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Calian Group Ltd
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Good day, and welcome to the Calian Group Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation there will be and a question-and-answer session. As a reminder, this call is being recorded.
I would now turn the call over to Jennifer McCaughey, Director of Investor Relations. You may begin.
Thank you, Michelle, and good morning, everyone. Thank you for joining us for Calian's Q3 2023 Conference Call. Presenting this morning are Kevin Ford, Chief Executive Officer; and Patrick Houston, Chief Financial Officer.
As noted on Slide 2, please be advised 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. As a reminder, all amounts are expressed in Canadian dollars, except as otherwise specified.
With that, let me turn the call over to Kevin.
Thank you, Jennifer, and let me start right away with an overview of our Q3 results. After many years of meeting or exceeding expectations, and considerable growth, we did not meet our expectations this quarter on some of our key performance indicators. This is unusual for us and we do not take it lightly. I would qualify our Q3 results as mixed. We had some positives and we had some negatives, but we understand where we need to adjust to get back on track and I'm confident, we will do so quickly.
On the positive side, we generated strong revenue growth of 11% as a result of strong organic momentum. Our Health segments, rebounded, nicely and posted its best quarter since the days of COVID-19, and our Advanced Techand Learning segments continue to show momentum from Q2. We also continue to drive gross margin performance above 30% for fifth consecutive quarter showing our ability to adapt and deliver consistent performance despite the challenging macro environment.
However, our adjusted EBITDA and related margins decreased due to various investments we made coming out of our last fiscal year. We have prided ourselves on profitable growth over the last six years and restoring the business to double-digit EBITDA margin is our top priority. We believe it can be done and have already as of this call taken steps to deliver on this.
We have underwent a complete review of our delivery capacity and overhead costs and initiated cost reductions in targeted areas to rebalance our investment levels. These measures are expected to generate annualized savings - cost savings of approximately $8 million with the objective of driving a more optimal level of growth and profitability.
Remember that we are trying to build a double-digit growth company that comes with some level of risk as we need to push more aggressive in terms of investments ahead of demand. As we push forward, there will inevitably be some bumps along the way. The important thing is to make adjustments quickly and move on.
Our business is still strong, despite this temporary setback. Our customers still are kind by their side and our expansion initiatives are still just getting going. What gives me great confidence is that the top-line is there. The organic growth is there. The new contract signings are there. The backlog is there. We see efficiency in certain areas that's not there and that's what we're fixing.
Following the end of the quarter, we announced two key events. The first being the closing of the Hawaii Pacific Teleport acquisition effective August 1st. I welcome that team to the Calian family and believe they will be key contributors in the years to come. I would just like to take a moment to express our condolences to the families of those who lost loved ones in the wildfires in Hawaii. We're relieved to hear that the new members of the Calian team and their families weren't harmed. Our HPT operations are located on the Island of Oahu, therefore it was not directly protected. We will be donating $10,00 dollars to the Mali storm, which will support wildfire release and recovery efforts in the affected communities.
The second announcement was the expansion of our credit facility to give us assets of up to $250 million in liquidity. This is a sign of her commitment to the continued deployment of our capital and our M&A agenda in the years to come.
Before I give you an update on the four segments, I would like to acknowledge our team. Reducing staff is always difficult, but believe it was necessary to do so at this time to put is a better position to continue to invest and grow on our business in the years to come.
With that, let's begin with IT and Cyber. ITCS had a difficult quarter. Revenues decreased by 6% to $46 million, the short-term revenue shortfall was primarily due to lower shipments in our product retail business based in the US. The nature of this business can be lumpy as it depends on customer spend cycles, as well as demand for infrastructure upgrades.
We benefited during the quarter, we benefited during the last few quarters to due to pent-up demand and some supply chain release post-pandemic. Recall that we've been working very hard in the last 12 months to address customer backlog resulting from the ongoing supply chain issues and we were able to do that successfully.
With that behind us, we did see a momentary pause in order intake and deliveries midway through the quarter, which affected profitability. The good news is that towards the end of the quarter, we ramped up new signings and we believe just that some normalized performance in the coming quarters.
