Edited Transcript of IBG.TO earnings conference call or presentation 6-Mar-20 1:30pm GMT

With our proven capabilities in the design and execution of large-scale transportation projects, we are well positioned for a growing demand in Canada and globally. Ontario alone has announced programs of tens of billions of dollars in infrastructure investments over the next 10 years. We also have some 90-plus planning projects, representing 10,000 acres of urban development. To put this in context, IBI led the planning and approvals process for the development of the CN Lands and Liberty Village, which led to multiple years of follow-on work for engineering and architectural services.

IBI’s building sector continues to be robust with a strong pipeline committed in their work.

In addition to our strong Living+ pipeline, we

we are seeing growth in other areas, including seniors living and student residence. One of the important trends in the Living+ sector is the increased demand for rental apartment developments and intensification of large-scale retail sites. We have numerous feasibility studies underway for a large mixed-use developments across the greater Toronto area, which will inevitably lead to multi-building developments.

Oxford Properties recently announced that it will be developing the largest mixed-use project in Canadian history in Mississauga. IBI are the architects for the first 5 towers on this landmark development. Also for Oxford, our corporate interior design group was invited to participate in the workplace innovation challenge, designing a unique space for technology startups.

Additionally, our client, Carttera, announced that Google has leased its 400,000 square foot IBI-designed office building in Toronto’s financial district, which further speaks to our leadership and innovative workplace design. In the U.S. East, we are working on the master planning commission for a large residential development in Washington, D.C. area. We are also advancing construction drawings on the Hope Point Tower in Providence, Rhode Island, which is a 46-storey building, which will be the tallest building in the state.

In Q4, IBI signed the architect’s declaration regarding climate and biodiversity in Canada, the U.S. and the U.K. Underscoring this commitment to sustainability, we are designing a 60-storey passive house design in Vancouver for Hansen Developments. This will be the tallest passive house tower in the world. Also of note, IBI did the planning approvals for the largest solar farm in Western Canada for RealPart Canada Inc. The solar farm includes some 700,000 solar panels and it can power 25,000 homes.

In our infrastructure sector, we are progressing our work on the Hurontario LRT, which was announced last quarter. We are now in the detailed design phase, allowing for the start of construction in the spring of this year. The planning of this major transit infrastructure project has resulted in significant urban intensification plans in the city of Mississauga. For IBI, this includes 25 separate residential towers currently in the planning, design and construction phase, each between 22 to 80 storeys high.

Our backlog in the infrastructure sector is solid, and we have achieved several small- and medium-sized project wins in Q4. Other global projects continue to move forward, including the Eglinton LRT, Edmonton Valley LRT, Ottawa Confederation Line and the Red Line LRT in Tel Aviv. We are also in the pursuit phase of several additional T3 projects in Ontario, Hawaii, California and British Columbia.

In the Intelligence sector, we have a number of significant milestones in our tolling practice in Q4, including the successful deployment of the first closed tolling system in India in November 2019. This toll system included 102 toll lanes at 8 toll plazas and supports payment through cash, smart cards and electronic toll collection.

In Greece, we were awarded the Olympia Odos Hybrid Toll Collection System to be delivered this year. The project will add 30 electronic toll collection stations to the existing system roll, which was designed originally by IBI in 2017. We are also developing a location-based mobile app for the client, which will provide a number of interactive trip planning features to toll users.

In North America, we added the toll system supply and maintenance to our existing portfolio of intelligent transportation systems work on the Gordie Howe International Bridge, which connects Windsor and Detroit. This is a landmark cross-border tolling project for the firm. We are also responsible for the overall security aspects of the major project.

Additional milestones for IBI’s Intelligence sector in Q4 was the project management for the Metrolinx Network Operations Centre. In February 15, Metrolinx took over all rail traffic operations from CN, and IBI oversaw the successful execution of the new arrangements. The Metrolinx Network Operations Centre, which became operational in November 2018, was also designed by IBI. Our work in the Network Operations Centre illustrates the further integration and complementary nature of our Intelligence and Building sectors.

