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Edited Transcript of MSI.TO earnings conference call or presentation 8-May-20 1:00pm GMT

Q1 2020 Morneau Shepell Inc Earnings Call

TORONTO May 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Morneau Shepell Inc earnings conference call or presentation Friday, May 8, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Grier Barrett Colter

Morneau Shepell Inc. - CFO & Executive VP

* Stephen Liptrap

Morneau Shepell Inc. - President, CEO & Director

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Conference Call Participants

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* Graham Ryding

TD Securities Equity Research - Research Analyst of Financial Services

* Jaeme Gloyn

National Bank Financial, Inc., Research Division - Analyst

* Nikolaus Priebe

* Stephanie Doris Price

CIBC Capital Markets, Research Division - Director of Institutional Equity Research and Software & Business Services Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Welcome to the First Quarter 2020 Conference Call for Morneau Shepell Inc.

Please note that this conference call will contain forward-looking statements, which reflect management's current beliefs and expectations regarding the corporation's future growth and results of operations. Actual results can differ materially from those anticipated.

I would now like to turn the meeting over to Mr. Stephen Liptrap, President and Chief Executive Officer of Morneau Shepell Inc. Please go ahead, Mr. Liptrap.

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [2]

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Thank you, Alanna. Good morning. And thank you for joining us today. On the call with me today is Grier Colter, our Chief Financial Officer.

Yesterday, after markets closed, we released Morneau Shepell's financial results for the first quarter of 2020. Like always, you can access the news release, financial statements and our MD&A on our website at morneaushepell.com.

Later this morning, as you know, we're holding our annual shareholder meeting starting at 11:00 a.m. Eastern Time. The shareholder meeting is being held virtually because of measures designed to limit the spread of COVID-19. At that time, we'll be reporting on how the company performed in 2019, and then turn to our strategy going forward as a power brand in employee well-being.

So for those of you not dialing into the annual meeting, in the next few minutes, I will briefly talk to our strategy after reviewing our first quarter highlights. Grier will then cover our financials for the quarter. And then as usual, we will open the call for questions.

As we noted in our earnings release, we are pleased by our start to the year, especially given the economic shutdown that started in March related to COVID-19. As Grier will cover, our results were in line with our expectations coming into the year. We are especially pleased by how our people came together early in the crisis to rapidly activate our business continuity pandemic plan. By quarter end, almost 100% of our employees were working remotely with all of our business metrics and systems operating at pre-pandemic levels.

The economic shutdown affected some aspects of our business where services provided in person stopped immediately. For example, in-person training, children support solutions, ad hoc pension consulting and some on-site pension administration work. At the same time, other areas expanded rapidly, such as adding lives to our Employee and Family Assistance Programs, or EFAP, for some clients to cover new employees and our digital iCBT solutions.

With our vast number of clients and end users, our data shows another view of the impact of COVID-19. For example, we have seen a tenfold increase in the use of Internet-based cognitive behavioral therapy, our AbilitiCBT solutions, with a particular focus on anxiety. Disability cases have doubled. Sadly, we have seen a 30% increase in suicide risk as well as the dramatic increase in calls relating to domestic abuse. There has been a 21% increase in financial stress. And more than a quarter, 28% of all calls are related to COVID-19.

To support changing needs, we quickly launched new products to help our employees and society. These included new version of our AbilitiCBT solution that we have targeted to mental health issues related to COVID-19. As well, we bumped up our retirement solutions approach by targeting clients, who are concerned about pension planning scenarios, which is more pressing with the market volatility we will be living for a while yet.

I thought I'd take a moment to share a few client-specific examples of our rapid response to the new needs in the market related to COVID-19. In March, the province of Manitoba selected us to provide our AbilitiCBT program to all residents in Manitoba over the age of 16, who are struggling with anxiety caused by COVID-19 pandemic. Just this week, the province of Ontario announced it is also providing our iCBT service to Ontarians over the age of 16.