In fact, gross contract signings were $53 million in Q3 outpacing revenues. This is an indication that bookings continue to be healthy and this quarterly miss is just a bump in the road. However this revenue shortfall fall straight to the bottom-line. Gross margins fell to 34% from 40% from the same period last year and this growth profit is is combined with our accelerated investments in sales and delivery capacity, resulted in EBITDA dropping by more than 50% to $3.4 million.
Part of our restructuring plan implement subsequent to the quarter end, to we’ll aim to realign our sales and marketing delivery capacity with the runrate level of business. Looking forward, macro conditions are neutral, with a hint of conservatism from customers due to recessionary fears.
Realistically, we will not be able to make up the shortfall in the fourth quarter, especially since we were already expecting a lower Q4 than last year in significant deliveries in the final weeks of the quarter last year, but we do expect to return to more normalized level of EBITDA in the coming quarters.
Turning to our Health segment. In the third quarter, our Health segment rebounded and posted its highest revenue since the third quarter of 2021 in the peak of the pandemic. Revenue increased 23% to $49 million primarily driven by existing customers increasing their requirements for healthcare services, as well as new programs being launched across Canada.
We have now built a runrate business of approximately $200 million in reoccurring revenues. Similarlty gross margins and EBITDA margins increased to 27% and 18% respectively, as our recent investments in recruiting and various outreach initiatives have helped us address customer needs across our portfolio. Our ability to fulfill contracts at higher utilization levels, and lower turnover were achieving higher gross margins.
In the quarter, we signed new contracts value to $27 million, amongst these new signings with our first Software-as-a-Service customer under the next solution.
For the fourth quarter, we expect continued momentum in the business. And we should continue strong demand signals for our existing customers for our pharmaceutical CRO services that are gaining increased traction.
Turning to our Advanced Technologies segment. In the third quarter, we continued our momentum from Q2. Revenue increased 14% to $45 million, primarily driven by stronger telecom product sales, because of our existing customers and increased demand for GNSS products.
In fact, GNS products generated double-digit growth again at 22% this quarter and our book-to-bill ratio so far exceeds two times. This growth comes from new large-scale customers, as well as increased demand from existing customers as we include our products into more of their offerings.
During the quarter, we continue to make progress on orders and projects that were delayed due to supply chain issues. We continue to see delays in certain products, but the delays have started to ease. We are optimistic that we can make further progress in the fourth quarter as we chip away to our product backlog.
Gross margins improved from 29% to 35% due to a better mix of higher margin business. The contribution of more Calian products will continue to drive higher gross margins in the longer term. This gross profit margin improvement, flow to EBITDA line with EBITDA margins increasing from 14% to 16%.
In the quarter, we signed new contracts valued at $50 million outpacing our revenues. Key wins included upwards of $15 million for GNSS antennas, as well as some significant deals for defense and space products. We're also selected by the Canadian Space Agency to receive $0.5 million in funding to further develop RF-over-IP technology. RF-over-IP is the ability to digitize and transport RF signals over an IP network without data loss. This technology will be a key enabler for the introduction in virtualized satellite ground systems.
For the fourth quarter, we expect to continue on this momentum given the continued using of supply chain restrictions, delivery of grand system project released and strong demand for our GNSS products.
Turning to our Learning segment. In the third quarter, top-line continued its year over year revenue growth momentum displayed in the last few years. Revenue increased 20% to 27% million, driven by recent investments in technology and geographical diversification as we take advantage of strong demand in the military training market due to geopolitical issues and renewed focus on readiness.
Gross margins temporarily decreased to 25% as the cost of our delivery increased in advance of contractual rate increases with customers. Predetermined increased intervals are set to take place in Q1 ‘24.
Similarly, EBITDA margins went down to 14% as we invest to support growth in new are countries in Europe. The Learning segment is perfect example where we don't want to hit the extra investments. The issue is that the demand signals from artillery military training in Canada and Europe, continues to be high, the procurement process was challenged to keep up.