As part of the technology pivot, we progressed our asset management product in form on previously announced projects in India and also implemented a solution on a 32-kilometer 6-lane highway connecting Bangalore and the electronic city. The existing toll client is leveraging the platform to monitor over 1,200 assets along the highway, including toll equipment, street lights, cameras and other electronic equipment, providing significantly improved and more efficient oversight for ongoing maintenance.

In the previous quarter, we announced 2 new contract wins with the states of Alaska and Wisconsin for our advanced traveler information product, TravelIQ. In Q4, we went live with both deployments demonstrating the turnkey nature of our white label solution and the speed with which we can launch our product. We are continuing development on the product, targeting the roadway networks of cities and counties across North America, ensuring our solution is more connected through shared information and data. We are also hiring more software developers and dedicated sales staff to support these initiatives. We also continue to take our TravelIQ data and make it available through our API to third-party subscribers like Waves and Uber.

Our acquisition of Aspyr has bolstered our services offerings in the systems architecture area and given the firm a very strong pipeline of work, in particular with P3 projects in the areas of healthcare, justice and education. Additionally, the Aspyr team has secured several major commissions since joining IBI that offer the potential to double the team’s existing revenue.

As part of IBI’s technology pivot, I’m pleased to announce that our Smart City Sandbox initiative now has dedicated physical space in IBI’s head office in Toronto. The space, which was designed by our corporate Interiors team as an innovative collaborative hub, connect with clients, partners and startups in the Smart City, PropTech and energy ecosystems. And we look forward to announcing more about the Sandbox at our AGM on May 8.

I will now hand over the call to Steve Taylor, our Chief Financial Officer, who will provide an overview of IBI’s financial results.

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Stephen B. Taylor, IBI Group Inc. – CFO [3]

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Thank you, Scott.

Cash flows provided by operating activities totaled $50.1 million in 2019, an increase of $37.5 million over 2018, and totaled $32.1 million in Q4, $30.8 million higher than the same period in 2018, due to improved collections of accounts receivable and some progress in reducing our working capital in P3 transit projects.

With days sales outstanding of 64 days at the year-end of 2019, IBI is leading the way in Canada when it comes to DSOs. We decreased our DSOs by 6 days relative to last year, supporting our debt reduction initiatives and demonstrating our commitment to continued improvement. We repaid $25.2 million on our bank line, and IBI has meaningfully exceeded our previous debt reduction target of $10 million for the year ended 2019.

As Scott touched on earlier, IBI’s reduced debt position of $77.3 million at year-end resulted in a 1.8x net debt to adjusted EBITDA multiple, eclipsing our previously stated multiple target of between 2x and 2.5x. This strengthened position affords greater financial flexibility and optionality for IBI to allocate capital to value enhancement opportunities, like accelerated organic growth, further equity investments in early stage technologies and corporate or asset acquisitions.

Throughout 2019, IBI continued to integrate technology processes across all of our operations, including initiatives to enhance internal processes and controls within our existing ERP platform. We implemented new robotic process automations or RPAs in 2019 to identify and analyze a sizable number of inactive contract assets, an endeavor that would have been very onerous to do manually. These contract assets related to change orders on projects which should have been recognized prior to IBM — IBI implementing our new ERP system. As a result, in Q4 2019, management wrote off various small dollar amounts in active contract assets, which represented a change to approximately 600 projects in total, for an average of about 4,200 a project. The impact of these write-offs in total was a $1.4 million reduction in Q4 revenues and EBITDA. However, as Scott noted, the impact of these nonrecurring process improvements is not reflective of IBI’s underlying operations. So I’ll discuss some key results excluding the impact to provide a better indication of our true operating performance during Q4 and the full year of 2019.

2019 net revenue of $376.9 million exceeded our forecast of $374 million, driven by growth in our Intelligence and Buildings practices, while Q4 net revenue was $91.7 million. Excluding the RPA impacts, our total net revenue in 2019 was $378.3 million and was $93.1 million in the quarter.

Adjusted EBITDA totaled $42 million in 2019 with an 11.2% margin, and it was $6.8 million in Q4 with a 7.4% margin. Excluding the RPA impacts, adjusted EBITDA would increase to $44.6 million in 2019, representing a margin of 11.8%, and to $8.2 million in Q4 with an 8.8% margin. Contributing positively to 2019 revenue, and the 2020 outlook and adjusted EBITDA outlook was IBI’s 27% increase in backlog over year-end 2018, driven by particularly strong increases of 29.1% and 24.4% in the Canadian and U.S. operating segments, respectively.

