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Calian Group Ltd
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Good day, ladies and gentlemen, and welcome to the Calian's Third Quarter Results Conference Call. As a reminder, this conference is being recorded. And I would like to turn the conference over to Mr. Kevin Ford, Chief Executive Officer. Please go ahead, sir.
Thank you, Casey, and good afternoon, ladies and gentlemen. With me this afternoon is Patrick Houston, our CFO, and we'd like to welcome you to Calian's Third Quarter 2020 Conference Call. I'm pleased to announce another record quarter of revenue for Calian, which we have now accomplished for 8 consecutive quarters. The results demonstrate our continued growth and the resilience of Calian's diversified business. Q3's consolidated revenue was a record $106 million, up 19% from the same period last year. The quarter also marked our 75th consecutive profitable quarter, highlighting that we continue to main profitability as we execute our growth plan. While the ongoing public health crisis has had some short-term impacts on our earnings, our teams have adjusted and Calian has remained resilient. The third quarter's results reflect our continued focus on profitable growth while delivering essential services to customers in a very challenging and unpredictable environment. During the quarter, we saw very positive results in growth across most of our segments. Health revenue gained 50% compared to the same period a year earlier, reflecting stronger demand across the business and with our recent acquisition of Allphase and Alio. A major contributor to the growth was the health teams recently won contract with SNC-Lavalin and PAE's joint venture to support the delivery of mobile respiratory care units for the government of Canada's pandemic response efforts. The Advanced Technologies segment posted strong revenue growth of 18% from the prior year quarter, with continued top line contributions from the segment's large ground systems project, mobile wireless product sales for a Tier 1 North American mobile wireless provider and other defense and Satcom projects. Information Technologies revenue gained 9% from the prior year quarter on stronger overall demand, including solid sales for our cybersecurity products and services. Positive results in the Advanced Technologies, Health and IT segments more than offset a year-over-year quarterly revenue decline in the Learning business, which was affected by the COVID-19 pandemic causing delays to on-site learning activities and training exercises. Through the pandemic shutdowns, we have worked with our customers to find alternative approaches to maintain continuity of service. And as of June, many of the activities that were paused have returned under new rules and procedures for the safety of instructors and students. Despite the revenue decline for Learning, the segment maintained profitability. I'd like to thank our dedicated team at Calian for their efforts during the quarter. They have helped us respond to the pandemic with agility, creativity and a tremendous collective effort. Once again, they have helped carry Calian through this very challenging business environment. I will now ask Patrick to review the quarterly numbers. Over to you, Patrick.
Thank you, Kevin. It's exciting to report another record revenue quarter. We have, again, exceeded $100 million in a quarter and accomplished this in exceptional circumstances. The successful execution of our profitable growth during the quarter highlighted the critical essential service nature of our products and services as well as our team's flexibility to adapt to rapid changes in conducting business in the last few months. Third quarter revenue increased 19% year-over-year while adjusted EBITDA was up 34%. During our third quarter, the company was impacted by the pandemic, which, as Kevin mentioned, caused us to pause certain projects requiring on-site delivery. This is largely in our IT and Learning segments, although certain customers in our Health segment also had to pause operations and temporarily halt contract work. On a consolidated basis, COVID-19 resulted in a revenue decrease of $8.8 million during the quarter with an EBITDA impact of $1.7 million. We were able to offset this, to some extent, with revenue from our engagement with SNC-Lavalin on mobile respiratory clinics, although at significantly lower margins. The net impact on EBITDA from COVID-19 in the quarter when accounting for the paused contracts and the offsetting SNC work was approximately $1.4 million. Throughout the quarter, each business segment worked extensively with customers to resume operations, and as of this call, we have been able to resume a significant portion of our affected contracts. We currently estimate a further revenue impact of $2 million to $3 million for the remainder of the fiscal year. Please see our MD&A for further discussion of these impacts in the quarter. Our already strong balance sheet was further strengthened this quarter. We ended the quarter with $46 million of cash on hand, which supported our completion of 2 new M&A transactions shortly after quarter end. Consolidated gross margins in the quarter were 21.4%, in line with the same period of the previous year. Operating expenses in the third quarter were $13.5 million, up from $12.5 million in the same period of the previous year. This was a result of investments in strategic initiatives to diversify our customer base and expand into new verticals, investment across the segment to enable project delivery and some additional costs related to acquisitions and outstanding equity instruments. We continue to make focused, disciplined investments in our business development and delivery engines to support the company's overall growth. Adjusted EBITDA for the third quarter was $9 million, an increase of 34% from $6.7 million in the same quarter of the previous year. Adjusted net profit in the third quarter was $5.6 million, an increase from $5 million in the same period of the previous year. Working capital in the quarter decreased by $5.4 million. This was a result of the ongoing implementation of our large ground system project offset by U.S. Canadian dollar exchange rate changes, government programs introduced as part of their response to COVID-19, which allowed the deferral of certain tax payments and improved collections and management of accounts payable. Our net liquidity position remains strong with $46 million of cash on hand and no balance drawn on our credit facility of $60 million. 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.
