Calian Group Ltd

TSX:CGY

Earnings Call Transcript 2020-Q4

[Operator]

Greetings, and welcome to the Calian Group's Fourth Quarter and Year-end Results Conference Call. [Operator Instructions] It is now my pleasure to introduce Kevin Ford, CEO of Calian Group. Thank you, Kevin. You may begin.

[Kevin Ford, President, CEO & Director]

Thank you, Daryl, and good morning, everyone. This morning, with me is Patrick Houston, our CFO, and we'd like to welcome you to Calian's Fourth Quarter and Fiscal Year 2020 Conference Call. We're trying a new platform for this call, which enables us to present our results with visuals and in the future, facilitate online Q&A. So fingers crossed, the platform works, but we're pretty confident and look forward to using this format moving forward. So mandatory that I say that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements and this call may be materially different from actual results. Okay. I'd like to get going. And basically, I'm very pleased to announce another record quarter of revenue for Calian, which we have now accomplished for 9 consecutive quarters. The results demonstrate our continued growth and the resilience of Calian's diversified business. Q4's consolidated revenue was a record $123 million, up 35% from the same period last year. This capped a record year for Calian. Revenue ended the year at $432 million, an increase of 26% over the previous year. I'm also glad to report that our efforts to diversify our customer base into new market verticals and commercial customers have taken hold. We saw revenue outside our traditional government revenue grow by 88% and over 2019 and now represents 45% of our consolidated revenue. The quarter also marked our 76th consecutive profitable quarter, highlighting that we continue to maintain profitability as we execute our growth plan. The ongoing public health crisis has had some short-term impacts in all of our segments and evolved the way in which they deliver our products and services to our diverse customers. Our teams have raised to the challenge and in short order, and as a result, Calian has remained resilient. Our fourth quarter results reflect our continued focus on delivery of essential services despite challenging environments and continuing our profitable growth. I'd like to spend a moment and provide an update on each of our segments. Our Health segment saw tremendous growth in both the fourth quarter and the 2020 fiscal year. Revenue has increased by 41% compared to the previous year. This has been the result of multiple initiatives, the first being our entry in the pharmaceutical services through acquisition of Alio Health, which has seen strong early returns. The second being the delivery of services across Canada with our long-term customer base continuing despite the COVID-19 realities. And finally, we are able to win multiple contracts to deliver services in response to COVID-19. This included provisioning for mobile hospitals, COVID screening for governments and commercial clients and health care services in remote locations. The growth and diversification of our Health segment has proven successful over the last 3 years as we expand and leverage our network and demonstrate our ability to manage complex medical projects. Our Advanced Technology segment also saw tremendous growth in fiscal 2020. Revenue grew 40% over the previous year as a result of continued deployment of a large ground system project and sales of our first wireless product being deployed by a North American Tier 1 carrier. We are also successful in winning multiple new projects during this year and entered 2020 with a strong backlog of order. In Learning, revenues for the year increased by 8% due to pauses of in-person training due to COVID in the spring. Our team has adjusted quickly to the new environment, and revenue for the fourth quarter was above the same quarter last year. We have also recently completed 2 acquisitions in the learning space in Europe. These acquisitions expand our service offerings and allow us to further diversify our customer base immediately. Finally, our Information Technology Group has continued its steady growth, growing by 6% this year and importantly, increased its gross margins by 3%, fueled by the growth in our cyber practice. Our recent acquisition of EMSEC will continue -- will contribute new unique services that will continue our margin expansion. I will now ask Patrick to review the quarterly numbers. Over to you, Patrick.

[Patrick Houston, CFO & Corporate Secretary]

Thank you, Kevin. It's exciting to report another revenue record quarter with quarterly revenue of $123 million, an increase of 17% from our previous record just 3 months ago. Our ability to deliver on multiple new and ongoing projects during the quarter speaks to our team's ability to deliver despite any challenges. For the year, revenue ended at $432 million, an increase of 26%. Our long-term growth plans include consistent contributions from both organic and acquisitive growth. Organic growth for the year was 21%, and acquisitive growth continued at 5%. We also completed 3 new acquisitions in our fourth quarter, which will contribute additional acquisitive growth in the coming quarters. Gross margins ended the quarter at 18.6%, down from our previous quarter due to some of our new projects in the mobile hospital provisioning having lower gross margins and some increased deployment costs in our Advanced Technology segment. For the year, gross margins were 20.6%, down slightly from the previous year. Our EBITDA performance highlights our objective of achieving profitable growth. EBITDA in 2020 was up 35% when compared to the previous year. And after adjusting for the adoption of IFRS 16, EBITDA growth was up 23%, roughly in line with our record revenue growth. The company has also had a strong year in terms of new wins and signings. All 4 segments contributed to $693 million of new business signings during the fiscal year. This leaves our realizable backlog at $1.3 billion and total backlog at $1.5 billion, this is up 15% from where we started this fiscal year. Our capital deployment initiatives have continued in our fourth quarter with 3 acquisitions and total capital deployed of $18 million. Our total liquidity position between cash on hand and our unused credit facility at the end of the quarter stood at $84 million. I'll now turn the call back over to Kevin.

