Calian Group Q3 2026 Earnings Report

Calian Group EPS Results

• Actual EPS: C$1.10
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Calian Group Revenue Results

• Actual Revenue: $230.40 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Calian Group Announcement Details

• Quarter: Q3 2026
• Date: 8/13/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 13, 2026
• Conference Call Time: 8:30AM ET

Calian Group (TSE:CGY) Ltd operates through four segments namely Advanced Technologies, Health, Learning, and Information Technology. It generates maximum revenue from the Health segment. The company serves health, defence, security, aerospace, engineering, AgTech, and IT industries. Its Health segment includes Clinical Services; Nursing Services; Psychological Services and Medical Property Management. The Advanced Technologies segment includes Engineering Solutions and Services; Nuclear and Environmental Services; Satcom; DOCSIS; Electronics Design and Manufacturing and Agricultural Technology.

Calian Group Q3 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record Q3 performance: Revenue rose 20% year over year to CAD 230 million, including 16% organic growth, while adjusted EBITDA increased 35% to CAD 26 million and margins expanded to 11.1%.
• Positive Sentiment: Defense and space remained the primary growth engine, with revenue up 20% and adjusted EBITDA up 25%; Calian also secured a 15-year Raytheon UK agreement worth nearly CAD 300 million in base revenue, with potentially comparable variable revenue.
• Positive Sentiment: Calian’s pro forma backlog is approaching CAD 1.6 billion, including approximately CAD 1.3 billion in defense, supporting management’s expectation for a second consecutive year of bookings above CAD 1 billion and continued long-term demand from defense, nuclear, and health markets.
• Positive Sentiment: Essential Industries gained momentum, with revenue up 20% and adjusted EBITDA up 46%; management highlighted improving U.S. commercial and nuclear demand, as well as potential long-term benefits from Canadian recruitment initiatives and plans for new nuclear reactors.
• Negative Sentiment: Management expects working-capital usage of CAD 15 million–CAD 17 million for fiscal 2026, while investments in Europe, Canada, product platforms, and efficiency initiatives will accelerate in Q4 and fiscal 2027; these investments may temporarily pressure cash flow and margins despite the stronger outlook.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Calian Group Third Quarter 2026 earnings conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Jennifer McCaughey, Director of Investor Relations. Please go ahead.

[Jennifer McCaughey, Director of Investor Relations at Calian Group]

Thank you, Marvin, and good morning, everyone. Thank you for joining us for Calian's Q3 2026 conference call. Presenting this morning are Patrick Houston, Chief Executive Officer, and Will Majic, Acting CFO. They will walk you through our Q3 results, provide insight into the performance of our various businesses, and share our outlook for the remainder of the year. As noted on slide 2, please be advised that certain information discussed today is forward-looking and subject to important risks and uncertainties. The results predicted in these statements may be materially different from actual results. As a reminder, all amounts are expressed in CAD, except as otherwise specified. With that, let me turn the call over to Patrick.

[Patrick Houston, CEO at Calian Group]

Thank you, Jennifer, and good morning. We delivered an exceptional third quarter, achieving year-over-year growth that significantly exceeded any prior Q3 performance. Importantly, this growth was delivered from a meaningful larger revenue base, making the magnitude of the results that much more important. Revenue grew 20% year-over-year, including 16% organically, driven by the continued strength of our defense and space solutions portfolio and strongest results from essential industries. This top-line growth translated into significant operating leverage, with adjusted EBITDA growing 35%, meaningfully outpacing revenue growth. The result reflects the combined benefits of higher volumes, stronger execution, and a more focused and efficient operating model. We secured CAD 168 million in new contract signings, bringing our year-to-date total to CAD 660 million.

[Patrick Houston, CEO at Calian Group]

We also recently announced a 15-year agreement valued at close to CAD 300 million with Raytheon UK, a landmark contract that reflects the trust of our defense partners placed in our capabilities. This puts us on track for a second consecutive year of bookings exceeding CAD 1 billion. Taking all these transactions into account, our pro forma backlog approaches CAD 1.6 billion, with approximately CAD 1.3 billion of that in defense. Beyond strong financial performance and strong signings, we have also continued to take steps to strengthen our portfolio. At the end of June, we entered into an agreement to acquire Galaxy Broadband, further strengthening our portfolio in areas closely aligned with our strategic priorities. With our fourth supported by strong fundamentals and a growing backlog, we have built a compelling foundation to deploy additional capital and drive sustainable long-term growth. Now, a few words on our operations.

[Patrick Houston, CEO at Calian Group]

Let me begin with defense and space. Our defense and space segment continues to perform exceptionally well. The results reflect both disciplined execution against our long-term strategy and the significant tailwinds across our end markets. In Q3, the segment delivered 20% revenue growth. Nearly all of it was organic. Approximately half of that organic growth came from our technology solutions across both defense and space. Importantly, this performance is not simply a function of favorable market conditions. It reflects deliberate investments we've made to strengthen and expand our product capabilities, and those investments are now translating into meaningful growth. The adjusted top-line performance translated into 25% year-over-year growth in adjusted EBITDA. I'd like to take a moment to provide a bit more color on the two recent strategic developments I mentioned earlier. Our 15-year, CAD 300 million contract with Raytheon and our agreement to acquire Galaxy Broadband.

