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Edited Transcript of PEO.V earnings conference call or presentation 15-Jul-19 12:30pm GMT

Q3 2019 People Corp Earnings Call

WINNIPEG Jan 8, 2020 (Thomson StreetEvents) -- Edited Transcript of People Corp earnings conference call or presentation Monday, July 15, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dennis D. Stewner

People Corporation - CFO & COO

* Laurie Marc Goldberg

People Corporation - Executive Chairman & CEO

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Conference Call Participants

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* Christopher Martino

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

* Gary Ho

Desjardins Securities Inc., Research Division - Analyst

* Jaeme Gloyn

National Bank Financial, Inc., Research Division - Analyst

* Meny Grauman

Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research

* Scott Chan

Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst

* Stephanie Doris Price

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

* Jonathan Ross

Loderock Advisors - Principal

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the People Corporation Third Quarter 2019 Earnings Conference Call. (Operator Instructions) This call is being recorded on Monday, July 15, 2019.

I would now like to turn the conference over to Jonathan Ross. Please go ahead.

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Jonathan Ross, Loderock Advisors - Principal [2]

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Thanks, Jessica. Good morning, everyone, and thanks for joining us today. People Corporation's third quarter 2019 financial results were released this morning. The press release, financial statements and MD&A are available on SEDAR as well as on the People Corporation website at peoplecorporation.com.

Before I pass the call over to management, we would like to remind listeners that portions of today's discussion include forward-looking statements. There can be no assurance that these statements will prove to be accurate or the management's expectations or estimates of future development, circumstances and results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events. Risk factors that could affect results are detailed in the company's annual information form, and other public filings that are made available on SEDAR, and we encourage listeners to read those statements in conjunction with today's call. Forward-looking statements made during this conference call are made as of the date of this call. People Corporation disclaims any intention or obligation to update or revise such information, except as required by applicable law, and People Corporation does not assume any liability for disclosure relating to any company mentioned during this call.

People Corporation's financial statements are presented in Canadian dollars, and the results discussed during this call are in Canadian dollars. I'm joined on the call today by Laurie Goldberg, Executive Chairman and Chief Executive Officer of People Corporation; and Dennis Stewner, Chief Financial Officer and Chief Operating Officer.

I will now pass the call over to Laurie.

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [3]

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Thanks, Jon. Good morning, everybody, and thank you for joining our Q3 2019 results conference call. People Corporation continued to make significant strategic and financial progress during the third quarter. We generated 27.6% revenue growth compared to the third quarter of 2018. This growth includes organic revenue growth of 9.8% and the impact of 6 acquisitions made in the past year. Consistent with Q1 and Q2, EBITDA grew faster than revenue with year-over-year EBITDA growing 29%. The growth in revenue and EBITDA relative to Q3 of 2018 continues to reflect the success of our efforts to scale the business, which includes winning new clients, enhancements to our product suite, optimizing customer service and sales efforts and the success of acquisition and integration activities.

Since we last spoke with you on our Q2 call, we've continued to make meaningful progress against our 4 key focus areas. As a reminder, those 4 key focus areas are: sales and service; products; strategic acquisitions; and integration. I'll touch on the first 3 and Dennis will discuss our ongoing integration initiatives.

For sales and service, we remain very pleased with the level of organic growth generated in Q3, which remains at the high end of our 5% to 10% longer-term expectation. The 9.8% organic growth, we generated in Q3, was a direct result of the efforts of our business development team to win new clients as well as our team's success in deepening our product and service penetration with existing clients. During the quarter, the investments made in our regional sales model continued to pay off. In Q3, our sales teams gained exposure to more and larger client opportunities and our investments in talent have helped us improve our win rates. People Corporation now has sales support teams based in Alberta, Manitoba, Ontario and Québec, providing end market expertise across the country. We are just beginning to leverage these teams and expect further progress as we continue to add talent.

We made solid progress in all key market segments during Q3, and with strength in the small group market coming specifically for the Sirius product, where we continue to see double-digit wins every month. We also generated several nice wins in both the mid and enterprise markets.

While organic growth in the quarter was strong, as I often do, I would also remind you that we typically realize the highest rates of organic growth in the second year after an acquisition. The organic growth rates depend on the level of acquisitions we make in preceding years. Our pipeline is still full. However, as our long-term shareholders can attest, we are very prudent acquirers and our organic growth rates will fluctuate quarter-to-quarter based on the puts and takes of acquisition activity in the preceding year and the timing of large contract wins and renewals. We have just begun to scratch the surface relative to our mid- to long-term plan and expect to maintain this focus over the next several years to gain full advantage of our increasing scale.

