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Edited Transcript of CGY.TO earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q3 2019 Calian Group Ltd Earnings Call

OTTAWA Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Calian Group Ltd earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin Ford

Calian Group Ltd. - President, CEO & Director

* Patrick Houston

Calian Group Ltd. - CFO & Corporate Secretary

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Conference Call Participants

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* Benoit Poirier

Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst

* Christopher Martino

Laurentian Bank Securities, Inc., Research Division - Analyst of Research

* Deepak Kaushal

GMP Securities L.P., Research Division - Director and Technology & Communications Analyst

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Presentation

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Operator [1]

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

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [2]

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Thank you, Dory, and good afternoon, ladies and gentlemen. With me today is Patrick Houston, our CFO. We'd like to welcome you to Calian's Third Quarter 2019 Conference Call.

I was very happy with our results this quarter, as they demonstrate the strength of our diversity and the effects of our long-term growth objectives. We again posted Calian's largest quarterly revenues in the company's history, with revenue growth of more than 20% from the same period a year earlier. The broader team continues to execute our growth plan with innovation and global market opportunities in view. We closed our first global acquisition of the Germany-based SatService at the start of the quarter and are proceeding with our integration plan.

SatService is a solid player in the European satellite ground systems market, whose business will support Calian SED's expansion in the European market with turnkey satellite solutions as well as products.

I had the pleasure of visiting the SatService facility recently. I was very impressed with their team and their support for Calian's innovation agenda.

We look forward to using this new foothold in Europe to explore potential opportunities with new customers and markets. We continue to see growth across the majority of our services while investing in our long-term growth posture.

We had a very strong quarter for revenue growth, while EBITDA growth was mixed. At Calian SED, we successfully closed some projects in the quarter. However, SED results were affected by some delays in other projects and some overruns in our complex engineering programs related to our innovation agenda.

This was offset by an excellent quarter for IntraGrain, Calian's AgTech solutions provider, which the company acquired last year. IntraGrain contributed robust revenue and bottom line results as its seasonal business came to fruition.

The stability of Calian's diversified engine was evident this quarter with our BTS division and contributing strong revenues and earnings growth. The stability supports our ability to focus on organic and acquisitive growth, innovation and positioning into global markets.

I will now ask Patrick to review the quarterly numbers. Over to you, Patrick.

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [3]

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Thank you, Kevin. Our growth continued across both divisions, including a strong contribution from our recent acquisition IntraGrain. For the third quarter of 2019, revenues set a quarterly record of $88.8 million, representing a 21.6% increase from the previous quarter. With today's results, we have now reported record revenues for 4 consecutive quarters.

Gross margin on a consolidated basis was down slightly when compared to the previous quarter. Margin in our BTS division is up due to continued execution and diversification of our customer base. As Kevin mentioned, margins at Calian SED were affected by overruns in our complex engineering programs relating to our long-term innovation agenda.

We continue to seek ways to increase our consolidated gross margins through the introduction of new products and acquisitions. EBITDA in the quarter was $6.7 million, up from $6.1 million in the same quarter of the previous year. Operating expenses are up when compared to the same quarter in the previous year, increased as a result of the acquisitions of IntraGrain and SatService, which were not part of Calian at this time last year as well as investments in capacity and innovation across the entire organization. We continue to seek ways to manage operating expenses and seek efficiencies while ensuring we invest where required to position the company for continued profitable growth.

Net profit for the third quarter was $4.3 million, up from $3.9 million in the same quarter of the previous year. This includes a onetime gain in the quarter of $0.7 million related to the acquisition of Secure Tech and their first year earnout. We generally structure the earnout targets to be based on growth from their trailing EBITDA performance and payment only begins once they achieve a minimum of 75% of that target. Secure Tech was a strong contributor during the first year and their inclusion has allowed our entire cyber practice to grow and reach new customers and markets.

We continue to see them as a key part of our success in the growing cyber services and product segment. Earnings per share in the quarter was $0.54, increasing from $0.50 per share in the previous quarter.

On a year-to-date basis, EPS was $1.55 per share basic compared to $1.47 in the prior year. Our cash position was $18 million at June 30. This was down $9.8 million from the previous quarter but included the repayment of $5 million of our line of credit.