Our Intelligence practice posted solid growth through 2019, supported by an ongoing focus on generating new recurring revenue streams that can be captured through the life cycle of assets we design. In 2019, net revenue from Intelligence grew 4.5% over 2018 to $68.8 million and increased 0.5% to $17.8 million in Q4 2019 versus Q4 2018.

Excluding the impacts of the RPA write-offs, Intelligence net revenue in 2019 was $71.6 million or 18.9% of total revenue and was $18.4 million in Q4, 19.8% of total revenue.

Adjusted EBITDA from Intelligence in 2019 was $10.1 million with a 14.6% margin and $2.7 million or 15.1% margin in Q4. However, adjusted EBITDA absent any RPA impact improved to $13.2 million in 2019 with an 18.4% margin and $3.5 million in Q4 with an 18.9% margin. This clearly demonstrates the increasing contribution of our Intelligence practice to IBI’s corporate results.

Some timing delays on projects within the U.S. segment impacted Q4 2019 net revenue of our Buildings practice, which was 3% lower at $44.2 million, but the delays are expected to be reversed as contracts are signed in Q1 2020.

For the full year 2019, our Buildings practice continued to provide growing net revenue totaling $196.7 million, 3% higher than in 2018, and generated robust adjusted EBITDA of $31.1 million with a 15.8% margin, an increase of 25% over 2018. The Q4 timing delays resulted in adjusted EBITDA for the period being volatile, totaling $2 million or a 4.5% margin compared to $4 million or an 8.7% margin in Q4 2018.

Net income from operating activities increased 58% in 2019 to $22 million and decreased 40% to $2 million in Q4, which is attributable to the RPA impacts and changes in the valuation of the derivative liability on our balance sheet. Net income in 2019 totaled $16.8 million and $1.9 million in Q4.

I’d like to speak briefly on COVID-19 or coronavirus. IBI has sufficient backlog of work to minimize the revenue impact for 2020. Should there be more significant economic disruption as a result of this virus, it could impact the replacement of our current backlog for 2021 and beyond. But at this point, that impact cannot be determined. We have processes in place to monitor the impact on our employees and subcontractors, and there has been no significant impact to date. IBI has implemented a plan whereby business travel is undertaken only as necessary, and we’re encouraging greater use of our work from home policy.

With that, I’ll turn the call back to Scott for some closing remarks before we take questions.

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Scott E. Stewart, IBI Group Inc. – CEO & Director [4]

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Thanks, Stephen.

Given continued macro trends around the immigration to major Canadian cities and migration within the United States to major urban centers, we believe IBI is ideally positioned to continue generating meaningful growth. With established and proven capabilities in the development and the integration of technology through our Intelligence practice, we plan to continue fueling the engines of Buildings and Infrastructure while seeking further opportunities to develop recurring revenue streams and deliver value to our stakeholders.

Looking ahead, we are forecasting total revenue of $388 million for 2020, 4% higher than 2019 revenue forecast. The company also continues to forecast that with the ongoing integration of technology, plus continued investment in innovation and software solutions. Our Intelligence practice is expected to trend towards the levels that represent 20% of revenue and 20% adjusted EBITDA margin to the end of 2020.

That concludes our formal remarks. Operator, we are now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question is from Michael Tupholme from TD Securities.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [2]

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Just a follow-up question on the RPA-related write-offs. Is there any potential for further write-offs or charges as it relates to that efficiency initiative you undertook?

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Stephen B. Taylor, IBI Group Inc. – CFO [3]

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Mike, thanks for the question. This was a cleanup exercise. And I’ll give you a bit of background as to how the systems have been configured so you can get some comfort on that question. Prior to the implementation of IFRS 15, there was no requirement necessary to — and you recall that happened Jan 1, 2018, for having revenue recognized in your system fully supported by written commitment from your clients.

