats than ever, these emergency management capabilities are critical. Our initial estimates of the spend in this area is in the tens to hundreds of millions of dollars. So we're excited about our growth potential.With our contracted backlog now exceeding $1 billion, combined with over 65 consecutive profitable quarters, positive cash flows and strong balance sheet, our financial position is very strong, which provides a facility to continue to invest in innovation. As evidenced by ISR, acquisitions can play a positive role on our growth. While we are confident in our organic growth opportunities, we continue to search proactively for M&A opportunities that support our growth objectives.Leveraging our strong financial position, we believe we are well positioned to capitalize on these opportunities. That being said, we ensure that any investment is based on solid analysis to ensure long-term success in support of our growth objectives, and we continue to work with our board to evolve the Calian playbook to ensure we target companies to support our value criteria.Management continues to focus on its key strategic initiatives. Traditional markets in which Calian operates are stable, and management expects organic revenue and earnings growth in most or all of our service lines through the successful execution of our growth strategy.However, we must caution that revenues realized are ultimately dependent on the extent of, timing of future contracts as well as customer utilization of existing contract vehicles. Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2018 to be in the range of $290 million to $310 million and net profit in the range of $1.90 to $2.20 per share.With that, I'd like to now open the call to questions, Melanie.

[Operator]

[Operator Instructions] We'll take our first question from Benoit Poirier with Desjardins Capital Markets.

[Benoit Poirier]

Just wondering, with respect to SED, obviously, you mentioned some color about the working capital investment required for SED. Could you be more specific on which programs do you need to invest some working capital and whether you would expect a reversal either this year or next year?

[Jacqueline Gauthier, VP, CFO & Corporate Secretary]

There isn't one specific project. It's really a combination of where they are at with various projects. It's very difficult to predict where we're going to be in 3 months, 6 months’ time. We're not expecting a significant swing or a continued decline, but I can't really tell you where we're going to be on 3 months or 6 months.

[Benoit Poirier]

Okay, perfect, perfect. And for the SED, you mentioned that the EBIT margin has been impacted a little bit because of the mix. How should we expect -- how should we be looking at the mix going forward, Jacqueline?

[Jacqueline Gauthier, VP, CFO & Corporate Secretary]

So actually, SED did slightly better than they did in Q1 2017. So we had a very similar mix of labor versus nonlabor. As you know, late 2016 into 2017, we had a significant project that required a lot of nonlabor. But that project is now done. And I would say that we, right now, have a typical mix in the business. Nothing that is significantly skewing it one way or another.

[Benoit Poirier]

Okay, that's great. And also, yesterday, you announced -- you made a nice announcement with respect to new opportunities driven by the acquisition of ISR. So I was wondering if you could provide some color on what could be the revenue opportunities and the potential for Calian over the long term with those initiatives?

[Kevin Ford, President, CEO & Director]

Yes, thanks, Benoit. I'll take that one. So as you know, we've been working with the military now for over 25 years on simulation and exercises, and it's basically taken all those lessons learned in intellectual capital into an emergency management offering that we're taking outside of defense and was having -- and continue to have success as Calian. And then last May, we acquired ISR, that has a very deep roots in the nuclear industry. So combined now, we just have a stronger service offering because of a few things. Number one, ISR brought in a lot of intellectual capital, as I mentioned the nuclear industry. Number two, the tools that they've brought in are basically allowing us to talk to customers, not just about services, but overall solutions for emergency management exercises. And three, with ISR now with a small footprint in Europe and U.A.E., which gives us a basis to launch global, our global strategy in this area. So from our perspective, the initial market research we've done, it's not insignificant. It's tens to hundred -- tens to hundreds of millions of dollars is being spent. I think we see that number increasing with the increase in natural disasters now and terrorism. So we think the market size is quite significant and we believe we have good opportunity to continue to grow our footprint there. In many ways, I feel that in the last 1.5 year, we've made such -- we've leapfrogged where we've been as a company externally to defense in addressing that market. So very excited about the future there.

[Benoit Poirier]

And with respect to management changes, could you talk a little bit about the rationale? Technology obviously becomes a key enabler. So just want to know a little bit more about the rationale and whether it's driven by the focus on M&A.