We'll continue to use the line of credit to support acquisitions and working capital expansion to support our continued growth while maintaining an efficient cost model.

Cash position in the coming year will be impacted by additional working capital requirements at SED and earnout payments due on recent acquisitions. We continue to maintain our dividend posture currently at $0.28 per share as we continue to expect solid performance from both divisions as well as our recent acquisitions.

You'll see, we've narrowed our guidance as we enter our fourth quarter fiscal period. We expect revenue to be $335 million to $355 million for the year. EBITDA per share will be $3.40 to $3.65 and EPS of $2.05 to $2.25.

We've reduced the EBITDA range slightly as some customer opportunities we anticipate to book and ship in our fourth quarter will shift to coming quarters.

Finally, please note that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results.

I'll now turn it over to Kevin.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [4]

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Thank you, Patrick. We continue to invest prudently, and we creatively support our innovation agenda. On June 12, I joined the gathering of Calian staff at our headquarters in Ottawa, and with our team in Saskatoon, watched the RADARSAT constellation mission launch. We watched live as the SpaceX rocket carried away 3 next-generation satellites to support this flagship mission and earth observation for the Canadian Space Agency. The constellation of 3 satellites will provide daily images of Canada's vast territory and maritime approaches as well as images of the Artic up to 4 times a day, build access to 90% of the world's surface. The team of over 45 people at Calian SED from satellite engineers to operations controllers to ground systems analysts were among the first-line personnel supporting this mission.

Our team was directly involved with the preparations and operations for the mission as well as testing, commissioning that follows the launch. It was a proud moment for us to watch the launch and know that we help make that happen. Across our divisions, the company continues to invest in products and solutions. For example, the Systems Engineering Division continues development of its new carbon fiber antennas. This new line of advanced radio frequency antennas provides cutting-edge performance for the most demanding satellite system applications, particularly as satellite communication networks move to higher-frequency ranges like the Q and V bands.

The Calian SED team continues to develop this product line with plans to roll out additional aperture sizes. At our BTS division, there's been a focus on products and solutions applicable to military training and emergency management environments. A word about customer retention, which is the first pillar, a backstop in Calian's 4-pillar growth strategy. I'm happy to report that we rewon another key contract in the quarter. Our training services team renewed a multiyear $17 million e-learning contract with the Department of National Defense, and this contract continues a training relationship we've had with the Army Learning Support Center located in Gagetown, New Brunswick since 2007.

We're proud to have supported the men and women of the Canadian Armed Forces with Calian's advanced training and simulation services for more than 2 decades.

I'd also like to take this opportunity to mention one of our very successful social responsibility programs, the Military Family Doctor Network or MFDN. This network fulfills a specific need. Members of Canadian Army Forces receive complete health care from the Department of National Defense. However, many people do not realize that their family members rely on the provincial health systems. This presents a unique challenge for military families who really -- who relocate frequently due to postings.

To help address this challenge, we created the MFDN in 2016, in partnership with the Military Family Services, a division of the Canadian Forces Morale and Welfare Services. MFDN leverages our network of health clinics to help connect military family members with family physicians after these families relocate around the country.

Over the past few years, Calian's dedicated staff have successfully matched these families with participating physicians in our network of Primacy Health Clinics.

I'm very happy to report that this initiative marked a significant milestone in July, with more than 2,000 military family members who have now been referred to family doctors through this program.

In closing, from a strategic perspective, management continues to evaluate our go-to-market approach. As I have previously stated, I believe it is time to evolve our approach as we've outgrown the 2 divisional construct we report to the markets today. It's time for us to look at aligning our corporate structure and brand to our main service lines in support of our long-term strategic growth objectives, and we will continue to update our shareholders as our analysis progresses.

The strong cash flows and innovation agenda and a dedicated employee base, I continue to be excited about this company's evolution and growth potential.

Lastly, the traditional markets in which Calian operates are stable and management expects organic revenue and earnings growth in most or all of its service lines through the successful execution of our growth strategy.

However, we must caution that revenues realized are ultimately dependent on the extent of timing of future contract awards as well as customer utilization of existing contract vehicles.

