Calian Group Ltd. (CGY) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Calian Group First Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the conference over to Ms. Jennifer McCaughey, Director of Investor Relations. Ma'am, please begin.

Thank you, Howard, and good morning, everyone. Thank you for joining us for Calian's Q1 2025 Conference Call. Presenting this morning are Kevin Ford, Chief Executive Officer; and Patrick Houston, Chief Financial Officer. They will present our increasing opportunities in defense and financial highlights of our Q1 consolidated results. 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 Canadian dollars, except as otherwise specified. You will also find a reconciliation to updated calculations of our common operational metrics at the end of the presentation. With that, let me turn the call over to Kevin.

Good morning. Thank you, Jennifer, and again, good morning, everyone, in a very snowy Ottawa. So everyone is safe and sound wherever you are. Our first quarter results aligned with our expectations in terms of revenue and operating profit, and we continue to make steady progress toward our 3-year strategic plan objectives. Our revenues on a trailing 12-month basis eclipsed $750 million for the first time and are up 9% against the previous 12 months. We signed new gross contracts valued at $154 million, ending the quarter with a solid backlog of $1.1 billion. Many of these contracts were in key markets for us going forward. On this backdrop, we are maintaining our guidance for the year as we believe we are on track to deliver our eighth consecutive year of double-digit revenue growth and record levels. I will let Patrick provide more details on our Q1 results in a few minutes. Our diverse set of solutions and ability to pull them together for the customers' benefit is still one of the key differentiators for Calian in a very competitive market. Our core markets of space, health, cybersecurity, and defense are backed by strong fundamentals and favorable tailwinds, positioning us for sustained future growth. I'd like to take a few minutes to share insights into our largest market, including key customer trends and our outlook for the future. Our most promising growth opportunity right now is clearly in the defense domain. The global demand for defense solutions continues to accelerate with no signs of slowing down. Nearly all nations are working to enhance their capabilities at a faster pace to address short-term threats while simultaneously managing capacity shortages. Given this environment, we are doubling down here as we see significant macro tailwinds, including the pressure on Canada to increase spending from the new U.S. administration, Canada's recent budget increase for border security, political discussion around accelerating the timeline to meet 2% of GDP target from 2032 to 2030 or even earlier. Ongoing conflicts in Europe are compelling all NATO countries to accelerate their defense efforts, explore work time measures, and adapt to the potential reduction of U.S. contributions to joint operations. This growing momentum has led us to reassess our go-to-market strategy for defense. Our goal is to provide customers with a comprehensive military operational readiness portfolio, delivering mission-critical solutions that ensure operational success. We uniquely bring 6 main solutions to the defense market. cybersecurity solutions, protecting systems, networks, data, and facilities, digital solutions connecting the systems and data streams for mission readiness, space and terrestrial communications, building, delivering, and integrating space systems and solutions for global connectivity, custom manufacturing, developing, building and delivering systems components and mission equipment, training and simulation, preparing military personnel from the basics to advanced collective training and healthcare solutions, delivering health services and digital health solutions to keep military members ready for duty. We are currently delivering each of these solutions to multiple defense and security customers across the globe, including the Canadian forces, which consume all of these solutions. The opportunity to deliver this comprehensive suite of solutions to customers worldwide is highly compelling. National militaries across North America, the U.K., and Europe, international organizations dedicated to freedom, security, peacekeeping, humanitarian aid, and international organizations such as NATO, public safety and domestic security agencies at local, state, provincial, and federal levels, and defense OEMs seeking strategic partners to support the implementation of their equipment platforms. Given these macro events and urgency, Calian is well-positioned to be a partner with solutions that have been proven in the defense market for decades. Defense is and will continue to be a key market for Calian. In fact, in fiscal '24, our defense solutions accounted for 44% of our consolidated revenues, and we've reached this milestone through a series of strategic initiatives. Becoming a strategic enabler for the Canadian Armed Forces through a decades-long relationship where we have expanded our reach and breadth of solutions, investments in technology that is relevant globally, geographical expansion where our M&A agenda has allowed us to expand quickly into target geographies, specifically in the U.K., Europe, U.S., and Canada. Our momentum in defense continued in Q1, securing over $50 million in new and renewed multiyear contracts. This underscores the ongoing demand for mission-critical defense solutions and highlights the value Calian brings to Canada's defense, NATO, and our global allies. Of the almost 30 contracts recently won, half will provide operational readiness training, including one for the NATO Joint Warfare Center. In Q1, we also invested in some new strategic hires. We announced the appointment of retired Major General Roch Pelletier, to the newly created role of Regional VP of Global Defense and Security. This appointment will advance our strategic business development, strengthen relationships with stakeholders, and provide operational support to drive growth and efficiencies within the region. We have also hired a Managing Director for our U.K. defense base business. His role will be to manage and lead our U.K. operation, leveraging our recent acquisition of Mabway. The objective is to take advantage of this footprint in the U.K. and grow organically in both the U.K. and European markets. We also recently announced the launch of a U.S. subsidiary focused on U.S. federal government and defense opportunities. This will enable us to include the full scope of the Italian defense solutions to this market. In line with this announcement, we appointed 2 strategic positions as COO and Senior VP of U.S. Government Services, which both have decades of experience. I believe these actions will strengthen our footprint in Canada, Europe, and the United States. If you take away a few things on Calian and Defense, they should be that Calian is a significant player in the defense industry. We have a proven track record of successful global delivery. Our operational readiness portfolio stands out in the market due to its broad range of capabilities, and we are uniquely positioned to respond to growing defense demand due to our full range of capabilities that we can bring to this market. And the demand for these solutions has never been greater. Now I will turn it over to Patrick to discuss consolidated results for Q1 and guidance for fiscal '25. Patrick, over to you.