[Kevin Ford, President, CEO & Director]

Thank you, Patrick. I would like to spend a moment to talk about the acquisitions we've completed since our last update. We have been busy executing our M&A strategy and acquiring quality companies that will provide long-term returns for Calian and support our growth objectives. With 2 acquisitions in Learning, 1 in Advanced Technologies, and 1 in IT recently, combined with the Alio Allphase acquisition earlier this year, M&A is playing an important role in each of our segments. Cadence and CTS are both highly regarded training companies located in the U.K. and Norway. Both companies have strong track record of developing and delivering complex training to NATO directly and NATO member countries. These 2 companies and their strong management teams will deliver immediate diversification to our Learning segment, which has been primarily based in Canada, and will provide access to new markets in which we previously did not participate. EMSEC is a leader in providing emission security and technical surveillance countermeasures. With large government and defense customers, their focus on quality and delivery match Calian's DNA. We see synergy with our existing cybersecurity and defense manufacturing business units as we help customers secure their assets. Finally, Tallysman, a global leader in the development and manufacturing of precision global navigation satellite system antennas, joined Calian in early September. The team has built a robust portfolio of highly regarded products and have established distribution in every continent. The team is working on many exciting opportunities with OEMs in the automotive, farming, rail and robotic markets. We welcome these acquisitions to Calian and are excited to grow together in the coming years. Lastly, the traditional markets in which Calian operates are managing through this pandemic. Management expects organic revenue growth and earnings opportunities 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 contracting vehicles, and any impacts due to COVID-19, specifically, government relations -- regulations related to social distancing, stay-at-home orders and broader travel restrictions. Based on currently available information of contract backlog, sales opportunities and our assessment of the marketplace, we expect to continue our growth posture in the coming year. However, the environment that result in higher cost in Q4, specifically in our Advanced Technology segment, we expect to continue in the first half of this fiscal year. Coming off a record year in the backdrop of the global pandemic, I'm happy to see the midpoint of our guidance demonstrating a 10% growth profile for both revenue and EBITDA. My goal since taking over as CEO was a 10% growth minimum posture for Calian. With now 3 years of over 10% and specifically 26% in fiscal '20, our guidance supporting another year of over 10% or potentially 10% growth, I'm confident that our strategy remains intact, is solid and that we can continue on our pivots to that innovative global growth company. I would also note that our guidance does not incorporate any additional M&A activity, and should we close on any new M&A opportunities, their contributions would be incremental. Our guidance for the fiscal year ending September 30, 2021, include revenue ranges of $450 million to $490 million; adjusted EBITDA in the range of $38.5 to $42 million; and adjusted net profit in the range of $25.2 to $28.3 million. Please see our press release and MD&A for a detailed reconciliation of our guidance. So with that, Daryl, I'd like to now open the call to questions.

[Operator]

[Operator Instructions] Our first questions come from the line of Amr Ezzat with Echelon Partners.

[Amr Ezzat, Analyst]

Congrats on another record quarter. First, can you guys give me more color on the higher costs on the ground system project? Maybe you could remind us, first of all, how far along this project is? Then, maybe you could walk us through the process by which you guys reassess the costs of that project? I'm trying to get a sense of how much cushion or leeway you have on potential further overruns.

[Patrick Houston, CFO & Corporate Secretary]

Yes. So this is the large branches in project for North American carrier. So the total project size is about $100 million. We've recognized on revenue, to date, about $75 million of assets. So we're about 3/4 through from a revenue perspective. The cost were mostly related to -- we're into the installation phase now as we roll out the 22 sites across North America. Obviously, they're all in the U.S. So traveling, as you can imagine, right now, to get to these sites and install them as efficiently as possible, this environment has not been conducive to that. So we did see some increased costs from an installation deployment perspective. And when we look at going forward, we're not -- we're being conservative. We're not expecting any of that to improve in the next 6 months, given the current situation with COVID and the traveling in the U.S. So it was prudent for us to adjust our cost on that project to reflect that. And we -- so far, we've installed 8 of them, and we have 14 sites to go, which we expect to complete in fiscal '21 and finish off that project. And as well, bring back the working capital that we have on that project, which right now sits at about $55 million. So as we complete those installations and reverse that, we should get that back. So I think our focus now on this project is to complete it, turn it over to the customer. It's been a complex project for us because we use -- this is a new band using our carbon fiber antenna. So I think there's a long-term benefit of this project for us as we use what we've learned on this one and apply it to new bids that we have. We've got lots of opportunities going with our new carbon fiber antenna. So I think long term, this is going to be an important project for us in terms of establishing a new technology and a new differentiating factor for our satellite ground system business unit.

[Amr Ezzat, Analyst]

That's very good color, and it answers my working capital question. Okay. When I'm thinking about your guidance for next year, the implied EBITDA margin of 8.6%. I assume there's margin impact from that project and perhaps maybe other COVID-related costs? I'm just trying to get a sense of how much impact, I guess, is embedded in that margin, trying to get a normalized number?