Based on currently available information and our assessment of the marketplace, we expect revenues for fiscal 2019 to be in a range of $335 million to $355 million, EBITDA per share in the range of $3.40 to $3.65 and net profit in the range of $2.05 to $2.25 per share.

With that, Dory, I'd like to now open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question today from Benoit Poirier.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [2]

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First question, I was wondering if you could provide maybe some color, Kevin, about the potential options that you're looking at for the -- your corporate structure, what are things that you're looking at right now or the potential options?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [3]

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Yes. I think for me, Benoit, the -- what I've learned in the -- in my dealings as CEO of the company, both from a customer and shareholder perspective, the BTS SED I think is confusing. And I think it confuses in the context of not really clearly identifying the 4 distinct service lines that we go-to-market with in health, training, IT and engineering manufacturing. So what I'm looking at right now is how can we evolve our structure, so that it becomes very clear to current and potential shareholders. And also, as importantly, our customers that the business that we're in is in those segments. So my main goal is, I want to simplify the structure, I want it to be very easy to comprehend. And I also want to give the opportunity to potentially report against those segments. So that -- we get quite a few questions on our training business, our IT business, engineering business as to what margin profiles, what's the growth potential. So I'm going to try to align the business that we're in today to the corporate structures to make that much more transparent, also much more easier to comprehend and really move away from this BTS SED structure. So we're working through that analysis now. And once we're ready, we'll come back to the markets with an update on that.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [4]

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Okay. That's really great color, Kevin. And would it be fair to say that there's not additional cost attached to those move in terms of bringing President or extra staff to support those divisions, it's already in place, right? So...

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [5]

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Yes, I would say so Benoit. And I think actually, I'm cautiously optimistic. I can actually see some efficiencies on this. When you look at our 2 divisions and what's entailed in each division. As you know, I created a CIO function for the first time in Calian, about 1.5 years ago, looking at the IT infrastructure consistently across the company, obviously, for a whole bunch of reasons. But I believe, actually, it's not about increasing costs. I'm hoping that we see some efficiencies in how we operate by looking at the company a bit more holistically across the 4 segments.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [6]

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Okay. Perfect. And if we look at SED, during the quarter, you experienced some delays in project and some overrun in the engineering program. So could you provide more color on those projects and whether it will run also in Q4 and next year?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [7]

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I think right now, the -- we have some of -- as you know, we announced about a year ago our largest ground system project that we've ever had in the company, and we're working through that now. So further delay in what we're seeing and some of our change in our guidance is just a reality of getting that program ramped up, and it's very complex, and it's not just obviously our delivery capabilities. It's our suppliers as well, making sure we align up delivery as people innovate new components for new satellite generation. So very complex. So what you're seeing a bit from the context of our update in guidance is to that program, some of the deliverables moving into next year.

We also have some orders that we are waiting -- literally waiting on daily here right now for other product capability that we have been working on, and we're just -- we just literally day by day here trying to assess when they're going to rise in this quarter or pushed into next year. So it's a bit of delay in programs already won and a bit of delay in just getting some orders that we've been waiting for that we believe we'll be able to close shortly. On the overrun side, it's really -- I just want to be really clear on this. This is not a general statement. We have a specific program that we're looking at, that is -- it's complex in the satellite/cable industry. We've been working on this now for over a year. And I think for us, we're just experiencing some -- as we go through testing, we're at the back end of this program. So we're just going through testing now, which is just challenging if you've ever been through this. So we're just dealing with some more challenges than we expected. But again, program is going well. It's just taking more capacity than we expected to get through our testing phase.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [8]

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Okay. And for the large -- sorry, Kevin, but for the large satellite ground system, I know the bulk of the contract was supposed to be in fiscal '20. So what type of revenue contribution should we now expect in fiscal '20?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [9]

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Yes, I mean, it will continue to increase. I mean, probably double the amount that we're doing this year. So we were still expecting next year to be the largest year in terms of that project.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [10]

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Okay. Okay. And this year, would it be fair, Patrick, to say that it's kind of a $20 million contribution?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [11]

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Approximately, yes.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [12]

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Yes. It's in that range, Benoit and I think, as Patrick said, we'll see the ramp-up next year for sure and rest is better guidance. When we come out of our Q4 call, we'll have a real good assessment of how we're doing against our project schedule and that we'll update the markets at that time.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [13]

