Calian Q3 2026 results: raised outlook, lighter order book

Calian Group lifted its forecast for the year on Thursday, telling investors to expect revenue growth in the mid-teens rather than the low teens it guided to in May, after a third quarter in which revenue rose 20 per cent.

Will Majic, acting chief financial officer, was more careful about what produced it. Part of the quarter’s strength was work pulled forward out of the fourth quarter, Majic said, and the organic growth rate behind it is not one Calian can count on repeating.

Investors took the raise. Shares rose 7 per cent on the day, to $91.58 on the Toronto Stock Exchange, and have nearly doubled over the past year.

From low teens to mid-teens

Calian describes itself as a provider of mission-critical solutions to customers in defence, space, health and critical infrastructure, run from its headquarters in Ottawa with more than 6,000 staff worldwide. Under Patrick Houston, who replaced long-serving chief executive Kevin Ford in December, it has been narrowing rather than broadening. Four operating units became two — Defence & Space, and Essential Industries — and the year’s deals have been in connectivity and services close to what the company already does, rather than in new territory.

At the half-year in May, management guided to full-year revenue growth in the low teens and growth in the high teens in adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, a rough gauge of operating cash profit. It also warned of margin compression in the second half as it spent on European expansion and on improving Canadian operations. The third quarter is the first quarter of that second half.

Both of those growth numbers went up on Thursday, to mid-teens revenue growth and adjusted EBITDA growth in the low twenties. The longer-run target Calian sets itself, 10 to 15 per cent a year, is unchanged.

Ahead of both promises

Nine-month revenue rose 17 per cent and adjusted EBITDA 41 per cent, each comfortably ahead of what was promised in May.

“Perhaps most striking is that our adjusted EBITDA has already reached $76 million, nearly matching our full-year adjusted EBITDA from last year, and we still have runway ahead of us,” Majic told analysts on Thursday’s call.

Defence and space is the half of the business SpaceQ follows, and it did the heavier lifting: about two-thirds of the quarter’s revenue, grown by a fifth, and nearly all of that growth organic rather than bought. Essential Industries grew by the same proportion but earns roughly a third as much on each dollar of sales.

That demand has a Canadian shape to it. Calian launched a sovereign C5ISRT initiative in January — command, control, computing, communications, cyber, intelligence, surveillance, reconnaissance and targeting, the military’s term for the machinery that turns sensor data into decisions — and in June won a share of a Canadian Space Agency award to design ground-control systems for the country’s next Earth observation satellites. Houston told analysts he expects Ottawa’s Defence Investment Agency to be named a department in the fall.

Where the margin came from

Gross margin, what is left of each sales dollar after the direct cost of doing the work, slipped slightly from a year earlier. Adjusted EBITDA margin rose anyway, to 11.1 per cent from 9.9 per cent.

The improvement came from overhead rather than from better project economics. The gap between gross profit and adjusted EBITDA narrowed by almost two percentage points of revenue, which is what operating leverage looks like when a company grows into a fixed cost base it has already paid for.

Measured against the previous quarter rather than the previous year, the compression management flagged in May duly arrived. Adjusted profit per share fell to $1.10 from $1.30, and the adjusted EBITDA margin came down more than a point.

The distance between reported and adjusted profit also remains wide. Calian earned less than half as much on the statutory measure as on its own. Amortization of intangible assets from earlier acquisitions accounts for most of the difference — a real cost of having bought growth, even if it never leaves the bank account.

Two cash numbers, two directions

The company’s two cash measures point in opposite directions, and the reason is definitional rather than disputed. Cash from operating activities over the nine months fell by about a fifth. Operating free cash flow, the measure Calian leads with, rose 57 per cent.

The management’s discussion and analysis explains the gap. Calian’s measure captures “cash profitability after required capital spending when excluding working capital changes.” Growing at this pace has tied up roughly $20 million more in receivables and in work done but not yet billed.

Majic addressed it head-on, unprompted, in his prepared remarks. The company had put money into working capital deliberately, he said, to meet a burst of demand for its technology work, and customer credit quality was unchanged. “This is entirely a revenue growth and timing dynamic. It is not structural.”

He expects working capital to end the year between $15 million and $17 million.

The balance sheet absorbed the quarter comfortably either way. Net debt fell to 0.9 times adjusted EBITDA, from 1.2 times three months earlier.

A lighter order book

Backlog, work already under contract but not yet delivered, was $1.45 billion at June 30, down from about $1.5 billion three months earlier.

Calian booked roughly 73 cents of new work for every dollar of revenue it delivered in the quarter. Across the nine months the two are near enough level, so the shortfall is one quarter’s, not the year’s.

Analysts noticed. Backlog was “slightly down quarter-over-quarter,” Benoit Poirier of Desjardins put to management, though he added that it did not yet include the British Army work.

That work is the larger of two contracts sitting outside the reported figure. On Aug. 11 Calian said it would help train the British Army for a further 15 years under a subcontract to Raytheon UK, and put the base value at about $296 million. On the call Houston went further: asked by Nicholas Boychuk of ATB Capital Markets whether a variable component could effectively double that over the term, he answered, “Correct.”

The second is Galaxy Broadband Communications, a satellite connectivity provider Calian agreed in June to buy for up to $51.5 million. Its debenture holders approved the sale on Aug. 11 and Calian expects to close within weeks. Counting both, the company puts pro-forma backlog at about $1.6 billion, roughly four-fifths of it in defence.

What to watch

Calian’s year ends Sept. 30, with fourth-quarter results due in late November, and the raised forecast sets a real test. The company turned over $774 million last year. A flat fourth quarter would leave full-year growth near 12 per cent, short of the mid-teens now promised. Getting there needs fourth-quarter revenue up by high single digits.

That is the number to watch, because Majic has already said some of the work that would have filled the fourth quarter landed in the third instead, and that the company’s durable organic growth rate is mid-single digits rather than the 16 per cent it managed this time.

Two other markers fall before the results. The British Army work begins in October, when Calian’s current training contract, Project NUMIDIAN, expires. And a review of assets the company might sell, which Houston said in May would conclude over the summer, is still to report.