A Fortune 100 construction equipment manufacturer doubled the number of employees covered under their Employee Assistance Program on the LifeWorks platform, making our EFAP the first global benefit available to all their employees.

One of our large energy sector EFAP clients based in Alberta, who traditionally offered a stand-alone EFAP to employees in the United States and Canada, recently upgraded to the LifeWorks platform and decided to also extend this benefit to their employees throughout the Caribbean, significantly increasing the number of lives covered to over 22 countries in the region.

By way of note, the number of employees on our cloud-based LifeWorks platform increased from 2.2 million to 2.8 million. We received really good feedback on the use of the solution to deal with social isolation in a work-from-home world.

Finally, one of our larger clients in Ontario, responsible for administering the pension plan of the Province's health care workers, told us that our ability to get our business continuity plan operational so quickly played a key role in getting theirs up and running, with close to 100% of their staff working from home on our systems.

Another notable development was our launch of our monthly Mental Health Index in April. The index tracks a wide range of factors about our state of mental health and well-being in Canada, the United States, the United Kingdom and Australia. We anticipate the index will become a global benchmark for mental health as the authoritative voice on a macro socioeconomic issues, much like the consumer price index or the ADP Jobs Report.

As a company that takes its community responsibility seriously, we are pleased to launch WellCan, a unique initiative of leading Canadian businesses and organizations to support Canadians through this unprecedented crisis. The WellCan website and mobile app offers every Canadian access to a broad range of free resources to support their mental health and well-being.

More than 50 leading partners, community and corporate, have come together to support this initiative by ensuring the message of support makes its way to all Canadians. We are hopeful WellCan will make a difference in the lives of Canadians, who otherwise might have fallen through the cracks.

While there are unknowns about the economy, we have confidence in our resilience as a business today and tomorrow. At this point in the year, despite COVID-19, our businesses are performing solidly, and our sales funnel continues to be strong. Arguably, our technology-enabled HR solutions have never been more relevant in today's workplace. Organizations everywhere today are struggling to support the well-being of their people and their mental health.

Moving forward, we are focused on 3 growth strategies to be the clear leader in our businesses: to own the well-being space, to accelerate growth through U.S. and global expansion and to drive world-class delivery through people and technology.

On that note, Grier Colter will review the financials.

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [3]

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Thanks, Stephen, and good morning, everyone. For the reasons Stephen mentioned, it was a solid quarter financially and in line with management's expectations.

We delivered strong revenue growth of $38.4 million (sic) [$38.3 million] to $243 million, an 18.7% increase over last year. The growth is primarily due to revenue from the Mercer acquisition, net of the divestiture of our benefits consulting business with strong organic growth in the U.S. Overall organic growth for the quarter was about 2% and slightly under our expectations.

Adjusted EBITDA increased by 5.8% to $47.3 million versus $44.7 million last year. That was also primarily due to the Mercer acquisition. Our adjusted EBITDA margin was 19.5% versus 21.8% last year. This margin percentage is in line with what we have experienced since the Mercer acquisition and in line with our expectations, which reflects the sale of the health benefit consulting business, which was higher margin. Adjusted EBITDA per share of $0.68 is consistent with the same period in the prior year. We generated higher EBITDA, but had a higher share count due to the conversion of the convertible debentures.

Profit for the period was $38.9 million compared to $8.7 million last year. The increase is mainly due to the gain on the disposition of our benefits consulting business to Hub International for $70 million. And earnings per share for Q1 was $0.56 compared to $0.13 per share on Q1 2019 as a result.

Normalized free cash flow for the period was $27.4 million compared to $24 million in Q1 2019 after adjusting for CapEx related to the Mercer integration. Subsequent to quarter end, the company entered into an amended credit facility agreement. We obtained an incremental $100 million of committed capacity for 1 year and improved our debt-to-EBITDA financial covenant to remain at 4:1 until maturity of the credit agreement. We proactively drew down our credit facility at the beginning of the COVID-19 crisis to give us time to assess various scenarios and increase the size of our facility and improve covenants. Accordingly, it was fully drawn at quarter end, and we have since repaid the excess amounts down.