[Patrick Houston, CFO & Corporate Secretary]

Yes, I think there certainly is an impact. And we've been conservative on the COVID impact in terms of assuming that there will be some impact. I think, right now, to say that there would be none in the next 12 months would be a bit naive. So I think we're expecting some, with which affected our EBITDA guidance. There's likely about $1 million to $1.5 million of impact on the ground system, which otherwise wouldn't have been there minus these factors. So I think it is a bit lower, but ex those factors, I think it would be more in line with this year. And to the extent that we can mitigate those and execute during the year, then there's an opportunity for us to do better.

[Amr Ezzat, Analyst]

Okay. Okay. That's very helpful. Then maybe you guys can give us some high-level color on the pace of bidding activity in your Advanced Technology segments you've had these last few quarters? And obviously, you're delivering on this large project. How does like the future look?

[Kevin Ford, President, CEO & Director]

Yes. It's Kevin. So I'll take that. So from my perspective, from our Advanced Tech Group overall and specifically ground segments, we actually see quite a lot of proposal activity. We announced earlier this year also the win and have another ground system for a European carrier. So we actually see activity both in our legacy business in the context of our ground system. But as Patrick mentioned, as we now go-to-market with a carbon fiber antenna that we're manufacturing, we're actually seeing opportunities for those as well. So right now, I would say very busy. If Pat Thera was on this call who runs that segment, he would say he's pinned in the context of both not only delivery but the strong proposal activity that we're seeing in our legacy business. So yes, so very, very strong. And I think we're going to see good opportunities moving forward as there has been, frankly, over the last couple of years. We don't see any slowdown in that segment at all.

[Amr Ezzat, Analyst]

Okay. Maybe one last one for me, and I'll jump back in the queue. Kevin, on the M&A environment, how is the pipeline looking? You've executed on a few, but maybe you could speak to us about valuation levels and how they're evolving? I'm assuming that you guys are looking at larger targets, which sometimes come with a larger embedded multiples. Are you guys still like seeing value out there?

[Kevin Ford, President, CEO & Director]

Yes. From my perspective -- great question. I think the -- we definitely still believe there are value opportunities out there. I think the key thing is being patient and working with our M&A team, Patrick, and our supporting cast, frankly, in M&A to find those value opportunities. We are cognizant that certain elements of the market are white hot right now and multiples are reflecting that. So we're also trying to be smart acquirers in the context of not buying at highs. In the same spirit, looking for good value for us in support of our strategic plans. So absolutely, we see some good opportunities. We will absolutely continue to focus on M&A as well as our organic growth initiatives. And right now, as I mentioned, one of the unique elements I find at Calian is with our 4 segments, we have an opportunity to find opportunities in each one of those segments and roll through each of our segments as we acquire and integrate. So absolutely, we see opportunities. We see value, but you just got to make sure you're looking through the right lens in today's market for sure.

[Operator]

Our next questions come from the line of Benoit Poirier of Dejardins Capital Markets.

[Benoit Poirier]

Kevin, Patrick, could you maybe discuss about the new additions to the team? And here, I'm referring to Michele Bedford as the new Chief Commercial Officer and also Seann Hamer as the new Chief Technology Officer. What are you expecting from those person going forward, Kevin?

[Kevin Ford, President, CEO & Director]

Yes. Thanks, Benoit. I think I'll start with Seann and the CTO role. Those that have been with Calian and with me as my tenure as CEO, I talked about that pivot to that innovative global growth company. And right now, I believe we're about halfway in that pivot. From my perspective, the CTO was an important addition to our corporate leadership team. As we look at -- if you think about our M&A playbook, what I think we need to continue to do is formalize, invest in our innovation playbook. We go to market today with innovation across each of our segments. Obviously, our Advanced Technology Group, so we have global products. And so we have innovation today. But what I wanted to see was somebody focused on innovation moving forward across each of our segments in support of our 3-year growth objectives. And what I mean by that is Seann's role is going to be working with each of the divisional leaders in the context of their strategy, how do we identify, harness, reward and also go-to-market with new innovative products or capabilities. And how do we also value and assess innovation in our acquisitions. So Seann has got a long-term history at Calian here of innovating. He's been responsible for the majority of our products that have gone globally. And already, I'm seeing strong north focus on our innovation agenda just by the fact that he's come on board. So he will be our innovation leader, our innovation voice, our innovation strategy leader for the company. As far as Michele and our CCO role, from my viewpoint, for Calian now, again, on that support that innovative global growth company. Our -- we have a very strong foundation here of execution. We have -- we deliver across many different segments. We deliver mission-critical elements to each of our customers. So our foundation has always been about excellent customer delivery with a strong wrap around on financial -- sound financial management. And you don't have 76 consecutive profitable quarters without that in place. What I want to do at Calian is not ever put cracks in that foundation. That will be our foundation going forward. That is going to be the foundation we will continue to build this company on. But we need to strengthen our marketing and sales acumen in the company. We've done well over the last couple of years. I think everyone would agree that the brand is getting stronger, I think. We have -- going to market now with a united brand. We've allocated to the 4 segments, which I think is easier for both our shareholders and our customers. But what I'm asking Michele to do is take us to another level with regard to our brand, with regard to our marketing strategies, especially in today's COVID world, which is everything is going primarily digital, and as well be the voice across our sales acumen to make sure that we are the best company in the context of how we execute our sales processes. So she's come on board. Her experience is coming to us from Microsoft. She's run global sales and marketing experience and teams. And again, already, I see her coming in with a whole bunch of ideas of how we support that pivot to innovative global growth company. And so we're happy to have both Seann and Michele in their new roles.