Thank you, Patrick. Overall, we have continued to demonstrate the execution of Calian's growth strategy despite challenges across the global economy. I often refer to Calian as having a 4 piston engine, driven by our 4 segments of Advanced Technologies, Health, Learning and IT. And I think you saw the work of that engine in the quarter with each segment focused on growth and innovation. Our sales efforts continue to show positive momentum in the quarter as we captured $154 million in new contracts ending the period with a revenue backlog of approximately $1.3 billion. These new contracts included Health's new business with SNC-Lavalin worth up to $26 million in revenue in the first phase. Our IT segment successful recompete for a cybersecurity contract with the Department of National Defense with up to $22 million over 3 years. And the Learning segment successful recompete for the training service contract with Canadian Forces School of Aerospace, Technology and Engineering worth up to $54 million over the next 6 years. Fourth quarter end, the Calian team is excited to announce the close of 2 acquisitions, strengthening the IT and Learning segments. In the Learning segment, we acquired CTS International to boutique training firm based in Stavanger, Norway. CTS provides the learning team with her presence in Europe and the opportunity to pursue new training business within NATO as well as other defense and commercial customers in the European market. For the IT segment, we acquired EMSEC solutions, a firm base in Ottawa specializing in radio frequency, emission security and technical surveillance countermeasures. EMSEC's wealth of cybersecurity experience will position Calian into a dominant position in the emission security field and provide our cyber solutions team with this market differentiation. Congratulations to our Learning and IT teams for closing these acquisitions, and, again, to the CTS and EMSEC team, a warm welcome to Calian. Regarding frontline health and essential service workers, I'd like to thank all of you for your dedication and courage during this ongoing public health crisis. Our own dedicated staff at Calian has been delivering essential services with so many other frontline health workers, Canadian forces members and service workers. From all of us at Calian, we offer our deepest appreciation for your service. Going forward, M&A growth will continue to be a focus. We will also continue to invest in R&D and sales to support future organic growth. The Advanced Technologies segment, for instance, has continued R&D related to new products with the recent launch of it's fourth-generation Decimator D4 spectrum analyzer product, which monitors radio frequency, communications and detects signals issues. So in closing, while the current global business and economic environment is uncertain, Calian has responded to recent adverse standards with resilience, flexibility and creativity. The third quarter demonstrated our consistent ability to increase top line revenues and win work through challenging market conditions. Calian entered 2020 with a strong backlog of work and has continued to add to new contract wins and renewals to maintain this backlog position. Lastly, while the traditional markets in which Calian operates are managing through this pandemic, management expects organic revenue earnings growth in most or all of its segments through the successful execution of our growth strategy. However, we must caution that revenues realized are ultimately dependent on the extent and timing of future contract awards, customer utilization of existing contract vehicles and any impacts due to COVID-19, specifically government regulations related to social distancing, stay-at-home orders and broader global travel restrictions. Based on currently available information and our assessment of the marketplace, we have increased our guidance to reflect our strong third quarter and our momentum going forward into the fourth quarter of fiscal 2020. We expect revenues from fiscal year 2020 to be in the range of $415 million to $435 million. EBITDA per share in the range of $3.95 to $4.17. And adjusted net profit in the range of $2.48 to $2.70 per share. Please see our press release and MDA for a detailed reconciliation of our guidance. So with that, Casey, I'd like to now open the call to questions.
[Operator Instructions] Our first question comes from Amr Ezzat with Echelon Wealth Partners.