Overall, it's a strong quarter in view of the economic shutdown that occurred beginning in early March, and we are very pleased with the quarter. Thank you, and I'll hand it back to Stephen.

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [4]

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Thanks a lot, Grier. I'd like to thank everyone on the call for your time so far today. We'd be pleased to now answer your questions. Alanna, please go ahead and open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Nik Priebe with BMO Capital Markets.

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Nikolaus Priebe, [2]

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Just want to start with the question on the organic growth in the quarter. I think, Grier, in your comments, you alluded to it being approximately 2%. It sounds like it was a little bit stronger in the U.S. than Canada. Was there any business line or geography that really stood out to you as significantly above or below average in terms of year-over-year organic growth?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [3]

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Yes, Stephen here. I'll start, and then Grier might want to weigh in. I think the easiest way to think about this is we had very strong organic growth in the U.S. We're obviously much lower than that in Canada. And that really was related to a lot of the services that stopped immediately would have all been in Canada. So when you think about consultants and retirement solutions going on-site and providing some of those services, you think about our children support solutions, you think about our in-person training, all of those services take place in Canada, whereas the growth areas that we've been focused in, in the U.S. is more per employee per month in those type of growth areas.

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Nikolaus Priebe, [4]

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Okay. Okay, very good. And then wondering if we could ask for a little bit of color. There was some language in your disclosure on new ERP system implementation. I was just wondering if I could ask, is there a planned budget for that project? And how long would we expect to see those expenses be a little bit elevated here?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [5]

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Nik, it's Grier. So this is a workday implementation. And the combination of our fees to workday and consultants that will help us implement it, in total, it will be about $20 million. This will take us -- we're originally kind of thinking 18 months. We're still pushing forward with that plan, but I think we need to be realistic that may be kind of 18 to 24 months, and we'll try to keep it to 18. So total $20 million, think of it spread over 2020 and 2021. And 50% of that spend, we think, will be CapEx and 50% of it will be OpEx. So I think when you look at the amounts going through the P&L on adjusted, they will be anywhere between $1 million and $1.5 million per quarter.

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Nikolaus Priebe, [6]

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Okay. Got it. Got it. That's helpful. And then one final one for me before I pass the line. There were some further integration costs and a little bit of elevated CapEx associated with the Mercer integration that was recognized in the quarter. When would you expect those expenses start to taper off? Like is there still some investment that you think would be required for the balance of the year?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [7]

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Yes. So if I look at the 2, on the LifeWorks side, we would expect these will be coming to an end. Really, the last couple of things are just coordinating some day-to-day operating systems that was always part of the plan, and we should see that kind of come to an end at the end of Q2. Mercer will continue throughout the year, but I'd say it's heavier on the front end, and it's really just taking that business and you're removing it from the larger organization and getting it up and running. But again, it will continue through the year, but it'll be heavier in the front end.

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Operator [8]

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The next question is from Stephanie Price with CIBC.

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Stephanie Doris Price, CIBC Capital Markets, Research Division - Director of Institutional Equity Research and Software & Business Services Research Analyst [9]

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Just following on the last question around CapEx. Just wondering how you're thinking more broadly about CapEx investments in the current environment? Is there any plans to reduce any CapEx? And maybe related how the enhanced well-being platform rollout is progressing and whether it's still on track, just given the COVID impact in the quarter potentially?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [10]

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Yes. Stephanie, it's Grier. Maybe I'll start with the first part of that and then pass it over to Stephen. So our view has been we're fully operational. We're continuing to pay our suppliers on time. We're continuing to pay our people in full. We've made no cuts on that front. And we're continuing to invest in CapEx as planned for the future. So we've made no change to our CapEx plan. And we continue to go full on those investments for the future. Maybe I'll pass over to Stephen for the second part of that.