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Okay. Now question on organic growth. You disclosed some very good color in your MD&A with respect to BTS. I understand it's more specific to IT division. So how should we be thinking about the organic growth for each business segment, BTS and SED in the quarter and maybe so far this year. Is it something that you have in your hands?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [14]

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Yes. So basically, I would say that if you look at the BTS division, the organic growth posture is really being driven across all 3 segments there. So our health care business right now continues to grow based on 2 fundamentals. One is increased demand on our legacy health care contract with defense, which now includes RCMP and Veterans in the service. So we are seeing increased demand on that contract. And we're also increasing our customer base within health care nationally, the contracts -- the amount of contracts we're managing now continues to increase. So I think it's showing our diversification is working there. In our IT business, it is 2 things that has really continued, win and expansion in our government segments, where we continue to win in new vehicles, new projects, new opportunities with federal government and in other areas like in Toronto. And then our cyber business as well with the STI or Secure Technologies acquisition. We continue to see very good opportunities for growth and increased growth there. And that is both combination of services and also products now as we are platinum-level partnerships with many key cyber products globally now. So that's exciting.

And then our training business right now, just a continued push with the pace of military training as well as expansion into new markets, specifically with our emergency preparedness offerings. Unfortunately, as you know, the increase in natural disasters and terrorism, we continue to get more exposure as the company to come for that type of service. So I would say all of those cylinders are firing organically for sure. And health care has definitely been picking up the pace, I would say if you look at the results for this quarter and followed by IT and then training.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [15]

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Okay. And I understand that we are almost close to the fiscal year-end, only 1 quarter to go. Any color so far? Or what -- how should we be looking at fiscal '20 next year in terms of kind of revenue growth, margin and bottom line. Any kind of color you could give us at this point there, Kevin?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [16]

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Yes, great question. I think for me, right now, when I look at the fundamentals in the business, and the factors that affect our momentum. I'm seeing a lot of positives with regard to -- if you look at government spending, you look at defense spending, you look at the success of our customer diversification, you look at the success of our innovation agenda. So I'm expecting that we will continue on a growth posture for sure. Again, always depending on -- we're waiting on the election. We've got to get through the election phase again. But I really think right now, Benoit, I'm pretty optimistic about next year as far as maintaining a growth posture. Now to the extent of that growth posture, we'll update our guidance as we come out, as we get through the election. But I'm really not seeing anything that's a major impediment to us keeping the growth pace that we've been on.

As a reminder, I'm trying to set this company on a 5% organic, 5%, including M&A, so double-digit growth company. And I think if you look at the last 2, 3 years, we've been keeping on that pace, and I really don't see us slowing down anytime soon based on what I know today.

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Operator [17]

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And our next question comes from Deepak Kaushal.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [18]

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Kevin, I just had some follow-ups to Benoit's question on SED. Just wondering on the record contract, did you recognize material revenue on that in this quarter? Or is most of the increase sequentially coming from IntraGrain and SatService?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [19]

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IntraGrain was a big contributor this quarter just like as in the previous quarters, so it was fairly low just because of the seasonality. So some of the, I'd say, the majority increase was IntraGrain, and we had some on the legacy SED.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [20]

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And then SatService, it is our first quarter, having them in de facto definitely, they supported our achievement at SED for the quarter. But they also were ramping up operations with them as well. So it wasn't as significant for the first quarter -- growth for the first quarter.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [21]

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Okay. And just to be clear, the cost overruns, they're not related to satellite business, correct? In terms of the record contract or the manufacturing of the new carbon fiber satellites, is that right?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [22]

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That's correct. Yes, that's correct. It's new sectors that we're innovating around with regard to areas such as cable industry and that. So it's a net new project for us. Net new innovations, I would say for us.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [23]

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Okay. And so in terms of the cost overruns themselves related to the test of that product, is that being booked in gross margin or cost of goods sold? Is that against an order? Or is this capitalized R&D? How does it flow through? Where do we see the costs?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [24]

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Mainly funded customer project. So these are costs that we're incurring at towards the end of the project to bring it to completion. So we're booking against cost of sales.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [25]

