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Morneau Shepell reports 2020 third quarter financial results

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Highlights:

  • Revenue increased by 7.3 per cent to $240.3 million

  • Solid organic growth of 4.3 per cent

  • Adjusted EBITDA increased by 13.3 per cent to $49.6 million

  • Margins improved to 20.7 per cent from 19.6 per cent over the same period last year

TORONTO, Nov. 10, 2020 /CNW/ - Morneau Shepell Inc. (the "Company" or "Morneau Shepell") (TSX: MSI) today reported its financial results for the three-month period ended September 30, 2020 (all amounts are in Canadian dollars, unless noted otherwise).

In the third quarter over the comparable period last year the Company delivered growth of 7.3 per cent in revenue to $240.3 million with margins improving to 20.7 per cent from 19.6 per cent. Organic growth of 4.3 per cent in the quarter was a significant increase compared to the previous two quarters in 2020.

"We are pleased with our third quarter results and our strengthening position as the global leader in total wellbeing," said Stephen Liptrap, President and Chief Executive Officer. "Solid organic growth, along with improved margins, indicates that our strategy is working in line with our expectations. We delivered solid performance in all our geographic markets that included high single-digit revenue growth outside Canada."

Year-to-date, the Company reported $729.5 million in revenue, an increase of 13.7 per cent over the same period last year, along with adjusted EBITDA of $149.0 million, up 10.9 per cent.

Strategically, the Company entered the fast-growing digital telemedicine solutions market in North America and introduced its iCBT solution in the United States. The quarter also saw the publication of the Company's second annual Corporate Social Responsibility report that highlighted the Company's performance as a positive force in the community through the pandemic and its goals in this area for the future.

"We continue to prove our business is resilient and growing profitably," Liptrap added. "Going forward our sales pipeline remains strong, a reflection of the confidence our clients have in our solutions to meet the wellbeing needs of their people and, in the process, support their organizational resilience in navigating the challenging realities of the pandemic."

Q3 2020 Financial Review

In thousands of Canadian
dollars, except per share amounts

Three months
ended
September 30,
2020

Three months
ended
September 30,
2019

Nine months
ended
September 30,
2020

Three months
ended
September 30,
2019

Revenue

$240,300

$223,980

$729,517

$641,341

Adjusted EBITDA

$49,634

$43,811

$149,027

$134,411

Adjusted EBITDA margin

20.7%

19.6%

20.4%

21.0%

Adjusted EBITDA per share (basic)

$0.71

$0.66

$2.14

$2.03

Normalized Free Cash Flow

$21,919

$24,212

$73,627

$75,846

Profit (loss)

($2,069)

$1,332

$45,095

$16,320

Earnings (loss) per share (basic)

(0.03)

$0.02

$0.65

$0.25

For the three months ended September 30, 2020, the Company reported $240.3 million in revenue, an increase of 7.3 per cent or $16.3 million over the same period last year. The increase is primarily due to organic revenue growth of 4.3 per cent, including 8.4 per cent organic growth in our U.S. and international regions, and the mid-year 2019 acquisition of Mercer's standalone, large market, health and defined benefit pension plan administration business, offset by the divestiture of our benefits consulting business earlier this year.

Adjusted EBITDA increased by 13.3 per cent to $49.6 million from $43.8 million compared to the same period last year. Adjusted EBITDA margin was 20.7 per cent in Q3, 2020, which improved compared to 19.6 per cent in Q3, 2019. Adjusted EBITDA per share (basic) for the quarter was $0.71, up 7.6 per cent from the same period last year.

Loss for the period was $2.1 million compared to a profit of $1.3 million in the same period in prior year. The loss is mainly due to a sublease loss provision of $10.3 million, before taxes. The sublease loss provision relates to the Company's planned relocation of its current head office and two other offices to a new head office location in downtown Toronto at the end of 2021. The move downtown will allow the Company to benefit from cost savings and reduce the overall square feet in a more collaborative and modern workspace with better access to clients and labour markets.

Loss per share (basic) for the period was $(0.03) compared to earnings per share (basic) of $0.02 in the comparative period.

During Q3, 2020, the Company generated Normalized Free Cash Flow of $21.9 million compared to $24.2 million in Q3, 2019. The decrease is mainly due to higher capital expenditures in the quarter.

The Company is maintaining its policy of paying a monthly dividend of 6.5 cents per share.

Third-Quarter Results Review – Notice of Conference Call
Management of Morneau Shepell will host a conference call on Wednesday, November 11 at 10:00 a.m. Eastern Time to review the Company's Q3 2020 results. The call is open to all those wishing to attend, with a Question and Answer period to follow the presentation. In order to participate in the live conference call, please call 416-340-2217 (participant code 2187389#) in the Toronto area, or 1-800-806-5484 (participant code 2187389#) throughout the rest of Canada and in the United States. A replay of the call will be available via the Morneau Shepell website at morneaushepell.com.

About Morneau Shepell Inc.
Morneau Shepell is a leading provider of technology-enabled HR services that deliver an integrated approach to employee wellbeing through our cloud-based platform. Our focus is providing world-class solutions to our clients to support the mental, physical, social and financial wellbeing of their people. By improving lives, we improve business. Our approach spans services in employee and family assistance, health and wellness, recognition, pension and benefits administration, retirement consulting, actuarial and investment services. Morneau Shepell employs approximately 6,000 employees who work with some 24,000 client organizations that use our services in 162 countries. Morneau Shepell is a publicly traded company on the Toronto Stock Exchange (TSX: MSI). For more information, visit morneaushepell.com.

Financial Measures
To assist investors in assessing the Company's financial performance, this news release also makes reference to certain financial measures such as Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA per share and Normalized Free Cash Flow. The Company believes that these are useful supplemental measures to assist our investors in assessing our financial performance. See the Company's MD&A for more details. These financial measures do not have any standard meaning prescribed by International Financial Reporting Standards and therefore may not be comparable to similar measures presented by other issuers.

(1)

"Adjusted EBITDA" is defined as profit before finance costs, income tax expenses, depreciation, amortization, impairment losses, and certain unusual expenditures.

(2)

"Adjusted EBITDA Margin" is defined as Adjusted EBITDA as a percentage of revenue.

(3)

"Adjusted EBITDA per share" is defined as Adjusted EBITDA divided by the weighted average number of common shares.

(4)

"Normalized Free Cash Flow" is defined as cash provided by operating activities, adjusted for changes in non-cash operating working capital, capital expenditures, current income taxes (net of income taxes paid), and certain unusual expenditures.

Forward-Looking Statements
This news release contains "forward-looking statements" within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Use of words such as "may," "will," "expect," "believe," or other words of similar effect may indicate a "forward-looking" statement. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in the Company's publicly filed documents (available on SEDAR at sedar.com) and in the Company's MD&A under the heading "Risks and Uncertainties." Those risks and uncertainties include ability to maintain profitability and manage growth, reliance on information systems and technology, reputational risk, dependence on key clients, reliance on key professionals and economic conditions. Many of these risks and uncertainties can affect the firm's actual results and could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statement made by the Company or on the firm's behalf. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this news release are qualified by these cautionary statements. These statements are made as of the date of this news release and, except as required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, the Company undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Company, its financial or operating results or its securities.

SOURCE Morneau Shepell Inc.

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