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [11]

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Yes. When we think about the well-being platform, Stephanie, we're quite pleased that in the quarter, on transitioning people over to the core platform, we moved from the end of last quarter where we had about 2.2 million sitting on the core platform up to 2.8 million end participants. We are tending to see about 10% of that number sitting on the total well-being platform. We've pivoted a little bit in the quarter where we are -- rather than selling the total well-being platform, we're allowing organizations to pick up different modules. And we'll charge differently for those modules. For example, a lot of organizations are very interested in the recognition module related to people being at home and feeling social isolation and things like that. So it continues to move forward. And I can tell you for our own employees, it has been an absolute wonderful tool to be able to communicate during the crisis and kept people engaged in feeling part of a community.

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Stephanie Doris Price, CIBC Capital Markets, Research Division - Director of Institutional Equity Research and Software & Business Services Research Analyst [12]

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Great. And then thanks for the color as well on the client conversations and on the different business lines that you saw in the quarter. Just wondering if you've seen any change in client conversations in April and how clients are kind of thinking about the environment here? And whether some business lines are seeing what the puts and takes between the business lines have been?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [13]

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Yes. I think a couple of things are interesting as I think about it. So I would describe March hitting and a number of things, as I mentioned, stopping immediately. Again, you think about the in-person training, think about the children support, you think about our actuaries who were going on-site about to do -- meet with companies and create plans around how to look at pension plans and you think about some of the pension administration work. And literally, overnight, all those things stopped. I think our folks got really creative and said there are a lot of suicidal issues starting to hit. We need to figure out how we deal with employees facing stress and anxiety relating to the pandemic, which is why we launched the iCBT solution for anxiety. Provinces and different governments are figuring out how to help end consumers and people in society, which is why Manitoba was so early around our solution. And Ontario has since followed, and there's a lot of other conversations going on.

And then on the other side, not all, but a number of our pension administration clients got up and running in April and said, "Hey, this working remotely thing works, and we should be able to continue to do the development."

In our Retirement Solutions business, we had a number of clients say, "Okay, we know we stopped talking to folks on immediately consulting in March. However, we are seeing a lot of market volatility. That's got a lot of impacts to our pension plan. Let's set up an arrangement on a remote basis." So I would say March, a whole bunch of things stopped. We got creative, created some new stuff. April, we're seeing people getting back to normal in terms of how they're working.

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Operator [14]

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The next question is from Jaeme Gloyn with National Bank Financial.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [15]

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I wanted to just follow up on that last conversation around the organic growth. Is there -- given that this was just 1 month and we're seeing larger shutdowns, and it sounds like some of it is coming back online, is there any risk that there's enough of a headwind here that would drag organic growth either flat or negative? Or are there enough other offsets coming in the pipe from that shifting and pivoting of client demands?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [16]

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Yes. It's a really good question, Jaeme, and one that we're very close to. And as you can imagine, we spent time on our business metrics every single week, and we look at those things.

I will start by saying over the long term, we don't see a change to mid single-digit growth in Canada and slightly higher than that in the U.S. and global. We -- our U.S. organic growth was very strong in the first quarter and in line with what we've seen before, which is really good. As I mentioned, the things that slowed down or stopped in March for us, I think, will come back to some extent. There probably will be less in-person trading. But we're -- we've ramped up, and we're starting to deliver more virtual training.