So for the last 2 years, that has changed. And we don’t recognize any revenue unless we’ve got a signed write-off on the scope of the work and the commitment of the client to pay. Also in our ERP system, which you know was implemented over — between 2015 and the middle of 2017, there were a very large number of legacy projects that have been converted over. We’ve been focusing in ’17 and ’18 on making adjustments to any remaining work in process/contract assets or accounts receivable for more of the larger projects. But when we got to the early part of last year, it became apparent that we had about 7,500 projects which were still active in our system. And we needed to set about a process where we could go back to all of the directors on those projects and confirm that the projects were closed, and that as a result, any remaining assets that were sitting on the balance sheet would have to be swept into a bucket and then cleaned up.

So I’m — that process — the robotic process of the project close has been running since end of July of last year. It’s an ongoing process. What we’ve talked about in terms of the $1.4 million adjustment is just the increase in the magnitude of the adjustment over what we had been writing off before in ’17 and ’18. So it was a catch-up. And I don’t anticipate, given that this process is ongoing repetitive, done the same way now that we’re going to be experiencing the same thing going forward.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [4]

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Okay. No. That’s helpful to understand all of that. You provided some detail around the impact of those charges on the Intelligence practice, both from a revenue perspective and an EBITDA perspective. Is that same sort of detail in terms of reconciling what you reported versus what it would have been excluding the impact available for the other business practices and for your regions? Because it seems as though it affected the business right across the board.

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Stephen B. Taylor, IBI Group Inc. – CFO [5]

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Yes, I can comment on — certainly, the 2 segments, the write-offs did not have significant impact at all on our Buildings practice in Q4 or last year for the full year. It did — they did impact, as we talked about the Intelligence practice, and they also impacted our infrastructure practice to an even greater extent than the adjustments in Intelligence.

In terms of geographies, the 2 geographies that were impacted the most were the United States and our other international regions. So Canada and the U.K., the impact was negligible. It was about $600,000 in Q4 in the U.S. and about $900,000 in our other international business. So…

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Michael Tupholme, TD Securities Equity Research – Research Analyst [6]

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Okay. And using the disclosure you gave us for Intelligence is essentially the difference between the total impact and what you told us for Intelligence what is implied for the Infrastructure business?

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Stephen B. Taylor, IBI Group Inc. – CFO [7]

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That’s correct.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [8]

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Right. Can you talk a little bit more about the timing delays in the U.S. business as it relates to some project timing delays that you discussed? What gave rise to those delays? And you talked about those delays being resolved in Q1 2020. So just trying to understand if there’s also going to be a negative impact from those delays in the first quarter. And if so, is that of a similar magnitude to what we saw in the fourth quarter?

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Stephen B. Taylor, IBI Group Inc. – CFO [9]

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It shouldn’t occur. The delays are primarily in our — as we’ve talked about before, our education sector and buildings in the U.S. is a very important sector to us. As I commented before, under IFRS 15, until we get the written sign-off on contracts, we’re not allowed to recognize revenue. And so we have a number of fairly significant contracts in the education sector in the U.S. where we have been given the award but we haven’t yet got the final contract. So the work has started. The clock has started in terms of getting the work done because the client wants the work done, but there in many cases, not so swift in terms of getting the paperwork signed. It’s paperwork that has to be approved by various school board councils and that sort of thing. So it can take up to 2 to 3 months for us to get sign-off on a contract. Now our experience has been that we always do get the sign-off, but there is a time lag in between where we have to start the work and then we can actually recognize the revenue.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [10]

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Okay. So is the hope or the belief is that you’ll get the sign-offs prior to the end of the first quarter, and therefore, you will be able to recognize the revenue for the work you’ve been performing in the first quarter such that there is no similar impact in the first quarter?

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Stephen B. Taylor, IBI Group Inc. – CFO [11]

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That is not only — it’s not a hope, but it is our objective to get that paperwork signed.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [12]

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Okay. And then just last question on this topic. Can you provide some indication or quantification for how much of a negative impact this had on the fourth quarter for the Buildings segment or Buildings practice?