Global defense takes time. Our strong position with our legacy contracts allowed us to continue to grow, revenues while we wait for procurement activities to catch up. We made the conscious decision to continue to invest in our assets to position Calian in the market, because we see significant global opportunity down the road.
For example, we are seeing positive growth signs in our software assets and are investing in R&D to get more features and functionality to be able to address a wider customer set in the future. In the quarter, we continued the expansion of our training globally with projects in Poland, Germany, The Netherlands, Australia, and Switzerland.
This is a strong indication of our pedigree and ability to be a global training partner in defense. We also diversified at sight of defense and signed contracts with academic clients, including University of Guelph and Sault College.
For the fourth quarter, we anticipate continuing on the same momentum. As a result, we believe we are on track to break the $100 million revenue mark in learning for the first time ever. This continued growth is giving us more confidence to continue to invest to make sure we are well positioned to capitalize on the macro environment for military training has become mission-critical.
Now, I'd like to turn the call over to Patrick to discuss cash flow, balance sheet and our guidance. Patrick?
Thank you, Kevin and good morning. In the third quarter, we generated $3 million of cash flow from operations, compared to $20 million for the same period last year. The main variance this quarter is explained by a temporary increase in working capital. More specifically, working capital was negative $12 million in Q3 which is that negative $6 million on a year-to-date basis.
We expect to return to positive working capital in Q4 and depending on the timing of some larger collections, we could end the year with working capital increase in the double-digit range. Operating free cash flow was $11 million this quarter and represented 78% conversion from adjusted EBITDA. In the third quarter, besides funding working capital, we used our cash to pay dividends and invest in CapEx.
We do expect over $50 million cash flow on our M&A agenda in the fourth quarter. The first of these being the closing of the acquisition of Hawaii Pacific Teleport and disbursed for about $38 million. And so the schedule of earnout payments related to the acquisitions of Dapasoft and iSecurity, as well as Alio Health for approximately $17 million, Recall that these earnout amounts are recorded in full on our balance sheet at the end of this quarter.
We continue to have a robust pipeline of acquisitions and are looking to continue our strategy of capital deployment going into FY ‘24. We maintain dividend rate at $0.28 per share. We continue to see dividend as an important part of our balanced capital deployment strategy and we will re-evaluate the size of the dividend in future quarters.
We invested $3 million in CapEx in the quarter and continue to manage our spend within our target of $7 million to $8 million for this year. At June 30th 2023, our $80 million credit facility was unused and we have $41 million of cash on hand. As a result, we ended the quarter with a net cash position once again. So if you look to the end of the quarter, on July 24th, we extended and expanded our credit facility to a committed amount of $180 million with an accordion taking up to $260 million.
This new three-year term will give us the access to additional liquidity to fuel our growth strategy. Our cash on hand, combined with the new expanded credit facility provides us with $221 million of net liquidity at the end of the quarter. Given our strong cash flow generating ability and liquidity position, we are operating from a position of strength, as we continue to execute both our organic growth plan and our M&A strategy.
Let's take a look at our guidance for FY 2023. In light of our third quarter results, we are updating our FY ’23 guidance. Note that this guidance has been updated to include the impact of the acquisition of Hawaii Pacific Teleport starting on August 1st the benefits from the restructuring plan for the final month of the quarter but excludes the one-time restructuring charge of approximately $2 million to be recorded in our fourth quarter. We have not made any changes to our revenue guidance.
We expect revenues in the range of $630 million to $680 million. At the midpoint, this reflects revenue growth of approximately 30%. At the end of Q3, our trailing 12-month revenue was $643 million.
Turning to EBITDA, we expect EBITDA in the range of $60 million to $65 million, down from our previous range of $70 million to $75 million. With one quarter left to go, this range may seem a bit wide although we have a strong backlog from Q4 of $151 million, the range reflects the timing and delivery of our products in our Advanced Tech and IT Spectrum.
The objective of our cost reduction measures is to restore EBITDA in line with recent performance levels as we enter FY ’24. And finally we expect adjusted net income in the range of $36 million to $40 million. I must caution the revenues to profitability realized are ultimately dependent on the extent and timing of future cost and the revenues and profitability realized are ultimately dependent on the extent and timing of deferred contract awards, customer realization of existing contract vehicles, and potential recessionary pressures.