In the product area, we continue to enhance our offering to clients. On the last call, I mentioned we would be bringing a new wellness product to market in Q3. And in July, we launched a pilot of our People Care program. People Care is a mental health and virtual therapy solution, offering a one-stop site with resources and tools for organizations and their members. The tools include an information library, a diagnostic and statistical manual based mental health assessment, virtual live therapy sessions and psychiatric collaboration. Early feedback has been very positive and we expect to formally launch People Care in the first Q of fiscal 2020. Mental health is an area of substantial growth and represents a significant opportunity for People Corporation as companies look to allocate additional spending to this area.

We are also in the final stages of building our disability management solution, which we're on track to formally launch with a large client in Q1 of 2020. Our disability management solution comprises both occupational and non-occupational disability support for employees. This solution helps employees coordinate their health care needs pointing then to the services that best serve their needs on their journey back to health.

We continue to benefit from the company's market-leading Preferred Provider Network, which offers clients value-added services and preferred pricing at some of Canada's most recognized national retailers. As with Q2, we continue to receive favorable feedback from clients on our HR @ Your Service platform, which provides HR support for small group clients.

Strategic acquisitions continue to be a focus and a key support to our core organic growth strategy. We continue to look for opportunities in the group benefit and group retirement space and are actively exploring prospects in adjacent business lines, which could provide integrated HR solutions for our clients to enable them to attract and retain a productive and engaged workforce. The additional corporate development resources we have added earlier in the year have enabled us to evaluate more opportunities as our pipeline grows.

Prior to passing the call to Dennis, I would like to quickly touch on the public discussion last month at the federal government level in favor of establishing a national pharmacare system. While the implementation of such a system as currently complicated -- as currently contemplated could have an impact on People Corp.'s top line, if we were fully instituted right away, as the government itself estimated the pharmacare system would take up to 9 years to implement. We've done a deep dive on this internally and are very confident that People Corporation will thrive even under the national pharmacare framework implemented exactly as outlined. Our acquisition of Life Benefit Solutions, which closed in Q2 brings our team significant learnings from the First Nations market where the government is already the first payer and provides like -- life benefits -- are focused primarily in offering gap coverage. With the introduction of a national formulary, we would expect private plans to continue to provide gap coverage for drugs, not on the list as well as copayment coverage. We also expect employers would allocate large portions, if not all, of the savings from a national pharmacare program into other benefit avenues for their employees, including mental health, dental, vision and retirement solutions.

In conclusion, I would also point out that this proposed requires legislative approval is not a budget item yet. As such details will likely change as implementation details evolve, and we will continue to update you as facts solidify. But I would like to reiterate that we strongly believe that People Corporation will be able to continue to drive strong growth over the mid and long term even in a national pharmacare environment.

Just before passing the call over to Dennis, I'd like to formally announce that we have appointed Sue Tardi as our new CHRO, who has been with us for a few years in different capacities. And in this role, Sue will be responsible for developing and executing People Corporation's human resource strategy, specifically in the areas of culture, talent management, change management, employee development, employee relations and total rewards. I'm very happy to announce Sue's appointment to this pivotal role.

I'll now pass the call to Dennis.

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Dennis D. Stewner, People Corporation - CFO & COO [4]

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Well, thanks, Laurie, and good morning, everyone. We are very pleased to be sharing our Q3 2019 results this morning. Revenue grew 27.6% this quarter to $42.4 million compared to $33.3 million in the third quarter of 2018. Adjusted EBITDA grew 29% to $9.5 million from $7.4 million in 2018. Adjusted earnings -- EBITDA margin for the quarter was 22.4% compared to 22.2% in 2018. The growth in revenue and EBITDA is attributable to acquisitions made over the last year as well as our 9.8% organic growth rate.

Supportive industry dynamics, combined with some of the key drivers Laurie spoke about, drove strong organic growth in the quarter. We also continue to focus on integrating acquired companies so they can benefit from our shared services offering. We expect that the corporate infrastructure we have put in place will continue to attract partners to join our platform and will ultimately continue to drive solid margins over the long term.