[Benoit Poirier]

That's great color, Kevin. And maybe when we look at the revenue guidance for fiscal '21, what could drive the guidance from or move the guidance from the low end to the high end? And what would be kind of the breakdown between organic and M&A?

[Patrick Houston, CFO & Corporate Secretary]

Yes. I think what moves -- as you think last year, we started and we were able to increase guidance twice last year through a combination of organic momentum as well as retiring some risk that we had and some M&A. So I think it's really do the same playbook again this year. I think we've got a good pipeline of M&A. We need to continue to work on that pipeline and see if we can close some transactions this year. That would be -- would help on the financial performance. I think we've obviously identified a few risks, both COVID project execution. Obviously, the team is working to make sure that those don't happen and we can retire them and help on the guidance. And I think there's still lots of opportunities. If you think in our Health Group, the pace of that group has changed drastically from March to now. If you think before RFPs took several months to complete. Now we're getting requests across Canada to deploy COVID response measures in a matter of days. And we did -- within the next day, and we're deploying the following day. So the pace has increased tremendously. So I think there's lots of opportunity in Health as new initiatives come and we don't even are aware of right now. And to the extent we can realize on some of those, I think that would, again, kind of help us get above the current guidance.

[Kevin Ford, President, CEO & Director]

Yes, Benoit, it's Kevin. I think the other elements that we're seeing is -- and to the credits to the team, the over 4,000 people at Calian, we've basically transitioned our company to a mobile delivery organization. We protected our manufacturing sites, but everything else we're doing is in a mobile context. And this year, if you think about our Learning business, we took a step back. Well, we've now basically gone back to full speed on our Learning delivery. So that will be some positive contributions this year, assuming, again, what Patrick said with COVID, that the world just doesn't shut down totally again. So between the COVID opportunities that it's creating for the company, we will look at the effect of the M&A that we did later in this year, fueling some of the growth this year, for sure, from an M&A perspective. And then again, we are very busy across each of our segments on new proposal activity. And if you look at last year, over $600 million signed new business in a COVID backdrop, and the fact we're actually able to increase our backlog, despite having a record revenue year, I think it just demonstrates just how strong that sales funnel is and pipeline is. And I'm not expecting that to slow down. And frankly, everything I'm seeing in each of the segments is everyone's very busy on both delivery and new opportunities.

[Benoit Poirier]

Okay. Perfect. And last one for me. When we look at Advanced Technology, obviously, you mentioned some color about the impact on margins, on EBITDA margin in fiscal '20, fiscal '21. But when we look back at fiscal '17, '18, '19, you were kind of in the range of 15%, 18%. So as you bid on larger contracts, although right now, your building composite, which is higher value. How should we be thinking about EBITDA margins, specifically for Advanced Tech beyond fiscal '21 under a more, let's say, normalized environment?

[Patrick Houston, CFO & Corporate Secretary]

Yes. I mean, these large projects are always very competitive and complex. So with that brings lower margins. So I think that will always be part of the business going forward to the extent we win those. What we've really tried and spent a ton of time over the last couple of years has been to diversify that segment into multiple different things. We've introduced our own products, which bring higher margins. We've done acquisitions, all of them with margins in the plus 50%. To again kind of diversify, get into more market verticals where the margin opportunity is bigger, the sizes are smaller than these large ground systems, but the margin profile is much better. So I think as we go -- continue, that's the path, is continue to diversify, have a mix of both maybe lower margin, higher size contracts and the mix of higher margin projects. And the combination of that should allow us to continue to increase our gross margin and EBITDA margin year-over-year.

[Kevin Ford, President, CEO & Director]

Yes. And I want to be very clear on this, Benoit, it's Kevin again. So this what I call the large ground system, the headwinds we've been facing, I look at this as not a long-term issue for the company. To Patrick's point, the acquisitions, our product business, if you actually look at our gross margin profile and pull that out, it's going very, very well and both -- on both gross and EBITDA margins. So I don't expect this to be now a trend at Calian Group. The other thing I'm very happy to see is that, and you've known us a long time. And when we've had these large projects go through the company in the past, normally the year after, we'd go into a decline mode, which is basically, we were unable to backfill that revenue. But not only have we've been able to backfill it, we're actually guiding that we're going to continue on our double-digit growth posture. So I know you've followed the company for a long time. I hope you appreciate that backfilling $70-some-odd million of revenue and actually continuing our growth profile I think also indicates to me how strong that 4-piston engine is running. And I want to be clear to our analysts and our shareholders that margin impact we're seeing is not long-term expectation of ours that, that's going to continue. And as Patrick said, we're doing many things that are going to continue to prove that longer term. We just need to get moving through this project, and we'll be fine.

[Operator]

Our next questions come from the line of Doug Taylor with Canaccord Genuity.