[Patrick Houston, CEO at Calian Group]

On August 11th, we announced a 15-year agreement with Raytheon UK to support the British Army's collective training program. It's set to begin in October 2026, following the conclusion of the current Project NUMIDIAN contract. It provides nearly CAD 300 million of contracted base revenue over the term, with an additional variable component of comparable potential, consistent with the structure of our existing agreement. This is one of Calian's largest defense training programs, and as the renewal deepens our commitment to allied military readiness across the U.K. and Europe. It's a strong validation of the trust our defense partners place in Calian's expertise. On June 25th, we announced a definitive purchase agreement to acquire Galaxy Broadband Communications, a Canadian leader in satellite communications and remote connectivity solutions. Galaxy is a highly strategic fit for Calian.

[Patrick Houston, CEO at Calian Group]

The company has built a strong reputation delivering reliable connectivity to government, defense, and critical industry in remote communities across Canada. Its satellite communications and multi-orbit expertise directly complements our existing capabilities while significantly expanding our ability to support customers operating in complex and remote environments, including the Arctic. On August 11th, Crown Capital's debenture holders approved the transaction, clearing an important milestone towards closing. We expect the acquisition to close in the coming weeks, subject to the completion of the remaining closing conditions. Beyond our core operations, we're taking deliberate steps to expand Calian's role as an innovation partner, bringing together advanced technology, deep integration expertise, and real-world operational experience to solve some of our customers' most complex challenges. Three announcements this quarter, I think, that reflect that ambition.

[Patrick Houston, CEO at Calian Group]

First, we launched ATHORA, a sovereign system-of-systems interoperability and orchestration platform built to accelerate military readiness and capability integration across C5ISRT environments, marking Calian's evolution from service delivery to purpose-built defense platforms. The second I'd mention is the announcement of a cooperation with Cohere to evaluate and integrate sovereign AI solutions in defense environments, positioning Calian at the forefront of responsible AI adoption for our defense customers. Third, we announced the formation of Calian's first integrated Arctic maritime security consortium, uniting six Atlantic organizations to deliver end-to-end maritime capability in support of Canada's evolving defense priorities. Taken together, these initiatives are more than a series of announcements.

[Patrick Houston, CEO at Calian Group]

They're deliberate building blocks in our strategy for expanding Calian's role in the defense ecosystem and positioning the company to compete for and win larger and more complex opportunities as Canada and its allies accelerate investment in next-generation defense and security capabilities. Defense and space segment is performing at a high level, and we believe we're still in the early stages of the opportunity ahead. Strong organic growth, landmark contract wins, the contribution from strategic acquisitions, and a growing innovation portfolio give us increasing confidence in the long-term outlook. We are investing to match the scale of the opportunity, expect defense and space to remain a significant driver of profitable growth for Calian in the years to come. Let me turn to essential industries. Our essential industry segment continues to build meaningful positive momentum with improvements across both revenue and margin.

[Patrick Houston, CEO at Calian Group]

This progress is being driven by strengthening market fundamentals, better execution across our teams, and the successful integration of acquired capabilities into the broader Calian platform. In Q3, revenue increased 20%, reflecting strong organic growth. What began as a modest start to the year has steadily strengthened. Organic revenue growth accelerated to the high single digits in Q2 and crossed into double digits in Q3. This trajectory reflects improving demand, primarily across our U.S. commercial business and nuclear services. On the acquisitive side, AMS has been a meaningful contributor to the quarter and has proved to be a strategic asset for this segment. It has meaningfully expanded our presence in the Arctic, a region of growing importance to our customers and to Canada more broadly, and provides a compelling platform to advance our longer-term strategy in this critical geography.

[Patrick Houston, CEO at Calian Group]

On profitability, adjusted EBITDA increased 46% in Q3, with margins approaching 8%, on track with our target to exit FY 2026 in the high single digits. On a year-to-date basis, revenue increased 21% and adjusted EBITDA was up by 59%, demonstrating the operating leverage embedded in this business. Looking forward, I want to highlight several recent Canadian government sovereignty announcements that we believe are positive demand signals for this segment, specifically for our health and nuclear service businesses. On the health side, Canadian government has announced increased recruitment initiatives for the RCMP, CBSA, and other frontline public safety organizations. As these agencies work to expand their workforces and address staffing shortages, we expect this to translate into demand for our health services platform. Our national healthcare capabilities are well-positioned to support these agencies, and we see this as a durable long-term tailwind for the business.

[Patrick Houston, CEO at Calian Group]

On the nuclear side, Canadian government's nuclear energy strategy, which includes plans to develop up to 10 new reactors over the next 15 years, represents a potentially transformative long-term opportunity for our nuclear services business. The scale of investments contemplating this strategy is significant, and with our established expertise and deep industry relationships and proven capabilities in the nuclear sector, we believe Calian is exceptionally well-positioned to be a meaningful participant in supporting Canada's nuclear ambitions over the coming decade and beyond. I'll now turn it over to Will to discuss Q3 financial results. Will?