We continue to invest in people to build our foundation. As a percentage of revenue, personnel and compensation costs were 64.2% compared to 60% in the prior year. Excluding the impact of the increase in acquisition, integration and restructuring costs, personnel and compensation costs were 56.2% compared to 56.4%.

Our net loss was $0.6 million for Q3 compared to net income of $1.5 million in the comparable period of 2018. The primary drivers of net income after considering the factors impacting EBITDA, our accretion of our noncontrolling interest put options, higher depreciation and amortization, primarily from acquired intangible assets, increased share-based compensation, and as I just mentioned, investments into acquisition, integration and restructuring costs.

On an adjusted basis, earnings per share declined to $0.04 from $0.05 last year. Adjusted earnings per share excludes fair value changes to noninterest put options and contingent consideration, acquisition, integration and restructuring costs and equity-based REI. We continue to view adjusted EBITDA as the primary metric in evaluating our profitability.

Our balance sheet remains strong, and we have been successful at bolstering our financial capacity. At quarter end, we had $25.9 million in cash and $38.2 million in credit available through our revolving credit facilities. Subsequent to quarter end, we renegotiated our credit facility and increased the size of our revolver to $125 million adding $27 million in financial capacity. The accordion feature to our revolver adds a further $50 million of credit capacity. We believe this new credit facility represents a strong endorsement from our financial partners and gives us additional flexibility to execute on our growth plans on a non-diluted basis.

Before I open the line for questions, I'd like to give you an update on our fourth key area, integration. Integration remains a critical component of our growth strategy as a core team strength and focus. AIR costs were $2.9 million in Q3 compared to $1.4 million in the same period last year. The year-over-year increase of $1.5 million breaks out, $0.3 million acquisition related; $0.3 million integration of acquired companies-related costs; and $0.9 million in restructuring and business transformation costs. As part of the $2.9 million, we incurred approximately $0.8 million in consulting fees related to the development of the transformation plan.

As Laurie mentioned, we've just begun to scratch the surface here from an opportunity perspective. We have a proven 2-year integration model with year 1 focused on shared support and year 2 on shared services. AIR costs will be part of our business as long as we are acquiring and integrating companies into the platform. The level in any given quarter will vary with Q3 a little higher than recent averages. We expect AIR in Q4 to trend lower and settle slightly above the Q2 number.

Overall, Q3 was a very strong quarter. We will continue investing into our acquired operations and further developing our national platform.

At this point, I'd like to ask the operator to open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Meny Grauman of Cormark Securities.

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Meny Grauman, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [2]

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Question on the bank line increase. I'm wondering whether that increase changes your M&A wish list. And specifically, are you looking at bigger transactions now because of that change? Or does it change anything in terms of how you look at M&A?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [3]

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It doesn't really change anything as it relates to how we look at M&A, but as we walk up the ladder and our organization grows, we continue to see more opportunities principally as a result of a handful of factors: number one, our corporate development team is larger; number two, the People Corporation brand is a little bit more prolific throughout the Canada and the results we get invited to more opportunities; three, we're looking beyond benefit intention to adjacencies, as we've mentioned. So when we take a look at that and the strength of our pipeline today as well as our scale combined with our ability to do larger deals, we're really -- this is just part of our normal planning and making sure that we've got the right facilities in place to take advantage of opportunities on the acquisition side when they arise.

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Meny Grauman, Cormark Securities Inc., Research Division - MD & Head of Institutional Equity Research [4]

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And then just as a related question. You referenced sort of the regulatory uncertainty in your prepared remarks. Are you seeing that uncertainty play itself out in M&A landscape? Or if not yet, do you expect it to?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [5]

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No, I really don't. I think there's probably kind of 2 items on the regulatory side. I've talked before about the whole area of G19 and the fee disclosure in this last quarter. That initiative has basically died on the vine, essentially. I think eventually it will come back, but it's going to be a very long-term process. So that is no longer on the table for now.

As it relates to the pharmacare, I don't think it really is going to have any meaningful impact to players in the industry. I think if you take a look at drugs, that's one of many components of benefit plan, right? So you have extended health. You have dental. You have all the insured solutions in terms of life insurance, long-term disability, et cetera. It's all wrapped up into a benefit program. And when you take a look at that, combined with what's happened in other jurisdictions when we take a look at clients typically reallocate spend, not only that, you're talking years away. And I suspect that there's going to be a number of changes, if not significant alteration to this plan because it poses a lot of challenges in terms of a government program. How is it going to be funded? The reality is 98% of Canadians are covered today. And the concept of negotiating better drug pricing makes sense, the concept of a formulary makes -- consistent formulary makes sense, and the concept of government coming in to cover catastrophic drugs, that is all good from a social point of view, but the actual taking over the program, we believe, is going to have a degradation in benefits provided to Canadians and will have the opposite effect. And I think there's a number of players and participants in the industry that have a like view.