Our guidance does not incorporate any additional revenue activity, and should we closed new opportunities, varied contributions would be incremental. We see our press release and MD&A for a detailed reconciliation of our guidance.
I’ll now turn the call back over to Kevin to conclude our prepared remarks.
Thank you, Patrick. To sum up, our top-line organic growth was a positive, but our efficiency in doing so in certain areas with lower expectations. We have acted quickly and decisively to adjust our business and we will be back in double-digit EBITDA range in the short term. This should be seen as a minor setback and not the start of a trend.
We will still end fiscal ‘23 with the sixth consecutive year of record revenues and gross profit. The cost reduction measures we have taken will restore our EBITDA levels in line with recent performance levels, as we enter FY ’24. And our trend of over 20 years of profitable execution remains. When I look ahead, I'm very enthusiastic about the future.
Since January, I've been traveling across Canada, the US and Europe visiting our customers. What they found is that our solutions continue to resonate with our customers and what we do for them remains mission-critical. Customers do choose Calian when they cannot fail.
Looking to FY ’24, we see the opportunity for another record year. While we only provide official FY ‘24 guidance, next quarter, there are few factors that I'd like to highlight that I believe will positively impact in the year. Expected cost savings of $8 million from the restructuring plans to restore our EBITDA margins, the full year impact from the acquisition of Hawaii Pacific Teleport, which is characterized by high margins and recurring revenue streams, continued organic growth momentum driven by a solid demand in our four operating segments, a robust backlog of $1.1 billion, and strong contract signings of $568 million in the last 12 months with a strong pipeline of acquisitions supported by pristine balance sheet available liquidity north of $200 million.
Finally, I want to thank our team. First, we said good bye to some of our team members. I'd like to thank them for the hard work and dedication as they made Calian a better place to work. For employees who continue with Calian, I know we can count on you to deliver our mission to help the world communicate, innovate, learn, and lead safe and healthy lives.
At the end of the day, we are very confident of the Q3 miss was a bump in the road and over the next quarters will unwind and we'll be back to double-digits EBITDA margins and continue our growth momentum on our journey to $1 billion. And with that Michelle, I'd like to now open the call to questions.
[Operator Instructions]
Thank you. [Operator Instructions] Our first question comes from Maxim Matushansky with RBC. Your line is open.
Yeah. Good morning. I just wanted to touch on the cost reduction. Can you maybe just give a bit more color in terms of how this came about why now, and maybe what parts of the business will be impacted the most?
Yeah, thanks, Maxim I think you have two questions there. I think from the why now, how it came about, we obviously monitor monthly, quarterly, hold in real-time those signs, the performance of the company. And, I'll take the hit with regard to agreement of divestments at the beginning of last year that I thought were going to put us in a position to continue our growth momentum in certain areas.
And some of those are not coming to fruition. There's some macro conditions we’re dealing with. So why now is, I felt that, I don't see some areas the macro conditions are changing dramatically and I thought it was imprudent to make those changes now. And do so quickly and do so decisively. So that our staff, our team, our customers know this is a blip and it is something we're moving on from.
So, right now is the right time. I felt it does position us to continue the growth momentum and a profit growth momentum. And frankly, at this time, I think it was prudent to do to ensure we align our capacity to the performance areas that we see growth opportunities. So, that's the why now.
Please continue with your other questions.
Just in terms of maybe, what part of the business this will impact maybe if there's any particular segment?
Yeah, we tried to be, when we look at the performance, certainly some of the segments are performing quite well and some of the divisions within them. And other ones, the efficiency wasn't where we wanted to be. So we try target the reductions in those areas. So I think there was reductions in all the segments, but we try to be targeted, so that it wouldn't impact the revenue as much given that they're in areas where we thought either capacity was too high or the efficiency within there.
Okay. And then, just on the lower part of new sales shipments, is that - is there any portion of that loss to competitors or maybe customers deciding not upgrade or refashion the technology for a while or do you have confidence that that's all just timing issues?