[Kevin Ford, President, CEO & Director]

Yes. So both of these roles, the CIO and the Chief Human Resource Officer are recognition for me as CEO of the company that I need to have an executive with the full view of the company. As you know, we're a diverse company, Benoit, with 2 divisions. We continue to do acquisitions. So both on a day-to-day operations as well as, as you said, the integration of acquisitions going global with our footprint, I felt it was an important time at Calian right now to have executives that had visibility on the full scope of everything that's going on at Calian across those domains, to look for efficiencies and delivery of our current operations, but as importantly, to start looking at the scaling required to support our growth objectives. We talk about our 4-pillar growth framework all the time. And what is lost in that discussion I think it's just the reality of the incredible talent we have here in our staff and our employees. So the CHR role is a recognition of that. We've got to make sure that we become the best company to work for and recruits or retain the best talent available to support our growth objectives. So it's a bit of operational view, Benoit, but as well, as you said, supporting our growth objectives both organically and acquisitions moving forward.

[Benoit Poirier]

Okay. And last one for me. In terms of M&A, any update on the pipeline, whether it has increased versus last quarter? And any change in the strategy in terms of M&A or different companies that you are looking at? Any thoughts here, Kevin?

[Kevin Ford, President, CEO & Director]

Yes. So for me, as you know, we look at M&A supporting 2 elements of our growth strategy: Customer diversification and service line evolution. We do have dialogues happening on many fronts, frankly, with regards to opportunities. And with the diverse nature of Calian, I don't think that should be surprising because with 5 very distinct businesses there, I think there's always opportunities. So I think the pipeline is good. The one thing we're making sure is we take our time to do the proper due diligence and discussions. We look through these -- we look at acquisitions through 3 fundamental lens, Benoit. The strategic alignment to our services, as I mentioned, they're aligned to our growth strategy. Number two, a cultural fit, which requires us to spend a bit of time with these companies to get to know them and make sure that culturally, we'll be able to integrate and have long-term success. And obviously, a financial lens, whether it's the financial performance of the company or the deal structure and the finances -- the financial elements of the deal structure. So I'm pretty confident we will continue to acquire. I'm very confident in our ability to acquire good opportunities and we're just making sure we take our time. So the funnel is very strong and we're hoping to continue to move forward on that as soon as possible when it makes sense when we've done our proper due diligence.

[Operator]

[Operator Instructions] We'll go next to Deepak Kaushal with GMP Securities.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Kevin, I guess, in follow-up to Benoit's earlier question on the emergency management and training side of the business. I guess, in the mainstream press, we've read recently about missile warnings and more missile warnings or tsunami warnings or wildfires. Are you seeing a tangible increase in pipeline? Or is it just business as usual? And any kind of color you can give us on the pipeline for that business in terms of geography or segment of the market?

[Kevin Ford, President, CEO & Director]

Yes. So from my viewpoint, I think you've painted that question very well. In reality, we are seeing increases. I think we could all, say it's almost a daily event now, where something is happening in the world, whether it's through terrorism activity, whether it's through natural disasters or other means. So I would say that 2 things are happening. Those incidents are forcing organizations to look at their emergency preparedness with regard to their procedures and exercises. And secondly, in parallel, we're getting known. We spent a lot of time as Calian over the last 2, 3 years evolving our service offerings to bring in methodologies, to bring in tools. We're spending time at many emergency management conferences, whether having a booth there, whether speaking. And we continue to publish thought leadership. The team is doing great work on publishing thought leadership with regard to emergency management. So the combination of those 2 things, I would say, yes, our funnel is very strong. I think the combination of what we're doing at defense today as well as now what I see as opportunities outside of defense are very, very, very strong from my viewpoint. As far as growth posture, I think we'll see, Deepak. But put it this way, I was briefed by the team last year on just where we are in the evolution of our service offering. It's exciting times for our emergency management as it is for most of our service offerings because we are literally moving from a services company to a full solutions company. And I think that has global relevance for specific areas like emergency management.

[Deepak Kaushal, Director and Technology & Communications Analyst]

I guess, on a similar vein on the SED side of the business. Big milestone for SpaceX last night with the Falcon Heavy and it kind of sparks the imagination of -- and it reminds us of the innovation that's going on in the space side of the business. I was wondering if you can give some color on SED and innovation that you guys are doing there with respect to the space system, software, hardware, ground systems and what we -- how we might think of this going forward?