Thank you, Kevin, and good morning. As Kevin mentioned, we closed the quarter as expected. Q1 revenues increased 3% to $185 million. This represents the highest revenue on record for the first quarter and the second-highest revenue quarter in the company's history. Acquisitive growth was 8% was generated by the contributions of a partial quarter of decisive and full quarters from the nuclear assets acquired from MDA and the acquisition of Mabway. Organic growth was down 5% as growth generated in our overall defense market was offset by the reductions in the domestic defense training pace we previously announced, along with delays in large programs in our space and commercial IT infrastructure verticals. On a trailing 12-month basis, revenues stood at $752 million, an increase of 9% over the previous period. Gross margin was 32%, slightly below the same period last year due to revenue mix. It represents the 11th straight quarter above 30%. This consistent performance demonstrates we can sustain this level on an ongoing basis. Adjusted EBITDA decreased to $18 million from $21 million last year. This decrease is due to the revenue mix, the completion of short-term health response demand contracts at higher margins, coupled with increased investments in our sales engine and supporting capacity of the organization. As a result, adjusted EBITDA margin stood at 9.6%, down from 11.9% for the same period last year. On a trailing 12-month basis, adjusted EBITDA stood at $89 million, reflecting a margin of 11.8%. Adjusted net profit stood at $10.5 million or $0.88 per diluted share, down from $14 million in the same period. In the quarter, we posted a net loss of $1 million due to noncash accounting charges, which we amortized over approximately 5 years post-acquisition. Let's take a moment to look at our cash flow and capital deployment metrics. Cash flow from operations was $4 million this quarter. It was impacted by working capital usage of $8 million. The primary driver was investment in inventory, which will shift later in this year. We maintained our working capital efficiency level in Q1 by using 9% of revenues. This is a similar level to FY '24, but down significantly from FY '23 when we stood at 14%. Operating free cash flow stood at $13 million, representing a 73% conversion from adjusted EBITDA. On a trailing 12-month basis, operating free cash flow stood at $68 million, reflecting a conversion rate of approximately 77%, well above our target of 70%. Turning to capital deployment. In Q1, we used our cash and a portion of our credit facility to pay contingent earn-outs for the acquisition of HPT of $11 million and made CapEx investments of approximately $1 million. We also provided a return to shareholders in the form of dividends of $3 million and continued buying back shares to the tune of $5 million in the quarter. I'd like to provide a brief update on our M&A strategy. While we have remained very active in this space, we haven't closed any deals since Q3 as the targets haven't met our internal return metrics. We've always taken pride in our disciplined approach to M&A, and we remain committed to maintaining that discipline and not making acquisitions simply for the sake of it. That being said, we have a strong pipeline of potential targets, and we're engaged in many discussions. We're optimistic about closing several transactions in FY '25. In the meantime, we continue to buy back shares as we believe this represents a solid investment opportunity. Let's take a look at the balance sheet and cash availability. As of December 31, we had drawn $116 million on our debt facility. During Q1, we drew an additional $26 million to support our current operations, pay earn-outs, and buy back shares. We ended the quarter with a net debt of $55 million, representing a net debt to adjusted EBITDA ratio of 0.6x. This is well below our threshold of 2.5x, meaning we have ample capacity on the balance sheet to pursue our growth objectives with over $200 million available. For the last 12 months, our adjusted EBITDA yield, operating free cash flow yield, and adjusted EPS yield were approximately 15%, 11%, and 9%, respectively. This demonstrates our ability to generate solid returns and reflects our focus on operational efficiency, robust cash generation, and profitability, positioning us well for sustained growth. Let's review our guidance for FY '25 after one quarter. We are maintaining our guidance. We are closely monitoring the ongoing developments in the Canadian federal election, including its timing and potential impact on procurement. Additionally, we are keeping a close eye on the tariff discussions with the United States and are proactively making plans to minimize any potential impacts. As a reminder, we expect revenues in the range of $800 million to $880 million for the year. At the midpoint, this reflects double-digit growth for the eighth consecutive year. In Q1, we signed $154 million in gross new contracts. Recall that in our business, long-term contracts slowly deplete every quarter. And when we renew or extend these contracts, we get a sizable boost in backlog. We ended the quarter with a backlog of $1.1 billion, positioning us well for the remainder of the year and well into FY '26. In fact, when you take into the Q1 revenues of $185 million or $440 million of backlog earmarked for the remainder of the year and our deferred revenues and recurring revenue streams, we have approximately 73% of the FY '25 revenue. In terms of profitability, we expect adjusted EBITDA in the range of $96 million to $106 million. At the midpoint, it reflects double-digit EBITDA growth. As a reminder, we expected to experience increased fluctuations in our quarterly results due to our revenue mix, which is more highly skewed towards products while the timing of deliveries come into play as well as commercial customers characterized by greater demand variability. This is by design as we roll out higher-margin solutions across all our markets. In addition, note that our business has evolved over the past 5 years, which has changed our seasonality profile. Driven mostly by customer behavior, our Q2 and Q4 are now our busiest quarters. As always, we must caution that this guidance is ultimately dependent on the extent and timing of future contract awards and customer realization of existing contract vehicles. The guidance also implies no major changes to the current economic environment, defense spending, and supply chains as well as no major increases in interest rates or labor costs. Note that our guidance does not include contributions from any other M&A activity. Should we close any new opportunities, their contributions would be incremental. Finally, in terms of capital deployment for the year, we anticipate to have another earn-out payment of about $5 million with respect to the acquisition of Mabway in the June/July time frame. We expect to maintain our CapEx investments at approximately $10 million and our current dividend at $1.12 per share. We also continue to use our share buyback program opportunistically in the coming quarters. I'll now turn the call back over to Kevin for his closing remarks. Kevin?