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Stephen B. Taylor, IBI Group Inc. – CFO [13]

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As I mentioned before, the EBITDA in the fourth quarter in the U.S. was down about $600,000. So the run rate that we’ve been running at in the U.S. for EBITDA has been between $1.5 million and $2 million a quarter. The delta between the $600,000 and that normal run rate is what the impact of the delayed contracts have been. And we fully expect to make that up. Our backlog in the U.S. is significantly higher than it has been for any of the last 3 years, and we’re trending at in excess of 75% booking of capacity for the whole of 2020, which is — we’re very encouraged by that number.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [14]

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Sorry. Just to clarify. That $600,000 that you’re referring to, that is the impact to the RPA charges related?

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Stephen B. Taylor, IBI Group Inc. – CFO [15]

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That’s correct, Mike.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [16]

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Okay. Last one for me. Leverage ratio has come down and is now below your target range, as you pointed out. You talked about having additional financial flexibility and optionality with respect to capital allocation and provided some examples of the sorts of investments you could make and areas you could pursue. What is the priority as it relates to capital allocation for 2020? What are those areas? Which ones do you plan on focusing on?

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Stephen B. Taylor, IBI Group Inc. – CFO [17]

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We’ve had many, many conversations with current investors and prospective investors in terms of where they’d like to see us going. And we’re very aligned with what most of those people are saying in that this business needs to demonstrate growth. And there are a lot of good opportunities out there for us to take cash flow and invest it principally in technology-related companies, but it could be also other more conventional practices that help us gain bench strength or accelerate into new markets like the Aspyr acquisition was for us. So we have an active program ongoing at the moment looking at moving forward on finding some more of those targets.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [18]

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Okay. Sorry. And if I could just ask one other one. The working capital, changes in noncash working capital for 2020, how do we think about that, Steve?

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Stephen B. Taylor, IBI Group Inc. – CFO [19]

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Well, I think we’re going to return to more of a normal pattern. As we got to a certain stage on the bigger P3 transit projects, we had a buildup of working capital. A lot of that got released in the last quarter of last year. So we saw significant cash flowing in the door. We are starting the Hurontario project, so there will be a build on working capital, probably not so much this year because the cash flows tend to be okay on those projects in the first year of the project. It tends to catch up with you on years 2 and 3. So in 2021, we’ll probably see some more of a working capital build on the Hurontario project. But by and large, working capital will stay fairly constant this year. You will see us be users of cash in Q1 and Q2, just as we were last year, and catch up in Q3 and Q4, which you saw last year and the trend, I believe, the year before. So those tend to be the patterns of working capital build and cash collection in the business.

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Operator [20]

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The next question comes from Mona Nazir at Laurentian Bank.

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Mona Nazir, Laurentian Bank Securities, Inc., Research Division – Director of Research and Transportation & Infrastructure Analyst [21]

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Congrats on the significant debt reduction. My first question, and not to go into the same topic, but it’s more of a clarification. So if we were to strip out the nonrecurring RPA adjustments and if U.S. education contracts were signed in the quarter, then the U.S. EBITDA would have been between the $1.5 million to $2 million kind of normalized level.

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Stephen B. Taylor, IBI Group Inc. – CFO [22]

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That is correct.

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Mona Nazir, Laurentian Bank Securities, Inc., Research Division – Director of Research and Transportation & Infrastructure Analyst [23]

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Okay. Perfect. And then if I’m just looking at the significant backlog improvement on a sequential basis, I mean 2020 guidance is — you said that it’s factoring in 4% year-over-year growth. Is it safe to assume that the majority of backlog improvement relates to projects in 2021 and beyond? Or are you being conservative in your 4% growth assumption?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [24]

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The projects have extended over a long period of time. They’re not just for 2020. We’re seeing very strong commitment and sign up work for 2020, but they do extend well beyond 2020 into 2021.

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Stephen B. Taylor, IBI Group Inc. – CFO [25]

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Mona, you can see the $490 million number we’re talking about, there’s now note disclosure in the statements that shows which year that revenue is expected to be realized in. It’s new disclosure that’s required for the end of this year.