First, on your updated guidance, can you maybe give us some color on the different drivers there for the Delta? You mentioned the SNC contract in your prepared remarks, but the $30 million bump in your revenues implies that you're perhaps seeing strength in other areas of the business as well. Maybe some color would be helpful.
So SNC certainly is one of the drivers that contracts in the approximately $25 million value. We're hoping to deliver the majority of that this year. But some of it might slip into Q1. The other one is where we are making good progress on our large ground system project. That's proceeding despite any of the travel restrictions. Our teams really worked hard to continue the pace on that project. So we're seeing a little bit of incremental revenue there. And we're also seeing, as we mentioned in our prepared comments, the COVID impact has lessened significantly, so in Q4 is -- so that should help us finish out the year.
Fantastic. Then maybe another one on your new guidance. The new guidance implies the EBITDA margin is just a touch lower than your previous forecast. Just wondering what brought that on, is it the -- I guess, like the lower EBITDA margin of the SNC contract? Or is there anything else to read into that?
No, I think you've got it there. The SNC contract certainly is much lower margin than our traditional business. So although it's helping us on revenue, it is bringing down our EBITDA percentage slightly.
Fantastic. Fantastic. On the Advanced Technologies sector, I guess, as I look at the growth contribution during the quarter of 18%, can you share with us how much of that comes from ground systems versus your wireless product?
Yes. In the quarter, I mean, the majority -- there's 3 main drivers, ground systems was the largest one. We did see continued demand slightly higher than last quarter for the products. And IntraGrain, which really comes into focus here in Q3 and Q4 had a strong quarter as well. So the combination of those 3 is really what propelled the growth.
Understood. Okay. So I guess, as we turn our attention to fiscal '21, maybe you could give us a bit of color on the bidding activities and the opportunities, I guess, you're seeing for both like ground systems and wireless products? Just trying to get a sense of how much activity you're seeing? And how large, I guess, are these opportunities relative to what you guys are delivering on?
Yes. I would say -- it's Kevin. So I think for me, what I'm -- as in this quarter with over $150 million signings, what we're seeing is that from a sales opportunity perspective for whether it's Advanced Technologies, Health Care, Learning, IT, we're seeing good opportunities and ranging from hundreds of thousands of dollars to multimillion-dollar opportunities. So I've been impressed, frankly, just by the amount of the activity that I'm seeing in our proposals group, so how many proposals are going out the door. So across each of our segments and Advanced Technologies specifically, we're seeing still lots of customer opportunities with current customers as well as potentially new customers. We're seeing interest in areas such as our carbon fiber antennas, which we are rolling out as far as its ground system project. As you remember, we announced those last year that, that's a new capability for us. So I'm pretty excited by the fact that in a very challenging environment that we're still seeing lots of opportunities and lots of proposal activity. Of course, we got to win those. We got to win our share of them. But in no way are we feeling having opportunities right now to continue the growth profile.
Great. Maybe one last one, a housekeeping item. Secure Tech's second anniversary was May 31, noticed that your total contingent consideration still stands at $19.6 million as at quarter end. So safe to assume that they've met their targets for the second earn-out?
Yes, they did meet them. And they actually overachieved slightly above the target. So we recorded that and paid it in Q4. So good, strong performance from Secure Tech in the second year.
Our next question from Benoit Poirier with Desjardins Capital Matkets.
For IT, could you maybe -- congratulations, by the way, for the acquisition of EMSEC. Could you maybe help us to understand the geographical mix of the business? And whether you see a increased opportunity with fiber security solution in the context of the pandemic?
Yes. So I think on the first part of your question with regard to the scope or the -- where we're delivering cyber services specifically, Benoit?
Yes, exactly.
Okay. So right now, if you look at as I mentioned, I think in the past, if you look at our IT services business today, including cyber, the majority of the work is Ottawa and some Toronto exposure. So what we're excited about is now with EMSEC and also some of the increased costs in our OpEx is putting more sales headcount in areas such as Toronto. So we think geographically, we have lots of room to grow in Canada. And the reality is the majority of our revenue for IT services right now is coming out of Ottawa with some in Toronto. So we just think, frankly, growing our IT business is taking all the good work we're doing here and just expanding it across the country. So right now, domestic play for sure with regard to IT overall. And then for specifically cyber, in the context of the pandemic, I think what we're seeing is a few things. We're seeing increased activity for governments -- government and federal government to push forward with cybersecurity RFPs to strengthen infrastructure, especially as people work mobile, more and more mobile work off -- work environments means more exposure to cyber potential issues. So I think everyone is trying to push forward on some of those activities to get some corporate capability or enterprise solutions in place to deal with the mobile world. And then just generally, cyber regardless of the pandemic is a concern. And so we continue to see good opportunity and very positive growth profile for that, both in Ottawa, but frankly, right across the country. So I think there's still lots of room to grow in our IT services and cyber specifically for sure.