Thank you, Patrick. Today, we are holding our Annual General Meeting, where we will be bidding farewell to Ray Basler, a long-standing Board member and past CEO of Calian. On behalf of the Board, myself personally, I'd like to express our heartfelt thanks to Ray for his invaluable contributions to the company for over 35 years. His insights, passion, and dedication have been instrumental in shaping our vision and guiding Calian through its growth journey and we wish you nothing but the best Ray in your future endeavors. In addition, we will be welcoming two highly accomplished individuals with significant public company experience Josh Blair and Lisa Greatrix. Their backgrounds will be an asset as we continue to grow and scale our business, improve our operational efficiency, and enhance our shareholder value. Welcome Josh and welcome Lisa. In closing, if you've been following recent news, you likely agree that we're navigating a period of significant uncertainty and an accelerated pace of change. This is evident not only in the domestic front but also in Canada's relationship with its largest trading partner and the evolving dynamics in Europe. Despite these challenges, I believe Calian is well-positioned to achieve another record year. This is not by chance but by design. Over the past decade, we've successfully diversified our business by expanding globally, enabling us to tap into larger markets and reduce reliance on any single one. We've also acquired and developed valuable intellectual property, combining it with our legacy best-of-class services to create what I believe are highly differentiated solutions that our customers truly value. These strengths will provide the tailwinds we need to navigate short-term initiatives and continue delivering exceptional results for our customers and shareholders. Finally, I want to extend my sincere thanks to our staff for their unwavering commitment and dedication. As I say many times, without them, we just couldn't do it. Their contributions make all the difference. I want to continue to thank our customers for their loyalty, our suppliers for the collaboration, and our shareholders for your continued support. And with that, Howard, I'd like to now open the call to questions.