[Will Majic, Acting CFO at Calian Group]

Thank you, Patrick. Our third quarter results reflect what happens when disciplined execution meets a favorable market environment. Q3 was a record quarter with double-digit revenue and adjusted EBITDA growth, and organic growth at its highest level that we've seen in several years. Let me walk you through some of the highlights. Q3 revenues increased 20% to CAD 230 million, a record quarterly high, reflecting strong execution across both of our operating segments, defense and space and essential industries. Of this amount, acquisitive growth contributed approximately 4%, driven by the partial quarter contribution of Advanced Medical Solutions, which we closed in May 2025, and InField Scientific Inc., which closed in October 2025. Organic growth was more compelling, delivering 16%, a double-digit performance that was driven across both segments and reflects the strong momentum we have been building in the first half of this year.

[Will Majic, Acting CFO at Calian Group]

At a high level, organic growth in the quarter was driven by stronger than expected demand for our technology solutions, complemented by a timing benefit as a portion of the activity originally anticipated in Q4 was accelerated into Q3. In defense and space, the Department of National Defence was a key contributor again this quarter, deepening its reliance on our capabilities across operational readiness, IT and cyber, and in healthcare. This ongoing partnership reinforces our position as a trusted mission-critical partner. Our GNSS product portfolio also saw strong geographically diversified demand, a direct reflection of our targeted marketing efforts. In essential industries, our U.S. commercial operations maintained the momentum built in the first half of this year, achieving year-over-year growth for the third consecutive quarter, a clear validation of our turnaround strategy and the leadership who is driving it. Nuclear services also saw positive organic growth in the quarter.

[Will Majic, Acting CFO at Calian Group]

Stepping back, Q3 marks our fourth consecutive quarter of positive organic growth and our second consecutive quarter at double digits. Q3 gross profit increased by 17% to CAD 78 million as compared to CAD 67 million for the same period last year and represents a record third quarter high. This increase reflects revenue growth, changes in mix, and contributions from recent acquisitions. Q3 adjusted EBITDA increased 35% to CAD 26 million, significantly outpacing top-line revenue growth. This was driven by strong top-line performance, combined with the gradual pace at which investments in Europe are ramping, which tempered costs in the quarter. As a result, adjusted EBITDA margin reached 11.1%, up from the 9.9% for the same period last year. Turning to cash flow and capital deployment. That strong operational performance translated into the cash flow statement, reflecting our continued ability to generate and retain cash within the business.

[Will Majic, Acting CFO at Calian Group]

In Q3, we generated CAD 24 million in cash flow from operations compared to CAD 25 million for the same period last year. This slight year-over-year decrease was primarily attributable to higher working capital requirements, specifically an increase in accounts receivable, which offset the benefit of improved profitability. Let me walk you through the key working capital dynamics we experienced in the quarter. As we outlined in Q2, we made a deliberate short-term investment in working capital in order to capitalize on a period of heightened demand for technology solutions. That strategy played out as anticipated as we saw meaningful cash conversion of those receivables in Q3. However, at the same time, demand for technology solutions remained robust throughout the quarter, which led us to continue to extend working capital to capitalize on that growth. I want to be clear on the nature of this movement.

[Will Majic, Acting CFO at Calian Group]

This is entirely a revenue growth and timing dynamic. It is not structural. What we are observing in the balance sheet is simply a short-term impact of the rapid demand we have been addressing. Our DSO profile and customer credit quality remain consistent with prior quarters and remain very healthy. As we have communicated previously, we expect working capital to scale in line with revenue growth. Looking beyond these working capital dynamics, the underlying cash generation story is compelling. Operating free cash flow increased by 46% year-over-year to CAD 18 million, reflecting solid cash conversion at 69% of adjusted EBITDA. On a year-to-date basis, operating free cash flow increased 57% to CAD 55 million, with a cash conversion at 72%.

[Will Majic, Acting CFO at Calian Group]

These results demonstrate the quality of our earnings and the ability to generate meaningful cash from our core operations, even as we continue to invest in growth and work through acquisition integrations. Optimizing working capital efficiency and sustaining strong free cash flow generation remain key priorities as we close out the year. Turning to capital deployment. During the quarter, we used cash on hand to support key investments and priorities. We funded CAD 3 million in CapEx, reinforcing our investment to ongoing growth initiatives and returned CAD 3 million to shareholders through dividends. Share repurchases were not a priority this quarter. These actions are consistent with our balanced capital allocation framework, investing in the business to drive long-term value while maintaining a disciplined return of capital to shareholders.

[Will Majic, Acting CFO at Calian Group]

On the M&A front, while no transactions were closed in Q3, we expect to close the acquisition of Galaxy Broadband within the next few weeks. Now let's take a look at the balance sheet. As of June 30th, 2026, we had drawn CAD 141 million on our debt facility, reflecting a decrease of CAD 26 million from Q2. We closed the period with net debt of CAD 95 million, resulting in a net debt to adjusted EBITDA ratio of 0.9 times, providing us with flexibility to act decisively on near-term opportunities. With compelling growth dynamics across defense, space, nuclear, and health, our focus is squarely on capitalizing on the opportunities these markets present.