Yeah, I think it was more timing than not given that we saw some of the signings to come back on. You saw the signings in the quarter were so good and they came in towards the end of the quarter. So I think, when we reviewed it with the team, I think it was more timing than loss to any particular person. Certainly our bar business is very diversified where seven or eight different verticals with a lot of customers. So, we're diversify there. We did see a bit of a slowdown, but it picked back up. So, I think it's more timing than anything more long-term.
And just final one for me. Just in terms of the profit margins and that IT set they seem to be typically lower than at least in the past two quarters. Is that all from the lower product resales and you are sending out impacting margins or that the investments that you're referring to earlier?
No, it was really almost entirely on that. Our recurring revenues were stable similar to prior quarters. And then our on-demand business is also stable. So it's really of our business and given we've got some fixed cost there when we didn't have the gross margin from that. It flowed down to EBITDA which is why you saw the lower profit margins.
And some of the reductions we made obviously kind of reduce some of the capacity there. And we're expecting to see better demand in the coming quarters. So, I think it'll normalize as Kevin said back to kind of performance we've seen in the last couple quarters.
Okay. Great. I’ll pass the line. Thanks.
Thanks, Maxim.
Thank you. Our next question comes from Doug Taylor with Canaccord Genuity. Please go ahead.
Yeah. Thank you and good morning. When you speak to reducing the cost to optimize the balance of growth and profitability, I think the cost side pretty well articulated and understood here. It may be a good get you to expand upon what you think the related growth impact is that you're trying to offset on the other side of that and maybe put that in the context of your 5% organic, plus 5%, acquisitive growth model that you I've established at various points in recent years?
Yeah. Thanks Doug. So, I think it's important to recognize that the fundamentals change as far as our philosophy or approach. The five and five still very much intact. You see the organic growth momentum that we've had right now across three of the four segments are actually in double-digits.
So, very strong. It also demonstrates the value of the diversity, frankly, we've got with regard to one segment are hitting some headwinds, but the others. And frankly, I think the performance was slightly overshadowed in the context of the overall EBITDA performance. But again, three segments double-digit organic growth. M&A, we just finished up with Hawaii Pacific Teleport. Very busy M&A pipeline right now, as well.
And then, again, seeing the progress in areas such as Health and Advanced Technologies and Learning, so, I'm confident that I get the fundamentals of what we’ve put in place and what I've been talking about the market since I've taken of this too you haven't changed at all, and I was and we really want to reiterate that. This is a bump. This is not a trend. And this is not something that takes us off our game in any way. We continue. We've made the adjustments and we move forward.
Okay. So let's, I mean, let's talk about them, the MMA pipeline. You’d at certain points, I think hinted that the prospects of additional meaningful M&A beyond HPT by the end of this fiscal year. I mean, looking at the date here and in light of some of your comments, are you signaling much change at all in that outlook or potentially a change in your focus areas in which sectors might be most attractive in light of some of the challenges facing ITCS for example?
Yeah, we're pretty active, Doug on the inside. We've got multiple processes zones who are optimistic on a few of them that we can guess where we want to be. Realistically, I don't think those close before September 30th, but, and to the extent we’re able to follow through on some of the ones that are very active right now.
It would be likely in Q1, or early in Q1. So, we're optimistic there. We've got the liquidity in place and we are sitting up with a lot of time on the M&A. And I think our priority hasn't really changed. We've got strong strategic initiatives in each of the four segments and we're trying to find M&A this success. So I think it's continuing on there and we're optimistic about keeping pace on capital deployment here going into FY’24.
Perhaps one last one then for me. You mentioned your intention to review your dividend again at some point in the near term. It's something I think you've talked about increasingly, perhaps I can get you. Potentially expand on what you, you think, an appropriate framework might be for how you balance that dividend against, your need for capital for M&A in the current interest rate and debt environment and all that? Could you just expand a little on your thoughts there? Thank you.