[Operator Instructions] Our first question or comment comes from the line of Doug Taylor from Canaccord Genuity.

You flagged a significant amount of chatter we're hearing about increased defense spending from seemingly the leadership of all political stripes. I know you had some issues with budget pressure late last year here in Canada, some of which impacted contracts you thought you might catch up on here this year. So I guess my first question is can you maybe update us on where that stands at this point?

Yeah. Thanks, Doug. What we're seeing, it's a mix really. What we're seeing, frankly, is healthcare business again, no real slowdowns. It's all hands on deck. On our training business, it's definitely stabilized. We now have a clear line of sight on budget and demand, which is something we really haven't been able to do the last couple of quarters. So we think it's stabilized and lots of discussions now are moving away from cuts to capacity building. So we're starting to see the tone change. We're starting to see more discussions on the future with regard to building capacity. And so we think that is a positive sign. So it's not getting -- we don't see any other cuts on the horizon, and right now it's stable. And now it's just a matter of coming back up to the capacity levels we were prior to the cuts and potentially even higher depending on the pace of the military.

So, as we think about that in relation to the guidance which you've reiterated today, you've always been clear that organic growth overall would ramp over the course of the year and recognizing the seasonality comments you made. So I guess, as we said here, with the benefit of a few more months into the year, and I think Patrick referenced 73% coverage by backlog and recurring, can you speak to your visibility on what needs to happen or what you need to break in your direction to get to, you know, the midpoint of your guidance or better? Any commentary there?

Yeah, from my viewpoint, it's a few factors. I'll let Patrick jump in. #1, obviously, new business, we've got and invested in more sales capacity than we've ever had in a company's history, frankly, including sales leadership. So, maniacal focus on our target market and closing high wind odds opportunities. So that's going to be one. Number two is just fulfillment on capacity and demand. We do see, as I mentioned in the defense domain, certain elements for our business, our GNSS business, our nuclear business. We're seeing very strong organic growth opportunities there. So it's really making sure we're tuned up as an organization to deliver to our customers' demand. And I think for me, it really is about that sales and fulfillment element that I think is going to be critical. And I know that's pretty well standard for any company, but for us even more so this year. I don't know, Patrick, do you have any thoughts on this?

No, I think it's been interesting with a lot of the discussion with the U.S. I think it's created some urgency with our customers. I think we're sort of the optimistic that'll help us here in the short term. To Kevin's point, we need to fulfill that and work through the supply chain. But I think those signs are positive, but we just need to see those through here in a couple of quarters.