[Will Majic, Acting CFO at Calian Group]

To do that, we are taking a deliberate look at our capital structure to ensure it is aligned with our growth ambitions, and we remain open to leveraging all available means to put capital to work where we see the greatest potential. Now let's turn to fiscal 2026 outlook. Our outlook for fiscal 2026 has strengthened again since last quarter, reflecting an encouraging upward trend since the start of this year. Our long-term growth targets remain unchanged, where we are targeting annual revenue growth of 10%-15%, driven by a combination of organic expansion and strategic acquisitions. This is consistent with our historical track record, which stands at 12% revenue CAGR over the past decade. Consistent with that long-term framework, for fiscal 2026, we expect revenue growth in the mid-teens and adjusted EBITDA growth in the low 20% range.

[Will Majic, Acting CFO at Calian Group]

This performance would represent another record year for Calian and further demonstrate our ability to translate top-line growth into even stronger earnings growth. Achieving these objectives and building the foundation for what comes next requires us to invest ahead of the opportunity. Winning in our target markets means showing up as a capable, well-resourced partner with the talent, infrastructure, and technology to execute at scale. We are making focused commitments in Europe and Canada to accelerate our product portfolios as well as position ourselves for larger opportunities. The pace of these investments will accelerate in Q4 and into fiscal 2027. From a capital deployment perspective, we expect working capital usage to track in line with revenue growth and should finish the year in the CAD 15 million-CAD 17 million range. CapEx is anticipated to be slightly north of CAD 10 million, supporting both ongoing operations and targeted growth investments.

[Will Majic, Acting CFO at Calian Group]

Our dividend policy remains unchanged for the remainder of the fiscal year. On the M&A front, note that as Advanced Medical Solutions reached its one year anniversary in our portfolio, it will no longer be reflected as acquisitive growth beginning in Q4, and its results will be fully absorbed into our organic baseline. Turning to our near-term activity. We expect to close the acquisition of Galaxy Broadband within the next two weeks for an upfront payment of CAD 24 million. Given the timing, its contribution to Q4 will be modest. Combined with the earlier closing of InField Scientific Inc., we will have deployed approximately CAD 35 million in upfront capital this year or roughly CAD 50 million inclusive of earn-outs.

[Will Majic, Acting CFO at Calian Group]

While our total capital deployment fell short of our initial ambitions, this was the result of several factors, market conditions, timing, and above all else, our disciplined approach to ensuring we transact at the right targets at the right valuations. That said, we are actively working to increase the pace of acquisitions. Over the next 12 months, we see an opportunity to deploy capital more actively as we move with greater urgency to strengthen our capabilities and position the business for the opportunities ahead. To support this, we are continuously evaluating our capital structure to ensure we maintain the financial flexibility and liquidity needed to act decisively when the right opportunities present themselves. Our pipeline remains robust, with multiple active discussions underway and some in advanced stages. We are optimistic about completing additional strategic transactions in the coming quarters.

[Will Majic, Acting CFO at Calian Group]

As we have previously communicated, M&A remains our highest capital deployment priority. We will continue to pursue targets that meaningfully expand our capabilities and broaden our market reach, meaning transactions that we are confident will create long-term value for our shareholders. We remain open to resuming share buybacks on an opportunistic basis, subject to market conditions and our broader capital allocation framework. As always, our priority is to ensure capital is deployed where it can generate the greatest long-term value for our shareholders. To that end, we intend to renew our NCIB when it comes due at the end of this month, subject to the Toronto Stock Exchange approval. We view the annual renewal of the NCIB as a matter of course, ensuring this tool remains available to us should conditions make its use appropriate.

[Will Majic, Acting CFO at Calian Group]

In summary, we enter the final quarter of FY 2026 with strong momentum and a clear line of sight to a record year. Our financial position is strong, our approach to capital allocation is disciplined, and the opportunity ahead is significant. We are focused on delivering today while continuing to build the capabilities, scale, and our platform. I will now turn the call back over to Patrick for closing remarks. Patrick?

[Patrick Houston, CEO at Calian Group]

Thank you, Will. Before we take your questions, let me take a step back for a moment. Three quarters into the year, the results are compelling. Revenue's up 17%, organic growth at 11%, the strongest we've delivered in years. Adjusted EBITDA is up 41%, fourth consecutive quarter of record results, and each one delivered off a larger base than the last. The numbers are a reflection of our evolving strategy. What we're doing is repositioning Calian. We've concentrated our capital in mission-critical markets and moved from delivering services to building platforms. We've added capability where our customers are heading, the Arctic, sovereign AI, multi-orbit connectivity, and nuclear. We've anchored a 15-year relationship with Raytheon UK that extends our defense footprint well into the next decade.