Yeah, absolutely. We've always had to try to get the payout down to kind of 30% of our free cash flows. We're kind of in that range now, which is why we’ve kind of guidance where we want it to be and it did took a couple of years as we just grew the business. So we're kind of in that range now.
To your point we've been prioritizing the deployment of capital on M&A because the returns have been good and we've been getting really good results there's. So that's been our top priority. So I think going into next year, we keep watching it as long as the M&A targets are there.
And we likely hold the dividend, but we're always looking and to the extent that that 30% starts to reduce as we continue to grow. Then I think yeah we look at it more seriously. So I think that's our short-term outlook on the dividend.
Thanks for that color. I’ll pass the line.
Thanks, Doug.
Super questions.
Thank you. Our next question comes from Benoit Poirier with Desjardins. Your line is open.
Yeah, good morning, Kevin. Good morning, Patrick. With respect to the shortfall in EBITDA you are calling almost a $10 million in reduction in fiscal year ’23. But on the back of the restructuring plan that will bring about $8 million of benefits. How should we be thinking about the EBITDA for fiscal year ‘24?
Yeah, good morning, Benoit. If you remember last quarter, we said we thought we'd get the bottom of the range on the guidance. And if you take the midpoint of our new guidance that we spoke to this morning, we're $7 to $8 million off. And that's why we feel with the reductions we've made it kind of puts us back to where we thought we would be, which I think is what we wanted going into FY ’24 and then it's really looking to the elements Kevin pointed to the M&A we disclosed the organic growth in the pipeline, which, puts us back to the growth position going into next year.
So I think that was the purpose of the restructuring and the size and that's why it kind of realigned our business.
Okay. That's great color. And when you came up your backlog was down 8% sequentially. It looks like booking will suffer for Health and Learning. Could you provide some color about what you're seeing how they're in terms of booking activity? Bidding pipeline and any slowdown in demand?
Yeah, Health actually – and that’s being going up. Obviously, a lot of our core contracts, don't come up for renewal, a lot we’ve been using those in the customers that they using them to greater extent. But we do see pretty strong pipeline. So, we are expecting strong signings here going into next year in Health. And on Learning Kevin?
Yeah, I think so, and I think actually just a comment on Health, we're seeing, Benoit very high demand on our core health services contract with the sense. So the – [Indiscernible] which we are seeing a lot. So, I think that’s all within June in this two backlog earning on within the normal.
On the learning side, really what we are seeing is, again with my travels now between NATO, Europe, Canada is strong demand right now on our current contracts for sure and then lots of procurement activity but as I mentioned in the past, it’s just timing.
The government procurement cycles are complex and we take time. So we're so confident there's quite a few opportunities for us with a good pipeline of opportunities. It's just the ability of the customer to get into the street and as we know, the customers are under significant stress right now with regard to the projections and capacity, that the lack of capacity in military, as well as the operational tempo.
So, and we're trying to work with them as best we can to optimize the current contract vehicles and then obviously we will be ready to respond for these procurements as they come out. And we expect that's going to unwind over the next two, three quarters.
Okay. Okay. That's great color, Kevin and Patrick. If we look at the net cash, it ended at $41 million and looking at Q4, there's the upfront payment for HBT with the Sherry Schwinns. And if I'm right, there is still $15 million of earnouts for the FSF. So, I'm just wondering if my calculation for cash outflow is okay in Q4?
Yeah, and we've got AP as well as the two earnouts that outflows are a little over $50 million. I think we're going to have some positive working capital. In fact, we - the collections have been stronger here starting the quarter. And our AP payments were a bit higher in Q3. So I think we'll see some positive there. So likely we have some debt at the end of Q4, just because we need some cash on hand to run the business. But we certainly start already between the free cash flow as well as positive working capital in Q4, which we should start going back to some of the payments we made on the M&A.
Okay. And in terms of working cap reversal, do you still feel comfortable about an overall $20 million positive working cap reversal for the full year, Patrick?
I think we might miss out a bit right now. We're negative 6 on the year-to-date basis. I think Q4 will be positive. So depending on some of the collections, we could get over $10 million by the end of Q4. But I think depending on the timing right towards the end of the quarter on collections.