[Kevin Ford, President, CEO & Director]

Yes, a great question. It definitely was exciting. So I think it's a sign. When I'm in the markets and you know this, Deepak, I get mixed signals, frankly, from folks on the satellite industry with regard to, is it a growth industry or not? From our viewpoint, we're seeing -- we're not seeing any shortage of opportunities. And even right now, we've literally tens of projects on-the-go at SED, if not over 100. So any time you hear spacecraft, anytime you hear things flying, the update in this low earth observation satellites, the continued demand for bandwidth, the SpaceXs of the world, Wi-Fi and planes, trains, automobiles, autonomous vehicles, Internet of Things, at the end of the day, they're all going to need a backbone to run on with regards to whether it's fiber or satellite. So we're seeing good opportunities both short and, we think, longer term, as satellite operators get ready for that demand or should meet current demand requirements. As far as the innovation side. I was at SED last week with Jacqueline and I, we spent a few days there with the team, and I got briefed on numerous projects that we're doing in research and development. We don't talk enough about what we're doing in research and development in this company. We have an SED research arm, as you may be aware. And we spend time with that team. So without opening the kimono too high here, I would say on the satellite systems, the next generation satellites that are going to be ready for what's called Q- and V-band processing, we're definitely spending time there, looking at our ground system segments and ensuring that we're ready and ideally leading with the solutions and dealing with that new technology trend. And then in areas at our software side, which is equally exciting, working with organizations. As we've mentioned before, DCT DELTA in the cable sector, all net new to us and finally, the agriculture sector. Working with organizations to develop or engineer or manufacture complex agricultural systems that are increasingly becoming more complex and really are a true Internet-of-Thing opportunity. So I'm really pumped coming out of SED last week, actually, in both the current book of business. But as you said with the satellite/space industry isn't standing still and we're getting ready. And I think we're going to be well positioned to take our share of new market opportunities going forward. So very excited about the opportunity there as well.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Excellent. I do have a couple more questions, if I may. Just again on the business side of things. I did want to ask about your medical clinic management business on the commercial side, the Primacy clinics. Any updates on potential for expansion with shoppers on the Loblaws side? And what's the plan for future growth on the commercial clinic side following the Fort McKay clinic opening last year?

[Kevin Ford, President, CEO & Director]

Yes. So for -- right now, no real updates. With confidentiality of Loblaws and Shoppers, it's probably not appropriate for me to talk about specifics. But just generally, the [ reach ] of Loblaws [indiscernible] continues to go well. And I think, as you can see, with Loblaws and Shoppers, I think they're very focused on health care and so I think that program has got lot of opportunity to continue over the longer term. As far as net new scope, I think, frankly, we'll learn that with the relationship if Loblaws or Shoppers feels we have an opportunity, I'm sure they'll talk to us about it, but I'm comfortable with where we are there. They're probably in a better position to talk to the expansion of the programs. With regard to the clinic program themselves, like Fort McKay and we're looking at it through a -- we're looking at it in a context that when I look at our health care business, Deepak, we see growth really coming in 2 thrusts. One is the increase of customers pulling down from our national network and medical practitioners. So we do not need a clinical infrastructure for that. Frankly, when we look at a lot of our customers today and the ones that we're bringing on, we're actually more and more working on their facilities. So I'm not sure it's going to be onus on us to build out a more clinic infrastructure because as customers talk to us, they want us working on their sites. And then the second piece we're focused is what we call the health care enablements and leveraging technology and the delivery of health care. And I think if you look at Calian, I don't anticipate we're going to have -- open up a whole bunch more clinics. I think we'll continue with customers on the programs with the practice we have today. And as importantly, look for these health tech opportunities to integrate into our offering to differentiate and hopefully help -- make health care a bit more efficient in its delivery.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay, that's helpful. And I do have one final question for Jacqueline maybe best for you. I think you have a $40 million line of credit and almost $20 million in the till. Can you remind as of your comfort ranges on what you could chew off with an acquisition and what your thoughts are on potential debt and or capital structure longer term?

[Jacqueline Gauthier, VP, CFO & Corporate Secretary]

Well, we're comfortable keeping more or less $15 million in the bank to deal with the ebb and flows of the working capital. Although, obviously, we've got the line of credit as well that we can dip into. In terms of the multiple of EBITDA for debt, 1 to 2, 2 would be at the high end.