Admin solutions, we will do a number of projects remotely. Will there be 1 or 2 that may be slow down? Highly possible. On the other side, though, we're very excited about rolling out iCBT to Manitoba, rolling out iCBT to Ontario and a number of other conversations. So at this point in time and where we stand, I put all of those together and say it's probably consistent with what we were expecting as we move into the year.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [17]

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Okay. In terms of the growth strategies to own well-being, to grow in the U.S., I mean, these have been in place for a couple of years now, it seems like. And I'm wondering if anything related to the COVID crisis here has changed how you're thinking about that medium-term, long-term growth strategy, either to pull back on a strategy or to amplify another one?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [18]

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Yes. If anything, to me, it just really reinforces our strategy. When you think about our strategy around owning total well-being and you get into either a financial crisis or a pandemic, and you just look at what happens to people's well-being and how that impacts the productivity, you think about mental health, you think about financial health. When we rolled out the Mental Health Index, people saw a 21% decrease in their financial health related to a lot of worry, obviously, about jobs and things like that. So I think our strategy around focusing on total well-being makes tremendous sense.

Second part of our strategy due to our significant market share in Canada is really broadening that footprint. And I think that has panned out very well for us as well. As you could see, we had very strong growth in the U.S. in the quarter and very strong organic growth, particularly in the U.S. And those numbers globally are very similar as well. So I think there's just an opportunity to continue to drive those strategies around the world.

And the third part of our strategy is leveraging our people and technology. And that has worked out well internally where we were within a week, being able to move 95% people to home within a week. And today, we're close to 100%. So that's the internal part.

And then for clients, just the fact that we're able to deliver our administration platform and to hear back from clients that they would not be able to be up and running without that platform or that we're able to develop and roll out well-being solutions so that people are able to talk to their employees and engage them, no matter where they are. You can take a look on Glassdoor, but one of our employees posted a Glassdoor posting about the fact that we were able to run a step challenge on the well-being platform and the fact that they were able to feel part of a community even though they were isolating at home. So if anything, I think it just reinforces our strategy and gives us an opportunity to really continue to push that.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [19]

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Great. As I think about other -- well, financial institutions specifically providing relief measures to their customers, whether it's deferred mortgage payments or rebates on certain policies and services, is Morneau offering any similar type of relief to their customers? And what are you hearing from your customers in terms of their struggles and how they're managing through this COVID crisis? And any potential impacts of that flowing through in the second quarter or beyond?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [20]

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Yes. Let me start. Jaeme, it's Stephen here, and then I'll pass it over to Grier. In terms of doing something for society, because we think that's really important to us and doing something for our clients, it really is why we chose at this point in time to launch the Mental Health Index and the fact that we decided to do that in Canada, the U.S., U.K. and Australia. And it was about giving data to organization, society and government so that we're able to -- so that we can understand what's happening in society and we can make good policy decisions going forward.

The second part of that was launching WellCan. And when you think about a free mental health hub for every single person in Canada to go to so that no one slips through the cracks, and they get the need and the support they need. Our team spent a number of hours over basically a weekend and a bit, putting all our development resources and making that happen because we just thought that was really important. And you'll see some other things roll out in other geographies. So that really is how we've decided to come back and give back to society in the middle of us running the business. And I know Grier will talk a little bit to your question specifically on clients.

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [21]

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Yes. So Jaeme, what I would say is a couple of things. Firstly, you're looking at the client base itself, the vast majority are either what I would call investment-grade or government-type clients, right? So the sensitivity to -- well, relaxing terms is a little bit different. They've got different ways to manage and not have Morneau Shepell be their bank.

I'd say the second thing, we've made it very clear in our organization, we're up and running. We're serving our clients. Not all businesses are fortunate enough to be in that place, but we're able to help out in a time of need. And with that, again, we're paying our people, we're paying our suppliers and we're continuing to invest in CapEx. And the other side of that is whether we leave it. We had a clear directive here that we expect our customers to pay. We're obviously watching it very closely. And just because you'd tell your customers, they need to pay. I mean we need to watch the credit side of this. And we've seen no degradation in that regard, and we'll continue to watch it very closely. But it's a great question. I can tell you, it's something that we discussed here quite a lot, but I think we're just fortunate to be in a position here where we are up and running, and we're very relevant in today's world. And as a result, I think our customers are more willing to pay for the products.