[Patrick Houston, CEO at Calian Group]

The result is a business with a pro forma backlog approaching CAD 1.6 billion and a pipeline of opportunities in front of it that is larger than anything we've seen in this company's history. That is why we're investing ahead of the curve. The demand signals in defense, nuclear, and health are not cyclical, but rather multi-year government-backed commitments. Our job is to be ready to compete for that work at scale, and we intend to be. Finally, I want to thank our employees across the globe. Records like these ones are not produced by markets, they're produced by people who execute quarter after quarter for customers who depend on them. Thank you. With that, operator, we'd be happy to take questions. I'll pass it over to Marvin, who will lead the session.

[Operator]

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes to the line of Nicholas Boychuk of ATB Capital Markets. Your line is now open.

[Nicholas Boychuk, Analyst at ATB Capital Markets]

Thanks. Good morning, guys. I want to start the questions first on the new U.K. contract you signed this week with Raytheon. Just a little bit of an overview, specifically what it is you guys are offering, the history and background with that relationship, if it is something that's a follow-on order. The pace and the scheduling of the CAD 296 million, if it's evenly throughout the 15 years or if there's some sort of a cadence to it. You mentioned that there's a little bit of a variable upside. Just curious what unlocks that and what the magnitude of that could be.

[Patrick Houston, CEO at Calian Group]

Good morning, Nick. We've been working on this renewal. If you remember, this was originally the acquisition we did of Mabway about three and a half years ago, which includes the work we've been doing with the UK MOD, doing the land forces training. That's been a successful acquisition and a successful delivery from the team there. This is the evolution of that as the MOD has consolidated some of these training platforms. So we've worked with Raytheon UK to do that. This puts us and Raytheon in place to do the same work we've been doing for the next 15 years. The structure is similar to the past, where there's a base commitment of capacity, and then every year we plan out what the variable activity is, and that drives that component. We'd expect that component to probably be approximately the same size as the base level.

[Nicholas Boychuk, Analyst at ATB Capital Markets]

Sorry, just to confirm, so the variable component could effectively be a doubling of the CAD 296 million over 15 years?

[Patrick Houston, CEO at Calian Group]

Correct.

[Nicholas Boychuk, Analyst at ATB Capital Markets]

On the organic outlook that you're referring to on the space and antenna business, I'm curious if you're seeing any change in either activity, be it size of contract, terms, deliverable, requirements on your part, just how the outlook for that over the rest of the year looks.

[Patrick Houston, CEO at Calian Group]

For the rest of the year, I think it's unchanged. I think going forward, one of the dynamics is we're seeing larger programs in Canada, which has been a new development, mostly driven by the Defence investments and the inclusion of space in the programs there. I think that's a much more positive outlook that I think it will be a driver more in the midterm. And internationally, we've continued. We announced a big program in the Middle East last year, and the team's working on delivering that, and we're in the early stages of that, but I think that will continue into next year.

[Nicholas Boychuk, Analyst at ATB Capital Markets]

Okay. And just last for me on the size, you mentioned you're competing on these larger and more complex opportunities. I'm curious if that ties into your M&A strategy and whether or not having more scale in certain platforms benefits you in terms of how you'll win and bid on these opportunities, and what that might mean in terms of the pace of M&A, but also the size of opportunities that you'd be looking to vend in.

[Patrick Houston, CEO at Calian Group]

It's a great point. We're trying to address that really in three ways. The first is just the organic investments we're making into our own platforms. I think you saw us talk about ATHORA, and there's a multitude of other ones we're making. So I think that's important so that we can bring more comprehensive solutions to these opportunities. The second one is the partnership and ventures models that we've launched. We're trying to bring other like-minded companies that can complement and bring a more comprehensive solution. And the third one's the one you mentioned on M&A. We are continuously looking for assets that will complement the capabilities we have today, allow us to go after larger opportunities. And I think in this market right now, scale will be rewarded.

[Patrick Houston, CEO at Calian Group]

To Will's comments, we are trying to prepare ourselves so that we can accelerate the pace, we can find strong ideas that we can deploy capital on, and build more scale that will be rewarded over the longer term.

[Nicholas Boychuk, Analyst at ATB Capital Markets]

Understood. Thanks for the color, Patrick.

[Patrick Houston, CEO at Calian Group]

Thanks, Nick.

[Operator]

Thank you. We will move on for our next question. Our next question comes from the line of Stephanie Price of CIBC. Your line is now open.

[Sam Schmidt, Analyst at CIBC]

Hi there. It is Sam Schmidt on for Stephanie Price. Nice to see the Raytheon contract announced this week. Are there any other larger contracts in the pipeline that are coming up for renewal over the next year or so? Can you talk a bit about Calian's level of visibility and confidence into securing those renewals? Maybe also whether you see opportunities to grow those contracts on renewal.

[Patrick Houston, CEO at Calian Group]

I wouldn't say there's any of the major ones that anchor some of our relationships are coming due in 2027. I think you'd have to look beyond that, like 2028, 2029, to start to see some of those come up. I think that's the timeline on some of the major contracts.

[Sam Schmidt, Analyst at CIBC]

Okay. That's helpful. Then maybe just a follow-up. Can you share an update on Calian's initiatives to expand the footprint and capture defense spending in Europe?