Okay. Would you say $10 million for the year or $10 million positive just for Q4?
For the year.
Okay. Perfect. That's great color. And any color about the - or comments about the buyback these days given the valuation multiple?
Yes, To your question, it's always something that we look at. But right now, our main priority is just continue to deploy the capital on the agenda we are seeing good momentum there. So I think that's our top priority and we're just going to focus on that. Obviously, it gets anywhere changed drastically on the shares or we continue to see misalignment between the growth we're driving in the stock price. I think we'll look at it more seriously. But right now, we're focused on our operational plan.
Okay. Thank you very much for the time.
Thanks, Benoit.
Thanks, Benoit.
Thank you. Our next question comes from Amr Ezzat with Industrial Alliance. Your line is open.
Good morning, Kevin. Good morning, Patrick. On the IT side, I just wonder, did the weakest in this quarter both on the top-line and on the margin performance come as a surprise to you? Or could you start to see that like last quarter in Q2 when you guys were settling like probably lower of the guidance range. And then, do feel like this weaknesses is due to the macro environment? Or part of it is also due to the leadership transition in IG?
Yeah. No, thanks. Amr. Miss you from UV. Certainly last question first. I don’t in any way believe this is related to the transition team we have in place with the IT group. They are strong. I'm meeting with them there. As of yesterday, we continue to look at every opportunity and pipeline and they assured me this is a blip. And as we saw there are strong signs in the end of the quarter that we expect to pick up.
So, I believe it's just a blip and it doesn't anyway do I worry about that transition team. They are very strong. They are committed, and I'm confident that they're going to turn this around. And with regards to the, with regards to the beginning of the quarter, we started to see some slow down clearly in the resale elements and work with the team collectively in capacity looking where the opportunities were. And we saw in the last month of the quarter a turnaround.
So, I just want to reiterate that this isn't something we just wait for the end of the quarter and hope results happen. We're monitoring this all the time. So we were actually working with the middle and the corner, looking at the opportunity funnel and saw strong pick up again in the last month of the quarter. Obviously reflecting the full quarter. So we're confident of the work. I have total confidence in that team and there is macro trends early on in the – map. I don't believe that it's going to negatively affect us longer term here. So our IT business will be back and running. It’s also important to recognize that our Cyber business was very strong. It continued to be very strong and the recurring revenues continue to be very strong. So it does reflect more on a resale than our Cyber. Cyber is very strong. Government business continues to see new wins. So it's really a piece of our IT business I don’t want the whole IT business characterized that somehow it's having some issues here. I expect this will come back in the quarter.
That's great color, Kevin. Then, I guess, what I'm thinking about Q4 for this business line, but last year we had a very large quarter. Can you maybe remind us how to think about seasonality in IT and Cyber?
Yeah, I think there is less seasonality more than just it’s a bit lumpy like we saw last year. And obviously, when we are unwinding some backlog, because of the supply chain issues you're on the positive side of the lumpiness. I think this quarter we are on the other end. I think that performance you saw kind of in Q1 and Q2 were kind of more normalized levels. And I think that's what we're trying to get back to here in the coming quarters.
Okay. Then, I just wonder on the cost savings initiative, I saw this, I guess from your prepared remarks, I thought the implied methods was – with targets ITC, but it seemed like it targets like more than one area. I just wonder how it impacts your delivery capacity at all.
Yeah, great question. It was important and it's important to people to realize that when we looked at this, this wasn't in any way a blanket reduction. This was targeted reduction working with each of my senior leadership team members to find areas either where we had additional capacity or it just wasn't aligned to market reality. So, it was targeted. It was not just IT. It was across our business in certain areas in Corporate Support Services, Learning, Healthcare, IT, the whole business we looked at with regards to where we needed to make those tough decisions.
So, yeah and it no way, the important thing is areas that we have seen great demand and good growth they that were basically left untouched. And we wanted to make sure that in this process, we did not impact our ability to meet our customer requirements or abilities to meet our growth objectives. So it was very surgical. It was – it’s never a fundable through of those, but it was necessary. It's done and we move forward.