[Douglas Taylor, Director]

Kevin, Patrick, I'd like to pick up on that last point that you were just making. I think the guidance and the growth implied in the guidance is certainly a positive surprise for many of us, particularly as you're lapping or you have to backfill $50 million in Advanced Technologies from the satellite contract and then with the SMC business, it looks like about $26 million there or a little over $20 million. Can you speak to whether you expect those businesses, being Advanced Technologies and health care, you're expecting to grow in those businesses specifically that you had these large contracts? And if not or if that is expected to taper, where are you seeing the acceleration outside of those businesses to make up for that?

[Kevin Ford, President, CEO & Director]

Yes. Great question. Great question, Doug. I think for us, the momentum that we're seeing is really coming in all 4 segments. From Advanced Tech, yes, we have that large ground system project. But as I mentioned earlier, we've won another ground system implementation. We have very strong delivery -- sorry, proposal activity. So we have that -- we don't expect that slowing down. We've got our new products that we're going to market with. We've got now the Tallysman acquisition, which takes us our whole antenna line into a whole different sphere and just a global business that's going to make us relevant in things like autonomous vehicles and precision agriculture and drone technology. So for us right now, we're excited because our legacy business in Advanced Technology continues to grow well. And the ancillary products we've been building as well as the acquisitions that we've been layering in is extending our product business and our product capabilities with higher margins and also a global marketplace. So we expect lots of opportunities in Advanced Technology to continue across multiple areas, including even our core manufacturing in the defense business. In health care, the -- as I've said before, our asset, we have one of the largest, if not the largest national network of medical practitioners in Canada built through our defense contract. 32 bases, over 60 different -- 60, 70 different categories of health care practitioners. And we're getting now known as the company to come to wherever it may be in Canada to support health care requirements. We have now people in Nunavut. We have people right across the country. We've just worked with the province of Alberta on COVID opportunities. So I believe just the organic growth on the pull from that network is going to continue to be significant, especially in the COVID backdrop. And then you add in the Alio Allphase capability of deploying that network in pharmaceutical, the industry, both in the context of trials and patient support programs, and then you bring in some of the software we brought in from the Alio Allphase acquisition, this home application is called health outcomes managed everywhere, we're going to start introducing more technology into our health care business. So core business will be strong, more technology enablement, and I think that's going to be, again, positive support. Our IT business quickly is all about our cyber business right now as well as our legacy -- [ Sandra ] knows that -- that organization from not only cyber, but the cloud migration. We see a lot of opportunities there and continued focus on cyber. Obviously, everyone going virtual. We're seeing lots of opportunities, specifically with our federal government on cyber -- large cyber opportunities. And as I mentioned about Learning, 2 thrusts there. One is getting defense back to their learning pace prior to this COVID. And then secondly, that whole European exposure now for our Learning business, coming out of the block, Doug, it's going very well. We are seeing -- we're ahead of our pace that we had thought we'd be there on new opportunities and training opportunities for both not only NATO now but also other military customers in that area. So I think all of those elements is why I'm still very positive on the company's trajectory here, and I believe all segments have an opportunity to grow.

[Douglas Taylor, Director]

So let me drill down on a couple of points you made there. The -- specifically in the Learning segment, I mean, obviously, challenging -- challenged by the pandemic. And so I guess I'm surprised that you mentioned that you're back up to full speed there, given I think a lot of that business is kind of in-person. So I'd just like to understand the degree to which you've been able to shift that to remote delivery. And just so -- I mean that will help me assess the risks and opportunities around that business.

[Kevin Ford, President, CEO & Director]

Yes. Yes, I appreciate the question. So when you think about a lot of our -- if you think about our classroom-based training and things that we would do in a classroom-based, a lot of that work now, both in the development of the training material and the actual delivery of the training, of the learning exercise, have been, basically, we're able to now work with our customers to do those virtually. And in some cases, in-person where it makes sense to do so. So what we saw initially, obviously, a slowdown as everyone had tried to reassess how we're going to deliver learning. We think now we have an operational capability to work with our customer and predominantly the military here to keep those courses going in a virtual setting. So that's number one. Number two, on the exercises, yes, I think you can appreciate that there's only a certain amount of time that our military -- men and women in the military, their job is to be ready. And to be ready, they need to train. And so you can only slow down learning and training for a period of time. And at some point, you just need to get on with it. And I believe our customer is getting on with it, and to their credit, and showing the absolute dedication of our military to be ready. So we believe just the natural pace of military training has to get back at it. Because what you can't do is not be ready. Their job is to be ready. So I think what we're going to see is the balance of that virtual, that in-person where it makes sense to do so with protocols. And could it face headwinds again on the COVID side? It could. And we have factored that mindset into some of our guidance coming out of the blocks here that let's assume that we will see some headwinds, but right now, we're basically back to full speed.

[Douglas Taylor, Director]

And then, the business JV with SMC and the mobile hospital, I mean, are you factoring in any repeat of that type of work into your guidance? Or is your guidance assuming that the current contract there gets completed and is not replaced with the same sort of work this year?

[Patrick Houston, CFO & Corporate Secretary]

Yes. Right now, we haven't built in additional work there. Obviously, I think there is a big opportunity. We've developed a new capability and relationship. So to the extent that these hospitals do get deployed, there could be additional demand, but we haven't built any of that because right now, we don't have the visibility to it. But we're certainly ready and willing to jump in if the situation needs it.