Okay. And with Advanced Technologies, given the pandemic, people have been working away-from-home. So are you seeing some incremental demand from your telecommunication customers to increase bandwidth in some specific regions?
Not necessarily. I think a lot of the work historically that we've been doing is in the ground system in Satcom. So I think there's obviously probably been more demand. And if you think about some of the broadcasters and broadcast capability that we help support. So we haven't really seen it from the telecommunications side. We've just entered the mobile marketplace really this year with that one product that we've sold to a major carrier. So we haven't seen demand per se, I would say, Benoit, with regard to that. But we are very busy in Advanced Technologies on the Satcom ground system segment side, lots of opportunities, lots of bids going out the door. So whether that's related to pandemic, I can't say for sure, but we're not seeing that slowdown in any shape or form.
Okay. And last one for me, Health Care. Could you talk about the progress made with the integration of the 2 latest acquisition in Ottawa?
Yes. Actually, it's been good. I think as we continue to involve our M&A playbook and take lessons learned from every acquisition and we put it into our playbook, I would say with the Alio & Allphase team, it's going very, very well. And we've been able to actually leverage each other's collective capabilities now to bid on new work. Clearly, they're supportive of the Alio & Allphase team is a key part of that SNC-Lavalin win as well, bringing their capability to the table. And we continue to get more exposure to other potential pharma customers and, obviously, the home care element of that when you think about pandemic and what's going to be going longer term, I think it's going to be a good opportunity for us. So we've been very excited by -- it's frankly been very quick out of the box with Alio & Allphase. The teams are credible. The talent is incredible. And the products they're offering with their home software application, that really helps us differentiate, is really helping us both in the Alio & Allphase domains, but also even our Health Care domains grow. So still very positive, Benoit. And frankly, one of our quickest acquisitions out of the gates on a one plus one equal three, for sure.
We'll take our next question from Furaz Ahmad with Laurentian Bank Securities.
I was hoping to start off just on the Health Care segment. Is definitely a strong quarter of the SNC contract, could you be able to tell us how much of that contract came through this quarter?
Yes, it's about $7.5 million.
Okay. And I guess the bulk of that is for -- a Q4 thing?
Yes. I mean, I think right now, we're thinking -- we try to get most of it done. We do have some deliveries in the last couple of weeks of the quarter right now scheduled. So some of it might set into Q1. But right now, the plan is to try to deliver the balance of that when we announced this year.
Okay. Great. And within the Health Care segment as well, previously, you had mentioned that services that you offer, like mental health services and tackle ending lagging just because of the focus on essential health care. Has that come back recently? And do you expect it to continue to come back in Q4?
Yes. I think for me, on the dental side and everything, and specifically with our defense contract, we're definitely seeing the return to work for dental services. I think there was an initial pause, but I think the reality is that, that's coming back. I actually -- I see that even on a personal level with family, how people are getting back to dentist. So that one is definitely coming back. On the mental health side, I would say, demand has been neutral. It's just more -- some of the work we've done in certain areas are stronger with regards to obviously mental health and a lot of the work we do with the military, that always has been strong. It's just now psychological assessments that we bring in are priority 1 for the firearms and something like that, that's going to slow down over the last little while. But again, we expect that to pick up and get back to normal, probably in the next 2 or 3 quarters.
Okay. And just turning over to the Learning segment now. You guys mentioned that a lot of the engagements that were paused are coming back online. I mean, would you kind of -- would you be able to give us a sense as to what percentage of some of your contracts is still on hold?
Yes. I'd say it's a minority right now. I mean there's a few contracts here and there where either the activity hasn't resumed, and we haven't found an alternative method to deliver the service. But I'd say that's the minority, I say, maybe 15%. The rest of the 85% that was -- that led to that kind of impact in Q3 since resumed.