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Okay. And how long do you expect that to run through? Is that a 1-quarter thing or a 3-quarter thing? How should we think about the timing of this drag?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [26]

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Yes, I think the project is going to end by the end of -- probably the end of this fiscal year, maybe early next fiscal year. I mean I don't think we'll have -- we're hoping not to have the same kind of impact in Q4. So we're hoping this was kind of a larger increase, just to get us over the hump to the end, but obviously, we're managing that project pretty closely.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [27]

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Okay. That's helpful. And I think, Patrick, you mentioned -- I don't know if I got confused, but you mentioned an earnout related to Secure Tech. Is that the $771,000 onetime OpEx hit that you guys had in the quarter? Or are they 2 separate things?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [28]

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No. So the $650,000, I think you see it below the line is a gain. Yes, so that was the secured debt. So it's about $800,000 that we owe. So we release that kind of liability and adjusted the intangible $550,000, so that was the net $650,000 gain.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [29]

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And I think for me, Deepak, I think as I explained on our revenue front, with the way we structure our acquisitions, I wanted to reassure shareholders what we do is based on earnouts. We're not an all-cash payee company for acquisitions. We do structure earnouts and put very aggressive targets in there and also when you don't make 75%, there's no earnout paid. So that's a onetime thing. That being said, I'm very pleased with the Secure Tech and all the things that are happening, and I'm confident in year 2, that they're on track to make numbers. But I just -- I think it shows the maturity of our M&A model that we actually have built in protection to make sure that if there's any issues with earnout achievement that we -- we're not overpaying for these acquisitions.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [30]

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Okay. That makes sense. I mean, these are minor things. So the $700,000 -- $771,000 onetime OpEx hit, was that related to Secure Tech? And are there more like onetimers that we should expect in the near term or?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [31]

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The $771,000 might be -- I think those are the legal costs relating to SatService year-to-date on SED. Yes, I think that's what it was. We recognized about $600,000 of it last quarter and then about $100,000-or-so this quarter. So that's about $700,000 year-to-date. Obviously, it was our first international acquisition so -- and the language in earning made it more expensive. But obviously, we're refining that model as we do more deals that I think it won't be the same level of spending.

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Deepak Kaushal, GMP Securities L.P., Research Division - Director and Technology & Communications Analyst [32]

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Okay, that's helpful. And just more of a bigger picture question, Kevin, on the health care side, particularly on the clinic side, great work on MFDN. I'm just trying to think of how else you might leverage your coast-to-coast clinic network beyond government and beyond things like the Military Family Network. I know in the past, you guys have done some stuff in terms of occupational health care. Is there anything on the technology side? Or how else can you leverage this coast-to-coast footprint to kind of add more value to that stack clinic business?

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [33]

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Yes, so for me, it's healthy. We've gone from having a health care contract years ago to having a health care business. And the fundamental asset that we have, I think, is still one of the largest national networks and medical practitioners in Canada. There's only one contract in Canada to support the military, and we have it. It's 32 bases, it's 60 different categories of health care practitioners, and we've had to service that now for over 15 years. So from my viewpoint, you tie that in there with the National Health Clinic Network that we work with the Loblaws on. I would say that what we're seeing is, we've gone from one contract now to almost over 50 contracts in health care. And that was just fundamentally changing our thought process around that health care contract.

So we continue to look for opportunities at the national level. I use that word purposely because I think our opportunity to be as one of the largest national health care companies in Canada because we've demonstrated our ability to work in each province to manage each of the complexities regarding working in each province as well as being able to find those tough to find resources in very difficult locations. So we are continuing to look at it, Deepak, I appreciate that sentiment.

The other piece of -- when I think about our health tech or health business is, frankly, we can only grow that business based on the amount of available resources today. So we are looking very hard at health tech and doing a lot of market research right now on what would be a next-level evolution for Calian to integrate some health technology into our delivery. We've talked about our investment in Cliniconex in the past, it's a start-up out of Ottawa, that's automating the patient interface to the clinics. But we continue to look for those opportunities that will help us scale what we do here in Canada, but also give us opportunity to start looking at the U.S. marketplace and global marketplace and health care. So lots of moving parts there, but believe me, we're pretty excited about that national footprint, even in Canada and where we can go with it. And I think just as a testament, as I said, one contract has grown to almost 50 contracts now, and I think we're just getting started.