[Kevin Ford, President, CEO & Director]

And I think, Doug, as well for us, and as Patrick said earlier, we're seeing on the health care side, just that time from high Calian to close of sale, has been expedited in so many frontier, especially on some of our government business, record-setting in some ways. And it's in support, specifically the COVID response. The question I've got for our team is what happens with vaccinations? What happens with more COVID screening? What happens with those elements? So we haven't really factored any of that in because, as Patrick said, it's really not a normal government sales cycle where we see this incoming for a year or 2. We are literally getting calls where 2 weeks later, we're deploying. So we really haven't factored that into our guidance because to be fair, we just don't want to over inflate guidance until we actually are clear on what exactly is going to happen in the second wave or potentially third wave. But we do definitely see opportunities, whether it's in mobile, respiratory hospitals, whether it's in COVID screening, this whole vaccination program that's going to have to kick in, assuming there's a vaccine. So we still believe there's good opportunities, but really has not been factored heavily into our guidance.

[Douglas Taylor, Director]

Okay. One last question for me. Just a clarification. Patrick, I think you said an additional $1 million to $1.5 million impact from COVID in the fiscal year '21 guidance. Is that in addition to a like impact versus 2020, it being almost $4 million in gross margin impact? So are we talking about an increased impact from COVID in the fiscal year '21 guidance versus last year or slightly decreased?

[Patrick Houston, CFO & Corporate Secretary]

I think $1 million to $1.5 million is specifically on the ground system project in terms of kind of EBITDA hit for the increased cost. So that's really just for that project. I think from a guidance, what we've done is assume that there'll be some short term kind of positives in Learning again, but not to the same extent. As to Kevin's earlier point, I think we're more prepared and have a better construct than we did come March earlier this year. So right now, we've factored in a small amount there and then obviously $1 million to $1.5 million on the ground system cost.

[Operator]

Our next questions come from the line of Deepak Kaushal with Stifel.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Kevin, Patrick, a couple of questions there on visibility beyond 2021 as some of these big projects roll off. Kevin, I just wanted to know, well, maybe for both of you guys, how do you guys manage this? Like you have a big mix of long-term projects. You're bidding on big long-term projects. What are the kind of metrics you look at in terms of pipeline, pipeline coverage just to track how you manage those project roll-offs and visibility over the longer term?

[Kevin Ford, President, CEO & Director]

Yes, Deepak, thanks for the question. So from our -- from a company perspective, we have a very rigorous 3-year planning cycle as well as a 1-year business plan cycle that I review with the Board in the context of growth opportunities, what's organic, what's M&A, the whole kit. So number one, we really have a disciplined approach to looking ahead here, if I can say it that way, as well as the investment that's required to generate the growth that we're trying to achieve in either our business or 3-year strategic plan. Number two is with the backlog, to your point, every year, we can go into the backlog, and I'm looking at Patrick. It's not 60%, 70% of our business, at a minimum, is likely in backlog, even on a growth profile. And as we add more long-term contracts or new projects, so then the focus is what's our coverage on that delta to our budget. And we have implemented now CRM tools in the company to allow us to track sales funnel and then coverage. And I always like to see 3 to 4x coverage on basically the targets we've set for the segment. So that's part of that evolution of our sales culture here as well as our sales process is to have more visibility so that when I'm sitting and talking to my shareholders or to our analysts, when I look at guidance that I have some comfort level that the words and the ranges that we're doing are achievable, and that basically it's based on facts. So a lot of rigor in this company, believe me, on and how we look at that -- the guidance, the forecast and sales coverage. And I think we continue to evolve and get better, and that's an area we're going to ask Michele to continue to work with us on, on just looking ahead, as you said, 2, 3 years out on what that opportunity looks like.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. And so look, I'm not a math whiz here, but if you're posturing for 10% growth, how fast is your pipeline growing? Obviously faster than that, but what are you guys seeing in particular?

[Patrick Houston, CFO & Corporate Secretary]

Yes. I mean, I think where the pipeline has been growing is because we've got into more market verticals. We have more white space to go after, right? So we're into GNSS antennas, emission securities, European training, which 12 months ago, were not in our pipeline at all because we had no assets toward path into that, right? So as we keep doing some of these acquisitions and expansions, we have new opportunity. Now we start to address that, bring it to the pipeline and then start to add. So that's really one of the reasons we're doing as M&A is to allow us to diversify customers. I think you saw that this year where our government revenue, as a share, reduced as we add more and more new customers. And I think then it's expanding that customer as well as looking for similar customers to sell our products.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. Got it. And then when I think of M&A, you've done 4 this year, 3 in recent order. Obviously, you have a lot of financial capacity. Can you talk about your capacity to integrate here? Again, is this fully decentralized? I mean how many transactions can you do per year? And what's kind of your capacity?