Okay. That's good to hear. And then I guess just last one for me. You guys have done a great job maintaining margins during the pandemic. And given the focus on costs during COVID. Do you see a large opportunity for margin gains once things normalize, given the tight level cost control?
Yes. I mean we're monitoring costs, obviously, travel and things like that have reduced some of the marketing has reduced in certain areas. We've paused on certain increases, which we probably naturally would have done on space and things like that. So we're trying to find opportunities where we can reduce our expenses. That doesn't impact our long-term growth, which is really the most important thing that we're trying to focus on. So invest to drive the long-term growth, but yet, at the same time, find some opportunities for savings already naturally coming.
We'll take our next question from Deepak Kaushal with Stifel GMP.
I've got a couple of follow-ups to some of the previous questions. Kevin, CTS, the synergies and the rationale, I can easily assume and seem pretty obvious, EMSEC seems a bit less obvious. I was wondering if you could walk us through the rationale for acquiring that business? And what kind of synergies you can drive with your existing IT practice?
Yes. I think for me, the -- you're right, it's not necessarily what we were doing in the context of cyber, but what we thought and what we do believe and with the team, what we've added in there is a very unique toolkit into our cyber capabilities. So there's not a lot of companies. This is very boutique. This is not a piece that is easily found. And then we felt that, that, with their presence and their customer base, they have exposure in defense and other markets and some of their tools that they've developed, we thought it would be something that as we look to strengthen our cyber practice and grow, it's something they had basically reached a certain threshold with the amount of capability they had and we think now putting our shoulder behind it, we can be looking at that. And when you think about RF emission security, you think about just the reality of mobile workplaces and the reality that cyberattacks are increasing, and this is actually dealing with the emissions coming from computers. We still think that's going to be both on the corporate side, the defense side and even potentially on the defense -- the defense OEMs that we service, so there's going to be a lot of synergies there. So definitely, it will be focused initially on defense, defense OEMs, but we do believe there's some corporate capability here that they are starting to get exposed to that will really help us. And it's a great way to talk to our cyber business and differentiate us in the context of all that we're doing, Deepak. So it's a very strong tool that we'll get for sure.
Okay. And then -- go ahead, sorry?
No, no, sorry, go ahead. You have this one.
I was going to shift here as much -- had anything more to add on EMSEC or CTS?
Well, no, I don't think so. I think for us, what we're -- the CTS one, as you said, the synergies are obvious with regards to expanding our base of training and learning that we're doing in military environments to NATO and other European customers as well as the commercial market there. You bring in the SaaS service piece that we have in Germany now. So we now have 2 footprints in Germany -- or sorry, in Europe. And I think that is, again, consciously as part of our plan as we want to plant flags in some of these economies and local areas that we know are going to be key to our long-term growth. So we're very excited to have CTS. And again, coming out of the blocks, we're seeing lots of opportunities working together. So it's pretty exciting.
Got it. And then going back to early acquisitions, Alio & Allphase, you mentioned some COVID-related opportunities. I was wondering specifically, if you could talk about what you're seeing in the home care services? We hear a little bit more about hospitals having to do more of that, servicing its general population in their own homes rather than on-site in the hospitals. What particularly are you seeing there? And is that product revenue in the Health Care related to that?
I would say for us, it's really 2 things. So number one, as you said, as people look at alternative delivery models for health care now, whether it's virtual health care, home health care, as you said, moving people out of hospitals. You think about our network of national medical practitioners, it's probably one of the strongest in the country across multiple diverse elements. So we had that to start. You bring Alio & Allphase in, that brings in the capability with their home health outcomes management engine, which is a proprietary software they've developed to help really build a more effective way to interface and integrate a lot of the health care systems. I would say relevant, clearly post-COVID. And then they also had the pharma trials, you think about pharma, the pharma industry with vaccines. And then you bring in the fact that they had exposure to home care and some -- one of the companies they had bought earlier, a company called Global has actually got a home care capability. So I would say for us right now in health, our growth is going to be considered to be driven by federal governments, whether it's defense or S&P. It's going to be continue to grow by other new customers -- just exposing our health care practitioners to that, it's going to be driven by the Alio & Allphase acquisitions with regard to expert access now to pharma and pharma trials and patient support programs that are coming with the Alio & Allphase acquisition. So all of the things that we're doing in health care, very relevant. And also going to be very more relevant, I think, as now as we look at these alternative health care delivery models. And we're working on that very proactively on our next steps for Calian to really take advantage of that opportunity.