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Operator [6]

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Your next question comes from Stephanie Price, CIBC.

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Stephanie Doris Price, CIBC Capital Markets, Research Division - Director of Institutional Equity Research and Software & Business Services Research Analyst [7]

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Just wanted to follow up on that last question and ask it a little bit differently. I'm wondering if you've had any client feedback on the national pharmacare recommendation. How are clients kind of thinking about it?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [8]

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Not really, very -- again, because when you take a look at the time frame, we're not really getting much feedback. It's just so far away. If they were to actually implement it in its current form, it would take years to restructure all the systems, and so we're really getting almost nonexistent feedback from some clients at this point.

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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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Okay. And then in terms of the acquisition pipeline, just wondering if the competitive environment has changed at all. And how the acquisition pipeline is looking right now?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [10]

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Yes. So the acquisition competition is, I'd say, quite robust. I've mentioned this the last couple of quarters. I would say in the last 18 months, maybe up to 24 months, we've definitely seen more competition for deals. What I would probably characterize it as, on the one hand, we've never looked at more deals before. In this last year, 1.5 years, we've never actually executed more deals in terms of fixed deals. But at the same time, we've also never passed -- we've never passed on so many deals either. And that's really because a couple of factors probably in the market -- up until a couple of years ago, a lot of the organizations that had joined us were really more us knocking on their door and kind of bringing them through a process to join us. We are starting to see an increasing number of players kind of more proactively being put up for sale. As a result of that, you have kind of more investment banking and investment bankers kind of coming to the table because there's economic opportunity there. You also have a bit of an aging -- an increasingly aging demographic. And I would say, most importantly, it's increasingly difficult for a small player to be competitive as a result of changing client demands in terms of the need for specialization bench, breadth of the technology. So we do see a lot more activity. You also have some U.S. players that are more active in Canada. They've been here for years. They were here before we were. So they've created some competition for deals. And as a result of all of that, we are increasingly -- while our criteria hasn't changed, we have to be more selective because of the pool of what we're seeing is a little bit broader and not as focused in terms of the criteria we look at.

So to answer your second question, our pipeline continues to be extremely healthy. We've never had the number of acquisition opportunities in our deal funnel, and as a result of that -- and in terms of various sizes as well. So we're quite pleased with what we have in our funnel. But as I've always said, it does take quite a while to get a deal done. In terms of the whole process and as a result of that, deal activity can ebb and flow throughout the course of the year.

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Operator [11]

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Your next question comes from Jaeme Gloyn of National Bank.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [12]

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The first question, I just want to kind of dive into the organic growth outlook. You mentioned and you said this previously that organic growth accelerates in the second year of acquisition. So given the pace of acquisitions recently, would you anticipate an acceleration in the organic growth here over the next few quarters? Or will that hit maybe a couple of quarters from now.

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [13]

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No, I think I'm only going to kind of answer that more broadly. We've always given guidance of between 5% and 10% and we remain consistent on that position. And so it can ebb and flow. There's so many factors that go into it. And while we're a lot larger than we used to be, we're still -- you take our revenue divided by 4 quarters, all we need is a few mandates to change in terms of timing in the quarter, in terms of when renewals happen or in an acquisition depending on the makeup of that acquisition. So I would still look at that range between 5% and 10% on an annualized basis. So that can vary quite a bit in -- within a quarter, as we've seen in our historical path.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [14]

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Right. And in terms of the organic growth in this quarter and maybe in recent quarters, how much of that is coming from organic growth of companies that have been known longer than 1 year versus the organic growth of companies that you've recently acquired that are performing above your baseline estimates?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [15]

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Yes. I mean overwhelmingly, I'd say 90% of that at least is companies over 1 year. Typically, what happens in year 1, we -- it's really about kind of -- there's typically a little bit of deal fatigue after a deal is done, certainly, on the vendor side. And then we really spend more of our time in what we call shared support really connecting in their back-end systems from finance, accounting, real estate, technology, et cetera. And it's really where we bring more front-end solutions focused on growth in year 2. So overwhelmingly, it's really coming from existing businesses that have been on the platform for over a year.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [16]