And Doug, just to finish my thoughts on this, because it's a great question. If I can summarize, we still see, we obviously see tailwinds in our defense market. We're seeing the pivot that Mike Trombley and the team in cyber with their announcement with Microsoft last year. We're starting to see that gain traction. We're starting to see elements of IT spending come back and certain elements for our business. Again, healthcare, Derek and the team have a great vision on both their digital portfolios. So it's a combination of things, but right now, keep selling and keep delivering.

Maybe one last question for me. You've recently established your U.S. subsidiary and seem to have some new go-to-market efforts in that area, which has never been an easy one to penetrate for a foreign-owned company, particularly in defense. So I'm interested to hear your views on what success looks like for that initiative. Maybe you could frame that near, medium, or long-term. I'd be interested in your insights there.

Sure. As a reference, Doug, like about 22% of our revenues are in the U.S. today. Not a lot of that is in defense, so I think what's happened in the last five years is we've acquired some interesting assets, developments that are compelling to some parts of the U.S. defense. So I think we're going in there with more assets, more differentiation. I think the investments we've made is to bring people on who have relationships and understand how to navigate that customer and get in front of the right people and have the right conversations. I think it's only been a couple of months, but I think we're already starting to see some, you know, positive momentum there. I think this isn't going to be, this is a longer-term play, but I think the investments we've made and the assets we have, I think, are much more compelling than they were even three or four years ago.

Yeah, Doug, and to complement Patrick's comments, as a reminder, and I know you know this, we did have a U.S. defense presence years ago. When I first came to Calian in Washington, we were doing foreign military sales. So we've been through the 4K process in the past. And so we're revisiting that, clearly focusing on the space market in defense in the U.S., leveraging our strong advanced tech capability is going to be a start. But then as I mentioned today, I think our defense readiness portfolio is relevant, clearly in the defense market. What we just need to do is ensure we walk before we run, understand the dynamics, understand the requirements to do this properly, and we are going to do exactly that.

Our next question or comment comes from the line of Scott Fletcher from CIBC.

I want to stay on the threat of defense. And with the contract deals you announced the $50 million signed in the quarter, it sounds like you mentioned some of them are NATO. Can you just sort of speak to how that sort of integrating Mabway into the sales efforts has gone and if that's making a difference, which it sounds like it is on the new signing side?

Yes. Great question, Scott. We are very happy with our acquisition of Mabway. You do these acquisitions, I've done almost 20 announcements coming to Calian. And I can tell you this one is firing on all cylinders. Number one, it's keeping up just on the demand that we saw and expected just in the U.K. alone. It's creating an opportunity for us to have different levels of discussions within the U.K. military because of the mission-critical nature of the training we provide. The hiring now of a Managing Director there that's going to be from that area that's a long-term U.K. defense industry veteran is exciting. And then you layer in that the announcement with Roch Pelletier now, a major general who's going to focus on that area, who knows a lot of these people across NATO, a lot of our customers. So I think we've got a good thing happening. So long answer to your question is we're very excited by it. The team at Mabway is just a great group of people delivering and passionate about what they do. The owners are working through this transition, it's been great. So I think it is going to help us. I think it's going to help us access other elements of the U.K. market for sure. And it's also definitely strengthening our position with NATO now when you look at our overall footprint that we have, very strong for us, very strong acquisition, and I think it's just going to be the start of growing our presence in the U.K. and Europe for sure.

And then in the press release, you called out some project delays in large space and IT infrastructure projects. I wonder if you could just talk about what you're seeing there and then maybe what that means for the rest of the year in those in the AT and ITCS segments.

Yes. I think both of these driven by macro factors. I think in space, I think a lot of our geo operators that we've worked with for over 20 years are certainly looking at larger projects. I think they're trying to assess kind of the return on investment of some of those. So I think we've seen some delays. But certainly, I still think that those projects will go, and we've got a good chance of participating on them. Then the IT, I think this has been a broader -- I think we've talked about on some previous calls. I think in industry in general, we've seen some slowdown here over the last 18 to 24 months coming off kind of that COVID push. But our interactions with customers are indicating, and I think some of the other companies in the space have also indicated that the momentum is looking different in this. And certainly, we're hopeful to see some organic growth from that contribution, both in Canada and the U.S. here in the back half of the year.