Got it. Got it. Okay. And then I guess my last question and more general on the M&A side. You've done a handful of them in your recent quarters, and they've all been quite small. Is that just the nature of what you're seeing in the market? Is it easy to pull the trigger on these small niche boutique kind of acquisitions? What can you tell us about the pipeline and what you're seeing in the marketplace?
Yes. I think if you look at the -- if you think about the last 12 months from a Calian perspective between SaaS service, you bring in the Alio & Allphase piece, which is a larger acquisition. And then, as you said, 2 smaller tuck-unders. I would say, I think that's a good categorization of what we're seeing. We really see the smaller tuck-under capability, but we're also seeing some larger opportunities across each of the segments. What we're just trying to do is, frankly, what I was trying to do with our team is clean up some of the -- we had met with a lot of companies over the years on the M&A profile. So really what I asked Patrick and the team to do was clean that up. In other words, let's take a look at those targets that have been on the -- on our list for the last year, 6 months, whatever. Let's clean those up. And what we're doing is exactly that. So what we're doing, either they're on and they're off and let's move on. Because really, what I want to do now is -- with the focus on the future, we continue to have a good discussion around what's next for us on M&A. And both smaller tuck-unders and some larger acquisitions are on the agenda for sure. So we see opportunities in each of our segments. And what you're seeing us do right now is basically clean -- not clean, I don't want to use that in a negative context, but just trying to close through a few of these targets that we've had discussions on for numerous months and maybe, in some cases, years. So yes, lots of opportunity, definitely will be a continued focus for us, not just the acquisition, but also integration and all sizes. We're seeing tuck-under's still a larger acquisition opportunities. But making sure we take our time in a COVID world that we can do proper due diligence. And that's the only thing that may slow it down for anybody right now is just how much due diligence you can do in a COVID backdrop.
[Operator Instructions] We'll take our next question from Ammar Shah with Eight Capital.
Majority of my questions have been asked but I thought I'd sort of follow-up on that last comment regarding due diligence. Obviously, it's impressive to be able to close a global deal in -- within the pandemic. But I guess I'm just wanted to get your viewpoint on -- is due diligence a little more difficult for global deals. So would there be more of a preference for things that are perhaps closer to home? Or I guess, is the pipeline still to be committed to a global outreach?
Yes. I would think for me, the -- when you look at our playbook, and I talked to this, it's really 3 fundamental criteria we look at. 3 lenses we look out on acquisitions. Obviously, the financial lens and company performance, growth profile, valuation, multiples, kind of the standard. Then the strategic fit with the company really supporting 2 elements of our 4-pillar growth strategy, primarily around customer diversification and service line innovation. So those things you can assess in the -- even in the COVID world, you're going to assess that virtually. You can sit down, you can talk to companies. I think we're all getting more and more comfortable with online meetings. If I got paid by online meetings these days, I tell you, I'd be doing pretty well. And I think we're all in that mindset now where everyone is getting more and more comfortable interacting in an online world. So for those 2 lenses, I feel that we can really continue to operate, continue to do due diligence in a remote mindset, wherever that acquisition may be. The one you have to assess is our third lens that is cultural fit. So I've always said, I'd like to meet with the owners. I like to have dinner. We like to sit down and talk. We like to meet some -- elements of the management team. So that's the one you have to -- you really have to assess how effective can you be in cultural due diligence. And that's one we're working through. We're working through some of the targets that we have closed like EMSEC and CTS. We had actually met with the company even before COVID had hit, frankly, these discussions been going on for a while. So we had already had that ability to assess cultural fit and getting to know the company. So that's the one that we'll just continue to evaluate our capability to do that. That being said. I can tell you, the online tools are getting more more effective. I think we're getting more and more comfortable in dealing with it. So whether the company, frankly, is in Ottawa, Toronto or in Germany, I think the challenge is there for most companies to assess that in a virtual world, but given time, I think we're just getting more comfortable doing that. So right now, we're still moving ahead. We think we can still operate our playbook, but we will be cognizant that we won't pull the trigger on acquisition unless we feel all 3 lenses have been satisfied with regard to due diligence.