[Patrick Houston, CEO at Calian Group]

Yeah, I think we mentioned that on the last call, that this was a point of investment. I think we've seen just continued growth. This has been mostly a four-year journey, starting with a few small acquisitions that have built on top of each other and driven strong double-digit organic growth. So we've gone back to that team and looked at how do we invest more business development support to go after more opportunities in the places we are today, but in also new geographies in Europe. So I think we're at the early stages of those investments, but we're hopeful they'll start to pay off here into next year and beyond. So, stay tuned, but certainly, we're building on momentum there, and certainly the defense spending pace that we've seen in Europe, I don't think is going to slow down here in the next couple of years.

[Patrick Houston, CEO at Calian Group]

We're trying to position ourselves to respond to that.

[Sam Schmidt, Analyst at CIBC]

That is helpful. Just one more from me. It was nice to see the raised 2026 outlook. How should we think about the sustainability of this growth level? Can you share some color on the timing benefit to organic growth in Q3 that you mentioned in the prepared remarks, and how we should think about organic growth for Q4?

[Will Majic, Acting CFO at Calian Group]

Yeah. I will take that one. I think our outlook still remains longer term in our mid-single digits from an organic perspective. We were able to capitalize on a few things in the quarter. One was timing, so that pulled some of the amounts from Q4 into Q3. There is a part of the demand that we are seeing this year for some of our technology solutions that is a little bit less predictable. You saw that pretty significantly in Q2, and we continue that in Q3 here. That is not one that we can bank on every year. When we see that come up, we are able to rapidly go and address that need for the customers, but it is not something that we can bank on every year. So I would say from an organic perspective, we are still targeting that longer-term, mid-term around mid-single digits from an organic perspective.

[Sam Schmidt, Analyst at CIBC]

Okay. Thank you. I will pass the line.

[Operator]

Thank you. One moment for our next question. Our next question comes on the line of Rob Goff of Ventum Financial. Your line is now open.

[Rob Goff, Analyst at Ventum Financial]

Thank you very much, and congratulations on the quarter. A very significant beat on the quarter. Well done.

[Patrick Houston, CEO at Calian Group]

Morning, Rob.

[Rob Goff, Analyst at Ventum Financial]

Morning. In terms of building on the organic growth and capturing the opportunity, how do you look at scaling up? Will the OpEx investments be coincident with the growth? Will there be upfront investments, or how do you see the two being married together?

[Patrick Houston, CEO at Calian Group]

Yeah, good question. I think, I look at it more broadly. I've challenged the team, going into next year and the year after to say, "How do we think about this company to try to capture larger opportunities and drive long-term sustainable organic growth?" So that goes between what's the delivery model and platform we need to respond, what's the business development team and sales to capture these opportunities? What's the balance sheet and capital structure look like that allows us to take advantage of these? So I've tried to challenge the whole team to look at every single part of this business and say, "Let's position ourselves so that we can respond to these." So I think it's a broader one.

[Patrick Houston, CEO at Calian Group]

To your point on timing, inevitably some of it has to be ahead of the revenue, in order for us to make sure we can capture these larger opportunities. Obviously, we will do it in a disciplined way, but I think that is the plan we have.

[Rob Goff, Analyst at Ventum Financial]

Very good. Perhaps a tougher question. With the government looking to spend just so much more, how do you see the government streamlining the process to commercialization of budget commitments?

[Patrick Houston, CEO at Calian Group]

Yeah. I will speak to Canada specifically. That has been an evolving mandate. I expect to see the Defence Investment Agency be named a department here in the fall, once the government comes back. I think that is a positive signal. I think they are trying to streamline the ability of policy to turn into industry engagement and procurement. Still lots of changes there, but I think they are positive. I think they are trying to accelerate. You certainly saw that momentum last year to get to the 2%, and I am confident they will meet that and exceed that again this year. Then it is how do they establish a platform to continue to do that into the years to come? Because this is not a one- or two-year thing, but rather a decade investment.

[Patrick Houston, CEO at Calian Group]

We are certainly engaged at all levels, try to understand what the process will look like going forward, and how we can best respond.

[Rob Goff, Analyst at Ventum Financial]

And one just quick question. With respect to contracts that you are seeing in the marketplace, are you finding that the duration of those contracts is typically being extended?

[Patrick Houston, CEO at Calian Group]

I would not say there has been a drastic change yet. I think what they are looking for is a combination of value, sovereignty, economic impact in Canada, and matching the need going forward. I think they are looking to see how do they get all those things when they procure the next service or platform. Certainly that is where it comes back to how we can deliver, how we can partner to make sure that our offer meets all of those criteria.

[Rob Goff, Analyst at Ventum Financial]

Okay. Thank you very much, and good luck.

[Patrick Houston, CEO at Calian Group]

Thanks, Rob.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Benoit Poirier of Desjardins. Your line is now open.

[Benoit Poirier, Analyst at Desjardins]

Yeah. Good morning, Pat and Will, and congrats for the strong results.

[Patrick Houston, CEO at Calian Group]

Thanks, Benoit.