Then maybe one last one on the Health. Appreciate your comments on the growth visibility going forward. So I understand the investments you are making, but just wondering on gross margin side and they jumped in the quarter. Are these levels sustainable or how do we think about that going forward?
Yeah, we see that demand. We had some new contracts come online in the second half here. So I think that's helped with the margin. I think we'll see a little bit of it come back off and normalize a bit. But I think we are seeing as some of these new contracts come online we’re able to generate a bit higher margins than we had in our legacy business.
So not a huge increase. But I think we're slowly trying to get better there and it's and I think as we've crossed this kind of $200 million run rate business in Health which is a new level for us. I think we're seeing better efficiencies as we go. I think Derek has been doing a good job about looking at the business and building a more efficient Health segment.
Yeah, and I just want to just want to jump in on there because I want to go with what Patrick said. Jared's been here just almost six months now. And really been impressed by his ability to take a look and we are having the truck. We were reorganized some of the healthcare digital assets. We are sitting in IT and the wristwatch.
We know how the healthcare digital team. We're seeing lots of progress there. As I mentioned in my results summary, we've got our first next sale. So very, very optimistic. He's got a great vision and the team is aligned to that vision. So I think we're going to continue to see good things from our Health business.
Thanks. Thanks for the color. I'll pass the link now.
Now. That's great, Amr. Thanks for the questions.
[Operator Instructions] Our next question is a follow-up from Benoit Poirier with Desjardins. Your line is open.
Yes. In the press release, there are some sperm mentions around the timing of deliveries of products for Advanced Tech and IT segment. So, could you maybe provide more color about those comments? And is there a new relation to issue the Viasat?
Right now, the plan is really just – we’ve got – we had some good findings. We got in both IT Tech and AT in Q3 into the current and delivery into Q4. So it's really going to come down to the timing in the last month and how much of that was in chips. So I think that's why there is those certainly have higher margins and impact on EBITDA. So, that’s why we are into the business going for that. The good thing is, the business is there, we've got the order, the turnaround in the quarter
Okay. Okay, and last one for me. Kevin could you give us an update on the President search for ITCS? And what you're looking for in terms of key attributes for the new President?
Yeah. Thanks, Benloit. So we're - we've been a couple months into this. We had frankly over almost over 100 applicants. So we worked down to the last few. We're finalizing interviews now with those candidates. And my goal is to fill out of a new President in place in time for at the beginning of our new fiscal year and sooner if I can, but we're not going to rush the process. We want to make sure we get it.
Yeah, right attributes clearly are continuing to look at our IT and cyber business. How we position at the marketplace with regard to the increased cyber demands. The cloud, cloud migration is really to continue to generate and increase our recurring revenue streams with our team. The global expansion that we see, obviously in North America focus initially, but obviously going to Europe. So I look for somebody that can bring positive energy, track record on transforming - continue the transformation of our IT business. And that's somebody that can work across Calian with our cross business unit updates with regard to cross-sell opportunities. So, we are getting there. And I think we will be close soon to announcing who that will be.
That’s great. Okay. Thanks for the time
Thanks, Benoit.
Thank you. There are no further questions at this time. I'd like to turn the call back over to Kevin Ford for any closing remarks. Thank you Michelle.
Thank you, Michelle. I think it's important for me to restate my confidence that this is a blip. My confidence that we're on track for another record year. as we head - as we start looking ahead to ’24. Summarize, the $8 million restriction is done. There is not something we're planning and doing, it's done. We do have HPT element on the team and I am excited by that.
We do have the organic growth momentum. We saw that in the quarter. We have the backlog still over $1 billion over $568 million in signings. And now with our M&A pipeline strong, and our balance sheet, I do want the market understand, I believe this is a blip and in no way a trend.
Our team is committed to working through this. It's been a very busy couple of weeks as you can imagine. And I've seen nothing but everyone putting their shoulder into this to make sure that we right size on this EBITDA margin. So with that, I want to thank you all for the questions and attending today. And look forward to providing an update on our next quarterly call. And with that, Michelle, you can close the call.
Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.