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Operator [22]

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(Operator Instructions) The next question is from Graham Ryding.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [23]

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And just can you speak to, historically, you've had some seasonality in your EBITDA margins with beginning of the year being stronger than the second half? Is that not the case anymore now with Mercer in the mix? Or can you give us some color on what you expect in terms of the evolution of your margins this year? And are you still committed to your previous guidance of now just below 20.5% for 2020?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [24]

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Yes. Graham, it's Grier. I'll start. The -- so we were kind of -- originally, if you go back a couple of quarters, we are kind of thinking that the margins will be pretty similar from year-to-year. And so we were thinking that would be -- originally, we were saying kind of 20.5%. And then we announced the Hub divestiture -- the divestiture of the Hub. And so that was a pretty high-margin business. And what we are, I guess, trying to get across on the last call is that this would probably be a better part of the 0.5 point. So if you think of what the full year would look like for 2020, think about it as a 20% number, give or take. It's very close to that. And then what we were saying is there would probably be some increase through the year to get to that. Because if you think about after Mercer, we are kind of running pretty consistently around 19.5%. Last quarter was 19.4%. This quarter, we were 19.5%. So actually right where we thought we would be and also considering where we're facing a little bit of headwind in the last month of this quarter with the divestiture of the health benefit consulting business. And so ultimately, what you'll see, I think, is something quite different than prior years. Certainly, if you look at last year, the margins were really high in the first 2 quarters. I was guessing it was before we had Mercer. So this year looked quite different. This year, expect the first part of the year being very similar to the last 2 quarters of last year. And then we'll gradually increase it as we execute on some of our initiatives. And overall, for the total year, it will be around 20%. I don't know if Stephen has anything to add to that.

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [25]

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No, I think that's exactly right. I think we were expecting the beginning of this year to be similar to last year. And you got to remember, that's actually a slight improvement because of the pickup on the Hub -- the divestiture to Hub. And then we've got a number of projects we're moving through the year. That could potentially be some offshoring or it could be some technology, and that will drive improvements as we move through the year. So I think Grier is exactly right.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [26]

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Okay. Got it. Now '20 is lower than the 20.5%. Is that all related to Mercer? Or are there some other expenses that are bringing that down to 20%?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [27]

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Yes. The way I look at it, Graham, is the difference between 20.5% and 20% is really the -- this divestiture to Hub.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [28]

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Yes. Sorry, that's what I meant. Sorry, the divestiture.

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [29]

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Yes. So yes, that's what that is.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [30]

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Okay. Good. And then on the debt side, I missed your comments. You obviously chose to increase the facility this quarter, and then the money was just sitting in cash and then you've repaid it. Can you tell us why you're doing that?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [31]

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Yes, for sure. So when we looked at what was going on in mid -- in early to mid-March with COVID and just trying to get our heads around it, I think we really kind of paused and just thought, let's draw and do some work here. I think it allowed us to do 3 things: perform a bunch of scenario analysis, just looking at various things in terms of credit and what would happen in the different businesses because they all kind of have different levers and play around with that and have a look at what all the impacts were, which takes time, as you know. It also gave us some time to watch the bank markets and overall capital markets absorb this information, which, as you know, was -- it was moving all over the place. And I think for us, we just thought, let's draw this amount. Let's see what happens. I mean there are some crazy scenarios. I think they were flowing around in people's heads at the time. And so that was the second reason. And then when we went through that, we figured it was just wise at the time to be in the -- we're in a good position to -- and we've got a very strong and supportive bank group to ask for another $100 million in capacity, not that we needed it, but it was a good time to do that. And then our debt-to-EBITDA covenant, I'm not sure how familiar you are, but it's been running at 4:1. But on the anniversary date of a material acquisition, it screws in by 0.5 turn on us. It did. So we corrected that and just said, so it's now a 4:1. There is no modification related to acquisitions. It's just 4:1. And so it will stay at that level. So that's why we did it. We drew it. We looked at those 3 things. I think you look at where we are now. We've got those changes in the facility in place. We have performed all the scenario analysis, and we've got a much better idea of what we think all the puts and takes are. And I think it's fair to say that there is more normalcy in the bank and overall capital markets. And accordingly, we have now repaid those amounts. As you know, it's a revolving credit facility, so we can always redraw on its committed capital, but that's the story, Graham.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [32]