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Right. And last one on organic growth. In terms of the sales strategy, you spoke previously about sort of a -- I guess, a focus on small and mid and then also on the enterprise. You mentioned that you had some really successful wins in the small firm space. I'm just wondering if you can give us a little bit more color around successes in the mid and in enterprise range?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [17]

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Yes. So up until a couple of years ago, as we grew a lot of our core business was more what we would call it the mid-market. We generally define mid-market as 50 to 500 lives, maybe up to 1,000, depending on -- it's more about a profile of a client. We have had -- and then about a couple of years ago, when we entered the market in the small group market through Sirius, we've invested significantly in the small group space just because it represents over half employees of Canada. And we're seeing very strong momentum there. At the same time, we've invested significantly on the enterprise side and we've seen some -- our win rates on larger mandates 1,000 lives and up, is increasing. We've put a number of clients on the board relating to -- of that size in the last 18 months. And I think it's a function of -- we are a referable player today in the Canadian market. We'd be the largest TPA in Canada. We would be top 3 consulting firm, so we can compete against the big global firms that are Canadian based. And a lot of other mandates, we are winning from those bigger players, and a lot of it is the comprehensiveness of the suite of solutions and the depth of our team and our bench specialization and our capabilities. So we're enjoying some good success there, and I expect this strong momentum will continue in part because as we get bigger, we have deeper capabilities, and also we're attracting talent from across the country. And as a result of that bringing -- investing in the kind of the enterprise market -- is helping us in terms of the expertise we can bring to a targeted client engagement. So we have -- at the end of the day, we have a 3-channel strategy. And so we're really now focused on small, mid-market and enterprise.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [18]

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Right. So in terms of the acquisition growth then, sorry if I missed this, did you disclose or can you disclose what the level of deployable capital you have at this point with and without the accordion feature?

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Dennis D. Stewner, People Corporation - CFO & COO [19]

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Yes. So if you take the $125 million number, we got about $65 million of capacity. So if you add the accordion to it, we're well over $100 million.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [20]

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Okay. And then add the cash position to that. I would just manage it as well, correct?

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Dennis D. Stewner, People Corporation - CFO & COO [21]

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That's correct.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [22]

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Okay. And then in terms of the ability to deploy that full amount of capital, can you talk about if you were to deploy where your leverage would go? How that would compare to covenants? Maybe just a little bit more color around your capacity to deploy that -- the full extent of that new credit facility?

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Dennis D. Stewner, People Corporation - CFO & COO [23]

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Yes. I think if you -- so each of the deals we're doing, obviously, attract -- our primary ratio is debt to EBITDA. So as long as we're acquiring companies with EBITDA profiles consistent with what we've been doing in the past, we'd be able to deploy the full amount and our ratios would be, as Laurie has mentioned on previous calls, our sort of appetite for that would be in the sort of the 2.5x and maybe for it to get stretched to the 3x EBITDA. So really, that's -- the facility is really designed for us to be able to take advantage of and use. And the profile of the acquisitions we do sort of lends itself to that. So I don't think you'll see a big change to where we've been historically. We've typically wanted to make sure we're in a position to take advantage of acquisition opportunities without having to figure out this is the financing after the fact. So I don't think anything else changed there in terms of how we've executed on that in the past.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division - Analyst [24]

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Okay. So if I can just summarize it, to make sure I understand this correctly, so the senior debt leverage, you would still sort of try to run that into the 2.5x to 3x range at a sort of maximum level on an acquisition. And in terms of the purchase prices that you're -- the valuations that you're looking to sort of stretch out to same as prior kind of in that 8% to 10% range would be where your appetite starts to fade not going north of 10x EV to EBITDA. Is that a fair summary of what you sort of just said?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [25]

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Yes. Then in the latter part, I mean, we've never done deals when we were close to that. I mean if we had a very significant material needle mover that checked a lot of points and there were synergistic clearly identified synergies, we look at that kind of upper end, 9, 10, et cetera. But we haven't done any deals with that level. And -- but like I said, we would if it met the criteria, but it would have to be something of scale or something of extreme synergistic opportunity for us where we could knock that multiple down pretty quickly.