Yes, that makes sense. And has your view on leverage changed at all? Now would that look kind of a few months into the post-COVID world and the business has shown some resilience, I guess, how are you thinking about that?
Yes, we're still comfortable in that 2.5x EBITDA, but you can see as we continue to grow our EBITDA, we're quickly outgrowing our existing credit facility, which is at $60 million. So we'll continue to look at that as we see transactions come into focus, but we're comfortable at that 2.5x EBITDA. And we should be able to secure that kind of financing with some of our existing partners. So we'll use that certainly to continue on our M&A strategy, and it will be important in the next 12 to 18 months as we execute on that.
And we'll take our next question from Deepak Kaushal with Stifel GMP.
So Patrick, Kevin, more focus on margins for gross margin instead of operating margin and net margin. When I look at the gross margin, I'm just trying to assess the path to expanding gross margin. Is that largely going to come through M&A? Or can new products like your wireless product, your decimator product or the carbon fiber antennas, can those new products move the gross margin line as you scale the customer base for them? How should we think about gross margin expansion?
Yes. I'll give you my thoughts and let Patrick jump in. Again, back to our 4-pillar growth strategy, the service line innovation pillar really is about through organic and M&A, expanding product capability or differentiation in the marketplace and all that we do with a goal to improve margins. So whether that's growth through EBITDA margins, we're very passionate about trying to do that in a very challenging market. So the way you asked the question, you almost answered it Deepak. I think it shows you what you are starting another company of yours. The reality is our products are higher margins. So we continue to invest in that. And when you look at new capabilities from our acquisition perspective, one of the criteria in our financial lens for acquisitions is higher margins. That helps move up our consolidated or divisional margins for each of the segments. So we're really -- I think over time, I'm confident we can continue to move these up. It's just going to be the pace of those, as you know, you layer in almost $400 million of revenue, you need to -- there's only so much you can do at any given year. But the goal is to improve margins through differentiation, through M&A, through organic for sure. Patrick, any thoughts on that?
Yes, I agree. I mean, the majority of these ones we've broken through on the last couple of years have brought significantly higher margins than our traditional kind of consolidated level. And I think they're just starting to take hold. I mean we saw a bit of a step back here this quarter because of SNC and some of these other ones, which are lower margins. But I think the direction certainly is as we invest in certain new opportunities, whether it be M&A or organic, they're generating margins that are significantly higher than what our traditional consolidated margin is.
Okay. And are you guys willing to share kind of targets for next year? I mean, notwithstanding acquisitions, is 25% gross margin within the realm on the organic business? Or is it still too early to kind of assess that?
I mean as the other new business that we would generate, for sure, we would have a target at that or above. I mean the existing -- as you know, with us is we've got a pretty significant backlog of business we go into the year. If you think you look at our MD&A, we've got $250 million or $270 million secured for next year. And the majority of that is, the margin on that has already been set. We just need to execute it. So to bring that up, you can quickly do the math to get to 25, we'd have to do plus 30 and everything else. So I think next year, certainly, the objective is to get it out a couple of points through M&A and organic and then continue to make progress.
And we'll take a follow-up from Furaz Ahmad with Laurentian Bank Securities.
Just a quick follow-up for me. I know you spoke a little bit about IntraGrain. But just wondering if you could speak a little bit more about the demand trends you're seeing in that business, especially given all that's going on. I'm just wondering if that's tapered off or you're seeing any weakness there?
No, so far, they've been performing pretty well. Obviously, their big quarters is this quarter and the next one. As they go through -- they start delivering their summer orders and then they get their kind of final orders before the winter starts. So far, the macro things, the weather has been good. Farmers had -- did slow down a little bit because of COVID, but we saw them pick it back up. So so far, they're kind of slightly above last year, and we're hoping they finish strong for the year. And so far, we've seen consistent performance from them.
And at this time, there are no further questions.
Okay. Thank you, Casey. So I want to thank everyone for the questions and the time today. Patrick and I look forward to discussing our fourth quarter results with you in November. Stay safe everyone. And if there's any follow-on questions, please don't hesitate to reach out. So with that, Casey, we can end the call.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect your phone lines.