[Benoit Poirier, Analyst at Desjardins]

Yeah. Just in terms of overall backlogs, slightly down quarter-over-quarter, but it doesn't include the recent contract extension with the British Army. When we look at the defense and space market, obviously very strong macro backdrop. So I would be curious if you could maybe qualify or quantify your bidding pipeline in light of the strong environment we see. I feel that you have more discussion than you've been having in the past, so just curious to know more about the bidding pipeline.

[Will Majic, Acting CFO at Calian Group]

Yeah. Thanks, Benoit. I think from the pipeline perspective, we're seeing, just with both with the market conditions and the scale of our business, we're seeing larger opportunities that we're going after. I think that's where Pat's mentioning, we're going to need to continue to make investments in the business to capitalize on those larger opportunities. But those are there and we see those continuing in the pipeline. I think that's been a positive for us.

[Benoit Poirier, Analyst at Desjardins]

Okay. Thank you. Great color. Just in terms of organic growth, obviously very impressive. But, if we look specifically for essential industry, the volume was driven by a U.S. commercial operation, which tends to be less predictable. If you were to exclude that, what would be the overall organic growth and is there any change in terms of your view around some potential divestitures?

[Patrick Houston, CEO at Calian Group]

Sure. I look at the organic growth over a longer period, Benoit. I think that's an easier way to talk about the trending. Obviously, Will mentioned earlier, we're targeting high single digits. This year we're delivering much better than that. I think the team's executing well, so we should deliver better than that performance. Going into next year, how do we set ourselves up to do that again? On the divestiture, I think I mentioned it last quarter, we said we had taken an effort to do the portfolio review to look at various assets, and that we'd come to a conclusion here at this point in the summer. I think that's still on track.

[Benoit Poirier, Analyst at Desjardins]

Okay, that's great. In terms of share services, it increased 16% year-over-year, driven by increased headcounts, but slightly down on a percentage basis. How could we look at the share services going forward? You mentioned that we should expect an increase pace in terms of investment too. Is it more in terms of CapEx? Any thoughts about where we could see those higher investment, gentlemen?

[Will Majic, Acting CFO at Calian Group]

Yeah, we've been investing to grow the business. I think that's been reflected both in the top line and both combined with our EBITDA and EBITDA percentage. Those do take investments from a shared services perspective. I think it's that bag, Benoit Poirier, looking forward, we have been making some pretty targeted investments to try and see how we can get more efficiency from a cost perspective. Just this last month, we put in a team. This is a new team that we've created here at Calian Group to try and drive efficiency. That's going to be a near-term cost for us, but will result in some savings in the mid to longer term. This is a team that's going to be focusing on process, that's going to be looking on how do we automate, how do we get more efficient, how do we lean out process, implementing AI.

[Will Majic, Acting CFO at Calian Group]

This is going to be a big focus for us going into next year.

[Benoit Poirier, Analyst at Desjardins]

Okay, that's great. The last one for me, in terms of M&A, you're looking to increase the pace of M&A. Any comments you could provide in terms of where do you see the greatest amount of opportunity, whether it's defense, space, or essential industries, or any color about the geographic regions that you're looking at?

[Patrick Houston, CEO at Calian Group]

Sure. I think what you've seen, Benoit Poirier, you know as well, I think we've continued the effort to work the pipeline and find strong opportunities we can execute. I think InField Scientific Inc. was a strong transaction. We're certainly very optimistic about Galaxy Broadband Communications coming onto the team and really delivering strong results for us. I think what you've also seen the team is really trying to hone in on the kind of the renewed strategy where the M&A is really complementary and helps the scale of both base and defense and essential industries. So we're trying to focus the M&A in those core areas. I think it's still Canada, U.S., Europe is really the geographical areas that we're targeting.

[Patrick Houston, CEO at Calian Group]

We are optimistic that we can not only continue the M&A pace that we have been doing, but even accelerate it here in the coming year so that we can build more scale and take advantage of the opportunity ahead of us.

[Benoit Poirier, Analyst at Desjardins]

That is great. Thank you very much for the time. Congrats again.

[Patrick Houston, CEO at Calian Group]

Thanks, Benoit.

[Operator]

Thank you. One moment for our next question. Our next question comes from the line of Paul Treiber of RBC Capital Markets. Your line is now open.

[Paul Treiber, Analyst at RBC Capital Markets]

Thanks very much, and good morning. Just a follow-up question on M&A. You mentioned in the prepared remarks that the CAD dollar capital deployed was a little short of your expectations. Does that stem primarily from valuations above your threshold? How do you think about valuations within your target markets? I imagine in defense and space that the multiples have gone up quite a bit. So where do you see the opportunities within those strategic markets to deploy capital?

[Patrick Houston, CEO at Calian Group]

Good morning, Paul. I would say it is more about focus than necessarily about valuations on why the capital deployment maybe was a bit less than we would have expected this year. Again, like I just answered in the last question, I think we are still happy about the acquisitions we did, and I think there is still pipeline to go for us to execute. So, it is not a concern, but more about a focus. On the valuations, yeah, I think indefinitely when the market is reflecting better growth, valuation generally will inch up. I think we are still working hard to try to find companies that have that strong synergy with us that will allow us to accelerate the growth once we buy them. To the extent we can do that, then we can potentially look at different valuation or deal structures that facilitate that.