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Operator [26]

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(Operator Instructions) Your next question comes from Gary Ho of Desjardins.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [27]

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Just going back to that last point, just following up on the larger deal opportunity, I guess, outside of the group benefits space. The larger deals that you're seeing, is it safe to assume that they are at that higher end of that range like the multiples? Like what are you seeing in terms of that front? And is it very competitive as you get into the larger deals? And is it the same players that's bidding on these type of assets? Some color around that -- those comments would be great.

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [28]

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Yes. So yes, it's the usual players for the most part, especially if it's more kind of down the middle companies, meaning kind of group benefit consulting firms. And the competition is more in the group benefit space, group benefit consulting firms pretty well and to some extent, some of the group pension consulting firms as well, not on the TPA side. The higher multiples when you're talking kind of that 8 to 10 range, we have seen a few deals grow at that range. Principally, they might be for the acquiring party maybe something that gives them some scale. So we haven't seen a lot at that kind of 9, 10 in range. We are seeing more at the 8 to 8.5, 7.5 range. There is a handful of deals that have gone at the upper level, some a little bit higher. They've either been kind of strategically important to the acquirer or something of significant scale or, I guess, the third reason was we can forgo why they paid that much for them. So what becomes important is it's got to work for us and so we are not going to kind of just follow what others are doing. It might make sense for them for whatever reason, it's got to make sense for us both in terms of fitting into our strategic model. So for instance, if there is something that kind of filled a perhaps a geographic gap for us that was important, we might look at that. Sometimes, we look at various things. Is it a defensive move in the market for us? Or is it a kind of filled in a particular niche area of expertise where it makes a lot of sense for our existing client base in terms of a cross-selling opportunity, et cetera. So it does -- we're seeing more competition. We are seeing those EBITDA multiples going up, but the key for us continuing to be disciplined in what's going to make sense for us from a value creation point of view, and against the criteria against which we measure acquisitions.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [29]

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And then in terms of the more, I guess, the transformative ones, like what would be on the larger side, you guys would have appetite for in terms of either EBITDA or purchase price?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [30]

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Well, we are in a position, both financially and operationally in terms of our ability to execute materially larger deals than we've done in the past now. And that's why we are looking at while some down the middle, so to speak, in terms of our core adjacencies as well to really rather than complement. As long as they're recurring revenue and sell to the same buyers that we typically sell to, which is either owner managers for small business or VPs of HR and finance for medium and enterprise accounts. So you can -- you'll see, as we look at kind of to some of the related adjacencies, we see some things that are of more scale, but we're still doing a lot of homework on a lot of them. And our team is getting more knowledge around and getting more as a result of that more focused on where we want to specifically execute on.

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Gary Ho, Desjardins Securities Inc., Research Division - Analyst [31]

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Great. And then my second question, I guess just moving to something that's going on in the news more recently surrounding the fraud in the group benefit space. Laurie, can you explain to me how the TPAs or the consultants play a role in kind of fraud prevention? And whether the news on the Baycrest hospital has any impact on the industry, if at all?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [32]

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Yes. So insurance companies, TPAs and depending on what you're doing as a TPA, sometimes the TPA is doing the claims some TPA -- the claims are done by the insurance company, even though a client might be going through a TPA. They don't play an audit role, so to speak, like an auditor would. And even in the case of an auditor, an auditor of a financial statement, they disclaim their responsibility to detect fraud. The insurance companies and TPAs play an adjudication role. Now having said that, there's definitely -- within the systems, there is clearly some level of work that is done around trend analysis, et cetera. So you are going to, just like in a kind of a retail environment would be an analogy, where you're going to get employee test in retailers. And that's going to completely eliminate employee misuse, if you will, of benefits. The key is, is having some reasonably strong systems, analytic capabilities to identify trends that look off and then do a deeper dive. So there is some level of responsibility and the work that both insurance companies and TPAs run an individual client basis play in natural. You'll never -- but having said that, like I said, you will never completely eliminate it, and when you do get kind of more pervasive frauds, those are sometimes easier to detect and sometimes much more complex, depending on how sophisticated they are.