[Kevin Ford, President, CEO & Director]

Yes. No, great question, Deepak. I think for us, as you can imagine, when you look at the size of some of those transactions, some were smaller. When you think about the transactions this year, some were larger. So obviously, the answer to the question depends on the size of the acquisition as well as we move through each of our segments, what's the capacity within the segments to integrate. So if you think about the 4 that we've done recently, they've all been in -- each segment has basically done an acquisition this year. Advanced Technologies with the Tallysman piece; Learning we have CTS and the Cadence recently in the U.K.; IT at EMSEC; and then, Health had our Alio Allphase acquisition in January. So the beauty of our model is that you can actually acquire one segment and then move on to integration for that segment and then move on in each of the other segments into opportunities and literally roll through our segments as we do that. This won't be long that months from now, it will be a year that we've had Alio Allphase in the company. So that's number one. Number two is the way we structure our acquisitions is we have a 2-year -- we like to normally put in a 2-year earn-out structure that facilitates us to ensure the company keeps not only motivated but rewarded on the context of continued growth as per projections when we acquire them. We're finding that a best practice because it gives us that 2-year window to basically work with them on an integration plan in our M&A playbook. In some cases, we will integrate the back office right away. In others, we will let that run for a period of time and align our capacity to integrate with the ability to integrate what their back office capabilities. So for us right now, the model is we have the playbook. We have the integration plan. We have an integration plan for each acquisition. We have the 2-year earn-out period, that 2-year period to integrate. And from a capacity perspective right now, even though we've done 4 or 5, I still believe we do have capacity. And when you look at our OpEx increases in G&A and other elements, a lot of that is injecting new capacity into our company to deal with both organic and acquisitive growth in support of our growth trajectory. So I think right now, we still have capacity, and we assess that with both Mike from the corporate team and our Board of Directors. And so it's a great discussion, but right now, I do believe we have capacity. And I think we continue to do well with the companies that we've acquired this year on all of them coming out of the gates very quickly on their growth trajectory, which has been fantastic.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. That's very helpful. And my last question, if I may. Just related to some of the goings on in the world today. You mentioned opportunities with the COVID vaccine and as COVID goes through its process. I'm just wondering what kind of opportunities you might see with the change in the U.S. government, particularly, you're working on some NATO, expanding with NATO countries in Europe. Any kind of readthrough there? Any kind of readthrough in general on a change in the administration in the U.S. for your business?

[Kevin Ford, President, CEO & Director]

Yes. It's interesting. I think we'll see how this plays out, obviously, in January. We'll see the change of administration and see some of the policy frameworks that are put in place. From my viewpoint, as I think I've mentioned in the past, frustrating for me, as somebody who's been in the [indiscernible] for over 50 years, I've talked about in the past, I lived long enough to see walls be torn down. And now we see walls being built again, and I'm not talking physical walls, whether these are trade tariffs, we see Brexit, we see everything going on. So the one thing I will say that even if the current administration, we've had business in the U.S., our largest ground project in the U.S. So we still see U.S. definitely as a target customer. And we will see with the new administration if there's opportunities to look at our presence in the U.S., but we want to do so. Those that know Calian know we had a presence in the U.S. years ago in Washington on the military side and decided to sell that element of our business with -- it just doesn't make sense. It didn't make sense for us at that time just because of the foreign controlled interest rules and the whole element. So we have some experience there. So we will look at the U.S. as a market. We expect -- I'm hoping that not just in the U.S., but the world continues to work on its posture on not just the physical walls, but these trade walls that have been built up. And obviously, we're watching Brexit as well. Canada, Europe signed a European -- an updated European trade agreement recently. We're obviously looking at that. We continue to invest in the Europe market in the short-term, Deepak. We see that as a great extension for us for a whole bunch of reasons. So right now, focus will be obviously domestically. We're definitely looking at that European market, and we'll assess the U.S. market moving forward as we let the new administration come in and see the policy framework they're going to put in with regard to trade and foreign controlled interest.

[Operator]

Our next questions come from the line of Furaz Ahmad with Laurentian Bank Security.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

I was hoping we could just dig into the IT segment a little bit. It's good to see you guys making the investments in people in that segment. Just curious, is that expected to continue into next year? And then secondly, what's your time line on starting to get some returns on those investments to people?

[Patrick Houston, CFO & Corporate Secretary]

Yes, Furaz. Yes, I think like we said before, historically, about 80% to 90% of our revenue in IT has been in the Ottawa region, right? So we've built up quite a strong presence there. But as part of our kind of growth strategy was to try to get out of Ottawa and just address new geographical regions. To your point, we've added salespeople in Toronto. We're seeing that as a market that we want to try to make some headway here in the next 12 months. I think we hired those people midway through the year. So I think we're hoping that we start to see some contribution from them in this fiscal year. And we've got a few different larger projects in Toronto that we're bidding on. So I think that's certainly an area where we want to focus in on and try to get a foothold there and make our brand recognizable to that kind of small, medium-sized business as well as various kind of provincial and government entities.

[Kevin Ford, President, CEO & Director]

Yes, Furaz, it's Kevin. And I think we have -- we are recognized. And one of the reasons I want a CCO is -- and IT is a great example. Our brand in the Toronto region, it still needs a lot of work with regard to our segments, to be honest. And we will focus on that. And we've made investment -- to your question, we've made investment in sales headcount in Toronto, which is Patrick's point. So that takes time. When you're establishing a brand, it takes time. I expect -- I want to reiterate my expectations for each 1 of my segment leaders is I want a minimum 10% growth profile. So Sandra, who runs that segment knows that, takes that to heart. She's diversifying our business with cyber. She continues to diversify our geography. And I'm expecting that segment to get up to that minimum level, and I'm confident the team will do so.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

Okay. That's great color. And I'm just curious, I mean, I'm sure you've looked at buying versus building for that segment. Is the biggest detriment to buying the acquisition multiples in that space? Because I imagine they're quite lofty given the interest in the space.