[Patrick Houston, CEO at Calian Group]

I think we are trying to be creative, disciplined at the same time, but also accelerate the pace. I still think you will see us do acquisitions in this area and make them as successful as the last ones.

[Paul Treiber, Analyst at RBC Capital Markets]

Okay. That is helpful. You mentioned also a review or a look at your capital structure. Where do you see that going? Meaning, do you expect that review to help or changes to help lower your WACC? That would potentially open up more M&A. Would you lean more into debt or potentially are you looking for equity financing, just given the flexibility there?

[Patrick Houston, CEO at Calian Group]

I think I've challenged the team to be ready on all fronts, Paul. I think coming off the year we posted this year and a strong opportunity set going forward, both organic and M&A, I think I'm trying to challenge the whole team to say, "What do we need to take advantage of that?" So that's across the whole business. Capttal structure is a component of that. You know that we like to be ready to take advantage of the moment, so we're looking at all options to make sure we're there. Then, when the right one comes into focus, we'll push on that one.

[Paul Treiber, Analyst at RBC Capital Markets]

Okay. Thanks for taking the questions.

[Patrick Houston, CEO at Calian Group]

Thanks, Paul.

[Operator]

Thank you. One moment for our next question. Again, as a reminder, to ask a question, you'll need to press star one one on your telephone. Our next question comes from the line of Greg MacDonald of Stifel Nicolaus Canada. Your line is now open.

[Greg MacDonald, Analyst at Stifel Nicolaus Canada]

Thanks. Morning, guys. Will, thank you for the walk down or the context on working capital. I think that was helpful. The question I want to ask is on margins, and I am going to kind of approach it from sustainability of +11% margins going forward. Some things going on there. You mentioned IT services, which is margin accretive, had an impact this quarter. I noticed that product sales in particular also had a significant impact. I do not know versus consensus, but certainly relative to what we expected. Can you talk a little bit about margin sustainability at the 11% plus level and opportunities that you had looked at, are looking at in essential industries? Just where are you in terms of the timeline and the margin strategy overall? Thanks.

[Will Majic, Acting CFO at Calian Group]

Hey, good morning, Greg. I think for us, like margins, we try to look at this on a longer term basis. We delivered very strong in the quarter. If I take a step back, we have been growing our margins, both gross margin percentage and EBITDA, pretty significantly year-over-year. This is one that we are going to continue to push on. We mentioned some of these investments, like those might impact us in the next couple of quarters. I think again, we are trying to push on creating a business that we can scale, that we can find efficiency in, that will drive higher revenue growth, while also maintaining EBITDA percentage in the business. I think this is one that we are going to continue to push on to try and continue to increase that margin profile.

[Greg MacDonald, Analyst at Stifel Nicolaus Canada]

A quick follow-on to that, I guess lots of questions on M&A, so I would be remiss not to ask one myself. When you think about the types of companies that you are looking at from an M&A perspective, are those companies that will continue to allow you to be accretive on the margin side, or are these companies that have higher than 10%, 11% margin profiles?

[Will Majic, Acting CFO at Calian Group]

Historically, the majority of our transactions we have done has been accretive. Obviously, that was starting from a point where the margins were much lower than they are today. I think that strategy was successful.

[Greg MacDonald, Analyst at Stifel Nicolaus Canada]

Yeah

[Will Majic, Acting CFO at Calian Group]

in terms of both growing margins organically, but then bringing on new businesses that can do that. I think we still strive to do that going into the future. Obviously, as the margins continue to increase, that becomes more difficult. But certainly that is part of the criteria we look at that can be either at or above the margins we have. We're also looking at them through other lenses, whether they're strategic and help us try to go after larger programs. Can they work together with Calian? What's the one plus one equals three? So we try to look at through across multiple lenses, but certainly margin is one of them.

[Greg MacDonald, Analyst at Stifel Nicolaus Canada]

Okay. Appreciate it. And congrats on the quarter.

[Will Majic, Acting CFO at Calian Group]

Thanks, Greg.

[Operator]

Thank you. I'm showing no further questions at this time. I'll now turn it back to Patrick Houston for closing remarks.

[Patrick Houston, CEO at Calian Group]

Thanks, Marvin, and thanks everyone for attending. We look forward to providing you an update on our next quarterly call. With that, we can close the call.

[Operator]

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Participants

Executives

• Jennifer McCaughey, Director of Investor Relations
• Patrick Houston, CEO
• Will Majic, Acting CFO

Analysts

• Nicholas Boychuk, Analyst at ATB Capital Markets
• Sam Schmidt, Analyst at CIBC
• Rob Goff, Analyst at Ventum Financial
• Benoit Poirier, Analyst at Desjardins
• Paul Treiber, Analyst at RBC Capital Markets
• Greg MacDonald, Analyst at Stifel Nicolaus Canada