And then just one quick one. Just on the M&A program, obviously, with the focus today's call is on defense, like should we -- are you looking more at defense-related acquisitions if that's sort of the focus for at least the messaging piece of the story?

Absolutely. I think when you look at the readiness portfolio that Kevin presented, we are looking for acquisitions that both fill in gaps that bring kind of even more diversified solutions to the customer, but also that geographical expansion, which has been so key for us, like getting into Europe, getting into the U.S. I think you will see us focus there along with some of the other M&A, but certainly, that is a focus to find targets that really kind of do the 1 plus 2 plus 3 with our current defense portfolio.

And it's a great question. We definitely want to make sure acquisitions are supporting our strategy, not become our strategy. And I think our business unit presence has done well, working with our Board on that. We look at some of the tailwinds we're seeing, we think like NORAD modernization and some of the programs that you take a step back and say, what are the capabilities we're going to need to uniquely step up into some of these programs, which we think are going to be prioritized, capability in the north, presence in the north, bringing all of our solutions. So the long answer to your question is absolutely talking to all of the capabilities that we're looking for across all of our businesses and defense will continue to be a focus as will space, as will cyber, as will healthcare.

Our next question or comment comes from the line of Paul Treiber from RBC Capital Markets.

Just you mentioned tariffs and that you have a plan if tariffs are enacted. Can you just speak to what percent of revenue you estimate may be exposed to tariffs and then how you could help mitigate that?

Sure. So about 22%, if you look at '24, where 20% of revenues were in the U.S. Of that, only about 5% is done from Canada, so potentially would be impacted. So I don't think it's a large number, but certainly, it is something we're aware of, and we want to make sure we remain competitive in that space. So we're looking at alternative sourcing. We do have a footprint in the U.S., so we can utilize that as well to deliver through there. So we're looking at a few different alternatives. I don't think any of them make it go away completely, but I think we've minimized the impact, make sure we remain competitive with our customers, and make sure that the business doesn't get impacted too significantly.

Just on M&A, you mentioned valuations have not been attractive or didn't meet your threshold. Are there any trends that you've been seeing across the various segments where you're looking at targets? And if there's been -- where there's been the most sort of price inflation and where you see the price more accommodative?

Yes. I think we've challenged ourselves to look at larger transactions. I think those transactions are more competitive. There certainly -- we're going up against private equity and other buyers. And certainly, in those instances, the expectation on the purchase price can go up, and I think that affects what we believe is our ultimate return. So we are continuing to look at that, trying to find the right transaction for us that is bigger and more impactful. So I think that's the broader dynamic rather than kind of any specific market ones, whether we're looking at health, cyber, or defense.

And then just on the government procurement side, it sounds like things are stabilizing and improving, even though there's been a lot of turmoil, let's say, at the Canadian federal side. The suspension of parliament, do you see that as being a headwind? Or is it really a nonevent on the Canadian federal side from a procurement perspective?

Yes, great question. I think from my viewpoint, what we're seeing is a mix, to be honest. I think high-priority files continue to move forward. Some of the more maybe back office files are again experiencing just some delays and slowdowns in procurement. So we're trying to balance that out. And again, a lot of what we do is in that mission-critical space. So I think we're seeing some action there. We are proactively probably more than ever in my career, I am proactively on the government relations bench right now, working with either local members of parliament or proactively engaging the government on the importance of procurement, especially in these times for Canadian companies. So we will continue to do that. So it always creates some headwinds, I would say, when any time there's an election pro parliament. But what kind of uniquely sets us apart is just because we're involved with so many, I think, mission-critical or critical files that we're expecting those to make it through, but we're not taking it for granted. So I'm spending quite a bit of time making sure that the election or prog government is not going to be used for a lack of ability for Canadian industry to benefit from government programs.

Our next question comment comes from the line of Michael Kypreos from Desjardins.

Maybe just going back to M&A, given all that's gone on over the past 2, 3 months with rates, tariff threats, have you seen any signs of maybe stalling out of targets in Canada, north of the border, or anything else given all the uncertainty?