[Kevin Ford, President, CEO & Director]

Yes. What we're seeing is, depending on where the IT company lives, if I can say it that way. Clearly, any kind of health IT assets right now with the digital health or anything like we're seeing, obviously, and I know you folks know this is we're seeing credible expansions on multiple expectations there. So we just got to be careful on those type of things. In our cyber business as well, we do think there's opportunities for value in cyber. We've seen some recent transactions. And the beauty of our trading multiple now and where we've been, we think we can go after more targeted companies that have the margin profile and the growth profile that we're looking for and still be accretive coming out of the block. So that's giving us a bit of confidence in buying power, I think, there. So we will look at that. Definitely, the focus for us is going to be on that cyber piece. Also looking at managed services capabilities in cyber, continue to expand our product portfolio, product resale capability, and geographic presence, to Patrick's points earlier. So we're fishing in a very small lake. We know exactly what we're fishing for. And I'm confident if we just stay patient, continue to look for the right company that would like to be acquired by a company like Calian because of the cultural alignment, then I think we will be successful. But we will make sure that when we do that, that we're confident that long term, that company is going to help us achieve our growth objectives.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

Okay. That's great color. And just my second question is just on the Ad Tech business. You mentioned that the Fuel Lock product saw some weakness in the quarter. I was just curious, was that the same case for the BIN-SENSE product as well?

[Patrick Houston, CFO & Corporate Secretary]

Yes. We did see a bit of a slowdown in the fall. I think what we saw with distributors of ours who generally held a certain level of inventory kind of reduced their inventory as part of their kind of COVID adjustments. So that did slow down kind of our second wave of orders, which usually comes in the late summer. So I think it did result in a bit of a slowdown this year. But I think going into next year, might actually provide us a bit of momentum because the inventory levels are basically nothing now. And to the extent next year is a good year, they should build that up and hopefully, we see it come back to us next year.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

Okay. And I guess in your guidance, is a normal year kind of baked in?

[Patrick Houston, CFO & Corporate Secretary]

Yes. I think we've baked in a normal year, again, kind of from a conservative standpoint. But I think that should certainly give us, hopefully, a good start to the year. And then if we can finish with the second wave of strong orders, we can likely overachieve.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

Okay, great. And then just 2 quick housekeeping ones for me. In terms of CapEx for 2021, should we expect something similar to this year?

[Patrick Houston, CFO & Corporate Secretary]

Yes. I think so, from CapEx. We finished the R&D kind of -- and capitalization of carbon fiber. So that -- we had some in the first quarter, so that should be lower this year. And the other CapEx, I would expect it [indiscernible] this year.

[Furaz Ahmad, VP of Research and Special Situations Analyst]

Okay. Great. And then just lastly, with the EBITDA outlook, I was just curious, is that post IFRS 16?

[Kevin Ford, President, CEO & Director]

Yes, it is.

[Operator]

There are no further questions at this time. I would like to hand the call back over to Kevin for any closing comments.

[Kevin Ford, President, CEO & Director]

Okay. Thank you, Daryl. Again, great questions, everybody. I really appreciate the dialogue today with regard to the business. I hope you're sensing my absolute positivity in a COVID backdrop of not only our results for fiscal 2020, but of our growth prospects moving forward. Three years ago, we embarked on a journey and this team, and I challenged the team 3 years ago, in our strategy to be a double-digit growth company consistently and maintaining our profitable growth posture. As we've seen, as I've mentioned earlier, 10%, 11%, 12%, now over 20% growth. It doesn't happen because Kevin Ford says it should happen. It happens because we have amazing people at this company. And I want to end on that. I want to thank those amazing people for rising to the challenge of COVID-19, pivoting our company to mobile, completing 4 acquisitions, growing the company by over 20%, growing our EBITDA by over 20%, signing over $600 million in business. And more importantly, using our -- having our core purpose of helping the world communicate, innovate, lead healthy lives and stay safe. I would book a parade for this company right now, if I could, but I can't. And I'm trying hard to thank them, and I want to thank all of our shareholders for the support and interest as we've gone through this. But this is one proud CEO at the end of this phone call today. I appreciate the comments today and the concerns on EBITDA and those numbers, and I totally get it as a publicly traded company. But you have to understand the achievement this company just made was spectacular. And the effort it took of all those 4,000 people to make it happen is something I'm extremely proud of. And I am confident that any headwinds we are facing going forward, we will knock those down, and we will continue on the posture that we've set out 3 years ago with our now 3-year strategy. So with that, any other comments or questions, please don't hesitate to reach out. We look forward to talking to you in 3 months and seeing what craziness this world brings and how we manage through it because I'm confident we will manage through it. So thank you again for your time. And with that, Daryl, we can end the call.

[Operator]

Thank you. On behalf of the Calian Group, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time.