[Kevin Ford, President, CEO & Director]

Yes, as far as deal structure, Deepak, we've got a lot of discussions with the board this week on our M&A playbook. The price is not necessarily the issue. It's the combination of price, the strategic nature of the acquisition and the risk profile of that. So I'm not sure we're constraining our thinking at a specific price range. More of the combination that, obviously, as the price goes up, we're not looking to do a big acquisition with a high-risk profile that strategically doesn't align to our growth objective. That's not what we're doing here. But I think our focus is really the alignment of strategic opportunity with the price, obviously, the risk assessment and our ability to integrate longer term. So I don't think we set a bar here in what we can digest. It's more a matter of finding those opportunities that come in at the right price with the right risk profile.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. I mean, is there a high competition for opportunities out there? Is there a dearth of opportunities, just not the right ones? Any kind of color on what you're seeing and how you're reacting to opportunities?

[Kevin Ford, President, CEO & Director]

Yes, I would say from my perspective, I think there's lots of opportunities out there. I think the availability of capital right now for a lot of companies, some owners, I think are taking as an opportunity to look at their alternatives longer term. So I think there's a lot of opportunities, especially for Calian. As you know, Deepak, with 5 very distinct businesses, if you take even 2 or 3 opportunities for service line, that would be 10 to 15 opportunities, right? So we think there's lots of opportunities. The marketplace right now is an interesting one because of the availability of capital, the USP firms, a lot of different areas. Well, we're not -- well, what we're trying to stay away from is this whole auction mindset that's out there right now. People approaching us, and we're 1 of 20 companies that are bidding on a company. We're looking to have through our searching discussions with owners that we can go have almost exclusively or pretty well exclusively, get to know them, they get to know us and then move on from there. So if we've learned anything over the last 12 months, I would say that there's lots of opportunities. But chasing auctions isn't the way to do it. And the second piece is, what we're most successful, the 5 acquisitions we've done, why they've been successful is we've been able to have almost an exclusive discussion with the ownership group, get to know them, make sure the cultural fit is there, put a transition plan in place that makes sense, put an earnout structure that makes sense. So we're trying to stick to our guns on things that have worked versus trying to chase the markets right now. And I think longer term, that's the right move for Calian.

[Operator]

And we'll go next to Brian Pow with Acumen Capital.

[Brian D. Pow, VP of Research & Equity Analyst]

Just wanted to follow up on the ISR. Just I'm trying to understand the sort of the nature of the engagement that you're shooting for with the different municipalities in that and sort of how revenue is generated, sort of the stickiness of it and then maybe the margin profile relative to the rest of your business.

[Kevin Ford, President, CEO & Director]

So for emergency management, when you look at the profile of that segment, generally, organizations are coming to us to conduct an exercise or do a review, potentially of procedures. So they're normally project-based. So [ your end, ] some of them may be small. Some of them could be months. Some of them could be take up to 1 year, 1.5 year depending on the size of the exercise. So it's project-based, number one. The margin profile is -- because we've invested in solutions and tools and the acquisition of ISR, and also, the brand [ accolade ] we have in this segment now and continue to grow stronger, it's definitely from my viewpoint higher than our typical BTS margin profile, if I can say it that way. Not significantly higher. I think we continue to be cognizant. Price does matter. So we're not trying to increase margins incredibly in the short term as we establish a presence but they are better. There's no question they're better and I think they're going to continue, as you saw in this quarter, pull up our overall margin achievement. And I think from that perspective, it's just one sign of the different types of things we're doing here that move us more into that solution space. So by definition, with solutions, you may take on a bit more risk, with risk comes higher margins. And as long as you're executing successfully, we believe we'll do fine as we're seeing in our division in Saskatoon. So hopefully, that answers your question.

[Brian D. Pow, VP of Research & Equity Analyst]

And do you see the potential for like a reoccurring element to it over the long term? Or sort of what are you ultimately shooting for these customers for long-term stickiness?

[Kevin Ford, President, CEO & Director]

Yes, for me, the stickiness is interesting because we have both Calian and ISR have long-term relationship with customers. Obviously, defense for Calian and for ISR, numerous and nuclear organizations or critical infrastructure organizations. So the stickiness really becomes a successful delivery. And when you do one of these exercises, you do it well, I think you're going to appreciate the mission criticality of these exercises. So right now, we have -- I consider to be a great relationship with numerous organizations that continue to come back to us and ask us to work with them. So I think our stickiness, frankly, at this point, is just based on the track record of delivery. When you look at the recurring revenue theme, it's something we're looking at across all our services, is how do you take a project-based nature and is there an opportunity to save a recurring revenue business model into it? So while I can't answer that specifically today, it is on our mind and we continue to think about that as far as how we evolve our services to more of a MRR mindset. So stay tuned on that.