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Operator [34]

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(Operator Instructions) We'll take our next question from [Jeremy Coleman].

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Unidentified Participant, [35]

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Should I be concerned about the quality of the balance sheet. If you look at the asset side, in the noncurrent assets, there is approximately $55 million worth of soft assets, basically intangible assets. And the other thing is looking at the liability side, you've got $12 million line of credit. I've been an investor in Calian for almost 2 decades. And I don't recall ever seeing any debt at a quarter end, such as I see now of $12 million. So should I be concerned about the quality of your balance sheet? How would it compare with comparable companies, have you had a chance to look at that, that's basically my question.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [36]

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Okay. Thanks, Jeremy. I'll let Patrick answer it.

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [37]

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Yes. I mean I think our balance sheet has evolved really over the last couple of years, as we've gotten into much more acquisitive in terms of looking for companies that help us grow. So that's led to the intangibles and goodwill increasing. But we think we've been buying excellent companies at good prices that have excellent return for the company. So I think those are good -- the line of credit, again, very inexpensive form of financing that we have. We use it to support those acquisitions and working capital, but we feel we're in a position with our free cash flow to repay that very quickly. So I think you'll see it move up and down.

But from a stability to the balance sheet, I think our balance sheet is very strong, and certainly, one of our attributes when we speak to customers, and it resonates with them in terms of our balance sheet and in our consistent results that we've posted over 70-plus consecutive quarters and continued growth.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [38]

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Okay. Thanks, Jeremy. And then from my perspective, Jeremy, the -- when I took over as CEO, I'm very cognizant of the -- into the -- as you said, the history of Calian, and the no debt posture and as CEO, as I look at our growth agenda and the opportunities we have in each of the segments, we initially had a $10 million line of credit years ago that we -- as to your point, we haven't used. We have increased that to $40 million, just to give us some flex and moving in and out, primarily around the working capital requirements for our big -- bigger programs and also the M&A agenda. So it is a bit of a different -- I wouldn't say it's a conscious decision, I guess, is my point, Jeremy, on our posture and not limiting our growth aspects by cash on hand. And again, we're going to continue to manage that prudently. So that we're not over leveraging the company in any way. Okay. Dory, is there any other additional questions?

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Operator [39]

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Our next question comes from Chris Martino.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [40]

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Just wondering if maybe you could provide a rough estimate around how much SatService, IntraGrain contributed in terms of sales in the quarter?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [41]

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They're kind of $5 million to $10 million combined range.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [42]

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$5 million to $10 million combined. Okay. Okay. And then with respect to cash flow, can you guide or provide some color into what sort of investment we could see into WIP and inventory over the next few quarters? Maybe what kind of peak WIP we could expect to see on the balance sheet?

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Patrick Houston, Calian Group Ltd. - CFO & Corporate Secretary [43]

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Yes I think the large transmission project will probably contribute about $10 million additional working capital next year at its peak. So probably around Q2 and then start ramping back down. So I think that one's for sure on our radar. And then the rest of WIP I think right now, is kind of the level it's at. And then it will go up based -- as just our overall business goes up. As Kevin mentioned, we're still pretty optimistic about our growth, so actually it will kind of follow-up but kind of the level other than that $10 million it will continue.

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Operator [44]

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And it appears there are no further questions in the queue at this time. Mr. Ford, I'd like to turn the conference back to you for any additional or closing remarks.

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Kevin Ford, Calian Group Ltd. - President, CEO & Director [45]

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Okay. Well, thank you, Dory. And I want to thank you, everyone, for participating in the call. And I appreciate the questions. We're very optimistic sort of where Calian is going. And I think we're on the right track across each of our segments of our business. So we look forward to talking about our full year results and our guidance for our next fiscal year in November. And, of course, any other questions or any other thoughts please do not hesitate to reach out, if we can help as people digest our quarterly results or have any other further questions. So with that, Dory, we can close out the call. And again, thank everyone for the time and enjoy the rest of the day.

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Operator [46]

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And this will conclude today's call. Thank you so much for your participation. You may now disconnect.