Yes, I don't think we've seen -- I mean, the tariff stuff is still pretty new, like I think everyone is still reacting to that. So I don't think we've seen it kind of trickle into different behavior on the M&A side. So I think that's wait and see, I guess, as we continue to engage. Like we said, we've got a lot of files going on here and a lot of engagement. So we'll have to report back later to see if that's been an impact. Otherwise, I think it's just been -- we are pushing hard to look at targets, both Europe, U.S., and Canada, and we're optimistic we'll get a few deals done here this year.

And maybe just there's been a lot of like increase in by local sentiment in Canada, and there's also been a lot of increase in speaking about border security. Do you guys have any exposure to border security, maybe in the training front and the whole by local sentiment, and how it could potentially be beneficial for Calian?

Yes, great question. So we do have experience and we worked with border services in our health care area in the past with a bunch of different mandates that we were supporting them on. We've done some training with regard to our military presence with regard to readiness training. So we believe that that's definitely relevant in this construct. So when we look at it, and as I was trying to mention that in our operational readiness portfolio concept, many of what we do in defense is clearly relevant for border security. We will continue to talk to the government leveraging our healthcare footprint, leveraging our defense footprint to help respond to what I think will be an elevated priority in that area. So I do believe it's an opportunity for us, and we're now assessing where and which programs are going to be pushed forward here in response to the U.S. pressure in this area.

[Operator Instructions] Our next question or comment comes from the line of Rob Goff from Ventum Capital.

My question here would be with respect to the U.S., what services would be particularly relevant for the military? Would that include the cybersecurity?

I think to me, any of the defense customers that I'm talking to today, and that's why I'm so excited about the discussion around our portfolio. It normally evolves around cyber for sure. It talks about capacity building through training, through recruiting. It talks about equipment, new capital equipment. Again, we have a role to play in our manufacturing business. You've got basically space. As we see in Ukraine and other spaces becoming a critical domain. In the past, I've been in defense for over 40 years. Everyone always talked about Army, Navy, Air Force, but now the 2 new domains that everyone is focused on is space and cyber. So I think we're uniquely positioned to help them all. So I think everything we're doing is relevant to any defense department. It's just a matter of being honest about our capability in any given country and focusing in on where we want to build capability. So absolutely, cyber for sure, but all of those, as I mentioned, all elements relevant. And I think every defense force is going through some level of discussion in each of those elements.

And sorry, one more tariff question, if I could. The U.S. administration is helping you with respect to pushing the NATO companies towards their commitments, but they're also pushing with the tariffs. When you're competing in Europe, do you see the European countries sort of trading, buying U.S. services as part of a tariff negotiation?

As Patrick said earlier, I think a lot of folks are still digesting how this is going to be rolled out, the impact of this. I can say right now, and again, based on our signings in the quarter, based on our funnel right now, I think in Europe, it's about getting the job done right now. We were very fortunate here in Canada at times to be not having this conflict so close to our borders. But I can tell you, when we're over in Europe, NATO, U.K., it's about getting the job done. And that is our deployment to Latvia. It's about strengthening our position at the Russian border, like it is all hands on deck right now. So I think, frankly, and credit to our men and women of the military, their job is on getting their mission done. Our job as an industry has got to support that and not let politics in any way slow that down. So that's what I sense in Europe right now. And I'm confident that will continue to be the focus, and we will work as a defense industry to hopefully maneuver through any of these tariff headwinds that may come at us. But we got to do better. We got to make sure that the operational readiness is ready to roll here for all of our benefit.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Ford for any closing remarks.

Thank you. Thanks, Howard. And again, folks, thank you for attending our call. We're looking forward to providing an update at the end of next quarter. And again, stay safe, upstairs. It's crazy snow here in. I hope wherever you are, you're able to dig out of it. So thanks for your time today. Appreciate the questions. Look forward to continued dialogue, and we'll see you next quarter. And with that, Howard, we can finish the call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.