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Operator [33]

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Your next question comes from Scott Chan of Canaccord.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [34]

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Maybe Laurie, can you just maybe describe the potential M&A environment for the TPA side. And if there's a stronger preference for one or the other versus group?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [35]

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I've answered that in prior calls in the sense of, we are -- we've got pretty significant scale in TPA. We're still looking at TPAs, probably a little bit more selectively in the past because of our current scale. There are still a handful out there that would be a high degree of interest to us. So we're still pursuing those. On the brokerage side, it's about really filling in, getting consulting capabilities in certain geographic regions or certain market segments. So example, when we recently purchased Life Benefit that was getting consulting capabilities in the First Nations market. And so the reality is we are looking at both, but really, in part, the reason we expanded our corporate development group is really to also look at related adjacencies whether it is HRIS or technology-based firms or other products and services. So for instance, we've built and launching, as I mentioned, disability management platform, but we are looking at disability management firms, as an example, we would look at acquisitions in that space to complement what we have and just to get us more scale quicker. And then a whole bunch of kind of related along the whole kind of value proposition in terms of clients providing benefits and group retirement solutions to their employees. So today, for the services we don't provide, our clients buy them from somewhere else. And so it's about moving our clients to look to us as an increasingly single-source solution.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [36]

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And then a couple of the new solutions you talked about like the disability management and the mental health solutions, was there any kind of guidance? Or how do we think about that in terms of potential incremental revenue looking at 2020 and beyond?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [37]

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Yes. Well, I think those will be -- On the disability management side, we have won in quite a large contract. So that will get a very good start. On the People Care side, I think it's going to be more kind of a gradual build. There is high demand for that, but it's a solution where you've got to get significant scale. Unfortunately, there's not a lot of good platforms to buy in Canada. So that's why we built one, but there's a high demand for clients, is the #1 reason, mental health is the #1 reason for absenteeism in Canada, and having a platform for clients is very important. So I think it's just -- it's going to complement. It's going to be, obviously, a cross-selling opportunity and other fencepost around the client, being able to give a client a more integrated solution. And it's just going to continue to help in keeping our organic growth rates in the range that they've been at. A little bit too early for me to tell on both those new solutions, but we do know, based on our experience being in the business and demand for clients and all of our industry studies that we've done, that those are 2 high demand products and solutions.

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Scott Chan, Canaccord Genuity Corp., Research Division - Director of Research of Financials & Financial Services Analyst [38]

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And the large clients that you talked about booked on the disability management side, was that booked in the quarter or post quarter?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [39]

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Disability management is going to be Q1.

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Operator [40]

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Your next question comes from Chris Martino of Laurentian Bank Securities.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Former Analyst of Research [41]

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With respect to the staff additions in the quarter, would the $27 million in salary expense reflects an accurate run rate at this point? Or would you say there are any staff adds that hit late in the Q which could skew that number higher?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [42]

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Yes. You're going to -- what we've always -- not really. I mean the reality is it will continue to grow as we grow. But as a percentage, we try to keep it as consistent. You're going to get, as I've mentioned in prior quarters, step fixed costs, as we do more acquisitions, as we launch more products, as we put more infrastructure, you're going to get some ways of more people, but then it will moderate because you've got enough people to achieve your growth for the next number of quarters. And so we very carefully monitor that because, of course, our biggest cost in our business is people costs.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Former Analyst of Research [43]

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Right. Okay. And then going back to competition in the M&A environment for a second. Have you seen any relative movement in transaction multiples you're seeing on a regional basis? HUB International has been pretty active in Western Canada lately. And I'm just wondering if they've been driving valuation expectations higher in certain regions or not. The extent to which that influences where you choose to play?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [44]

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No. So HUB has been -- definitely been aggressive in pushing the multiples, but it's not regionally specific. It's quite frankly across Canada. They just happen to be doing some more stuff in West. A number of the deals that they've done, we were at the table. We looked at many of them, we actually chose to pass on either right from the beginning or when we got to a certain stage based on either the profile of the entity and/or the price that they wanted.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Former Analyst of Research [45]

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Okay. And have you seen any interest from NFP or any of the other big players? Or would HUB be the dominant bidder at the moment?

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Laurie Marc Goldberg, People Corporation - Executive Chairman & CEO [46]

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Yes, it would be HUB for the most part. You get a little bit of Gallagher. We've seen a bit of Gallagher, although Gallagher has always been there, but a little bit -- I would say that they will pay up, but they're very selective. NFP almost nothing. They recently bought a P&C firm, but they really have very little presence in the Canadian market.

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Operator [47]

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Ladies and gentlemen, there are no further questions at this time. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.