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Okay. Okay. That's understandable. It was a fluid moment in time for sure. And how about just on the free cash flow side. It sounds like you're committed to CapEx spend for the year. The payout ratio is quite elevated relative to your free cash flow. Is that -- are you comfortable there? And do you expect it to sort of remain at this elevated level?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [33]

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So yes, I would say that we -- so we are committed to capital. We're going to continue to invest in the company's future. There's a bunch of initiatives that we have that they don't materialize. So we need to make these investments to make sure that we're in a good place for 2021 and 2022 and so on. We'll continue to do that. I will say this, CapEx and results were right in line with what we thought they would be for the first quarter. So we're very pleased about that. I mean, there were some puts and takes. Organic growth, as we mentioned, was a little bit lower than where we thought. But overall, our rate in line payout ratio is exactly where we thought we would be. The CapEx, a little heavy on the front end, though, as I said, right? So on the Mercer side, we'll see that kind of tail off, some of these kind of onetime expenses and CapEx, which has some impact on the payout ratio as well. So it will improve a little bit, but I'll say this is right in line with where we thought we would be.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [34]

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Okay. So can you remind me what your CapEx outlook is for the year?

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Grier Barrett Colter, Morneau Shepell Inc. - CFO & Executive VP [35]

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Total, it's $65 million for the year.

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Operator [36]

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And the next question is from Jaeme Gloyn with National Bank Financial.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [37]

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I actually just wanted to come back on the U.S. growth, as you mentioned, really solid this quarter. Can you give us a little bit more in terms of how you're seeing that growth here early in April? Has there been any adjustments from the -- in terms of the pipeline in the funnel? And maybe a little bit more color around which business lines were driving growth in Q1? And where you're seeing that in Q2 progress?

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [38]

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Yes, Jaeme, it's Stephen. I think all 3 business lines that are in the U.S. saw very nice growth in the U.S. So I'll give you a little bit of color behind that. Our health and productivity business continue to see growth. You -- I would have commented about the increase in disability cases. And you think about people being off and needing to have tools to manage which of their employees are working and which are off. So we saw good growth in our disability management business in the U.S., which we have under health and productivity.

In the LifeWorks business, we saw a number of large U.S. clients. What I would describe there is maybe a little bit less around adding new clients and a little bit more around adding lives to current clients in March. And then April, a little pick up on some new clients. But LifeWorks had a very solid quarter in the U.S., and we see that continuing into April.

And our admin business, Grier talked a little bit about we're a bit disappointed on the organic side in total, not the U.S., but we are very pleased with the Mercer acquisition. So that actually delivered in excess of what we were expecting. So I know we don't count that as organic, but the team has done a really nice job on driving some additional business to help our clients. So we're really happy about all 3 of those businesses within the U.S. And again, it's -- I know we're just through April. But anecdotally, at least, we continue to have good conversations with clients. Our pipeline continues to be strong. But I do expect, if this thing drag down for a long period of time, there'd probably be less RFPs and a little bit less on the sales standpoint, but we've not seen that yet.

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Operator [39]

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There are no further questions registered at this time. So I would like to turn the meeting back over to Mr. Liptrap.

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Stephen Liptrap, Morneau Shepell Inc. - President, CEO & Director [40]

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Thank you very much, Alanna. I'd like to end by expressing my thanks to everybody on the call. We continue to appreciate your interest in our company. And we look forward to other opportunities in the future, including these calls at our annual shareholder meeting to keep you up to date on what we're doing to drive our growth and success as a business. Thank you.

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Operator [41]

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Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.