[Brian D. Pow, VP of Research & Equity Analyst]

Okay. And then just to confirm again, you had given a range of sort of what you thought the market potential was. Can you just go through that again where you think the market potential is for this?

[Kevin Ford, President, CEO & Director]

Yes. So we've done some market research on emergency management. And the challenge with the market research, frankly, is they throw in quite a bit, like, fire departments first responders. So you've got to continue to peel back the data. So based on what we see right now, we believe there's tens to up to hundreds, hundreds of millions, like maybe a couple of hundred million of opportunity out there for us. And I think that number should resonate. Because right now, if you look at where we are in the context of emergency management offering, we're nowhere near that. So I see lots of room for our opportunity to grow here supporting our growth objectives. I think the market isn't saturated with companies that can do this and can do this well when you look at the competitive landscape. And then if you take our track record in the context of military, now nuclear, if we can work with the military and nuclear organizations and bring that track record into a newer -- new customers, it's a bit of a differentiator for us, frankly, because it's -- clearly, these organizations we work with today are "mission-critical". And so our pedigree out there is very, very strong just based on our history. So again, I think we have room to grow. We continue to invest, and it's just because I don't want to send the market a number saying, "Here's the number we're going to hit because we've got that internally." But from my viewpoint, whether it's tens or hundreds of millions right now, compared to where we are right now, we have got huge growth opportunities in that segment, both domestically and globally.

[Brian D. Pow, VP of Research & Equity Analyst]

And then looking at the buildup of expenses and towards business development and service line evolution, was a big part of that relating to ISR or is it sort of across the map?

[Kevin Ford, President, CEO & Director]

So yes, so good point. So really, when you think about it the last Q1 of last reporting period, we didn't have ISR in our numbers. So now we've rolled ISR into the numbers. We just have a bump there just by the reality that we have the ISR team into our OpEx numbers. However, with the business plan that we produce every year, I am presented business cases with regard to investment in organic growth, with regards to either headcount, and it could be sales headcount, marketing headcount or obviously, our service line, the leaders and development folks, and then technology. So what you see there is a subset of all of that. And it's really across all those elements. The acquisition coming in, investing in those [ means ] I just talked about. And with the goal, that you [ get a ] 10% to 11% of revenues overall as we grow the company. So as long as we continue to do that, I think we're going to be in great shape. If you look at it, we're investing millions of dollars in operations. If you look at our capital structure right now, that's still priority one, investing in our organic growth posture. Priority 2, would be M&A. So we're definitely feeling we're well positioned to do both.

[Brian D. Pow, VP of Research & Equity Analyst]

Okay. And I apologize, I wasn't on the whole call. Did you provide any color at all in terms of the new medical service contract, where we are in that in terms of once the new cycle kicks in later this year?

[Kevin Ford, President, CEO & Director]

Yes. I didn't, actually. So I'm happy to answer that. So as a reminder, our previous contracts or really, our current contract prior to this recompete expires on March 31, 2018. The new contract kicks in April 1, 2018. So we are literally in the transition phase from our old contract to our new contract. It's going well. It's very busy, as you can imagine. We have over 600 people across the country supporting the military. And now we're going to look at expanding that to RCMP, Veterans Affairs, [ Navy ] cadets and also integrating our partner Bayshore on board. So it's going very, very well. Extremely, extremely busy as we head to that April 1 deadline. So we're expecting it to flip over successfully. And we don't expect to see any issues of continuing that superior level of service that we've been providing the military now for over 12 years. And we're really looking forward to meeting and working -- well, we've met with them now, but working with the RCMP and Veterans on their health care requirements as well. So overall, it's a green light. And it's just busy trying to get it all done between now and April 1.

[Operator]

And we have no other questions at this time.

[Kevin Ford, President, CEO & Director]

Okay. Well, thanks, Melanie, and thanks for all who attended the call today. And again, I just want to reiterate my thanks to the Calian team. Jacqueline and I are extremely proud to be able to sit on this phone call and tell you about all the great things that are happening at Calian. Another quarter Q1 record for us. And while it's easy for us just to sit here, I hope you all appreciate there's almost 3,000 people across the country driving those results. So my congratulations to the team again.And before you know, we'll be back on the call here again talking about our next quarter results. So I look forward to talking to you then and appreciate your time today. And with that, Melanie, I think we can close now.

[Operator]

Thank you. That does conclude today's conference. We thank you for your participation. You may now disconnect.

[Kevin Ford, President, CEO & Director]

Thanks so much.