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Mona Nazir, Laurentian Bank Securities, Inc., Research Division – Director of Research and Transportation & Infrastructure Analyst [26]

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Okay. That’s helpful. And then just in regard to M&A targets, is your focus on the Buildings or Infrastructure verticals? Or is it safe to assume that you continue to grow the Intelligence practice organically? And is it continued smaller tuck-ins? Or could we see a medium or a decent-sized transaction?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [27]

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A lot of it depends on what the opportunities are that are presented to us. We are, as Stephen indicated, in the market. And it varies. Certainly, we’re always on the lookout for tuck-ins like Aspyr and other strategic investments that are complements to the kind of work that we do, like the investment we made in SWTCH, the EV charging company. But we’re also looking for complementary traditional services that are urban focused, that are either a geographical strengthening or add new substance in terms of what’s needed in urban environments. We cover transportation very nicely across the firm, and that’s a key driver for urban development, but there are other key utilities, including water and energy. So those are also on our list because we see that the 3 prime underpinning features of urban environment is mobility, energy and water, and water resources and management. So those latter 2 become important considerations in the diversification. And then again, as I said, geographical coverage. But all with a view to that when we make those investments in what one might call more traditional A&E services, they are also of an important route to market for our Intelligence practice.

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Mona Nazir, Laurentian Bank Securities, Inc., Research Division – Director of Research and Transportation & Infrastructure Analyst [28]

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And so you are having discussions with targets at this point in time? Would it be safe to say that?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [29]

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That’s safe to say, yes.

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Operator [30]

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The next question is from Frederic Bastien from Raymond James.

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Frederic Bastien, Raymond James Ltd., Research Division – MD & Equity Research Analyst [31]

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I just wanted to go back to the delays you experienced in your U.S. Buildings practice. We’re now more than 2/3 of the way through Q1. So I was wondering what gives you the confidence that you’ll get that paperwork sign on your contracts.

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Stephen B. Taylor, IBI Group Inc. – CFO [32]

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Well, some of it has been resolved already, Frederic, and it continues to unfold. So I think by the time we get to March 31, we should be in pretty good shape.

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Frederic Bastien, Raymond James Ltd., Research Division – MD & Equity Research Analyst [33]

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Okay. So you can confirm that some of that stuff is already taken care of?

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Stephen B. Taylor, IBI Group Inc. – CFO [34]

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Yes.

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Frederic Bastien, Raymond James Ltd., Research Division – MD & Equity Research Analyst [35]

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Okay. Great. A lot of comment on the U.S.-Canadian businesses. But just wondering how your U.K. practice is doing and the other international as well. We — relative to what our expectations were, you were a bit light on both in terms of EBITDA. So I was just wondering if you could provide a bit more color on those businesses, especially with, I guess, the environment might have changed post Brexit. So any color will be appreciated.

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Stephen B. Taylor, IBI Group Inc. – CFO [36]

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Well, one thing that impacted the U.K. performance and lowered the margin is we had settlement on a long outstanding claim where we ended up having to pay. And that amount that we ended up having to pay in the last quarter was fairly significant. It’s about CAD 600,000. So that really brought down our operating profit performance for the year in the U.K. What we are seeing in the U.K. is that the areas where we have been strong in past, in particular, in healthcare, that the Conservative government in the U.K. has really started to open the purse string somewhat and starts some more cash flowing for capital projects in the U.K. So I mean we’re still very, very cautious about U.K. results. But we see that as opposed to last year when things were looking very uncertain, things appear to be trending in a better direction this year.

Other international, on the other hand, we’re strong in — continue to be strong in India. We have good steady backlog of work in both Israel and Greece. Mexico looks okay. The Middle East, in Dubai and Saudi Arabia, there has been a contraction in the economy in both of those economies, and so we’re not seeing those 2 areas as being as robust going forward as they have been in the past.

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Operator [37]

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The next question is from Maxim Sytchev from National Bank.

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [38]

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Scott, I just wanted to circle back on to the Intelligence business. You’re obviously close to the 20% target by 2020. I presume, obviously, this business is growing at a faster pace versus the rest. So in terms of — how do you think about how big can this business become over the next, let’s call it, 3 to 5 years versus the rest of the company?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [39]

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To answer that fully, well, I want to step back, and we will be doing an update on the launch of some of our new products. I would say that, generally, we would look to Intelligence to grow in the 6% to 7% range, which is somewhat improvement over the history. We have done business models for all of our other products. There is an investment in them. Typically, it takes about 14 to 18 months to see a breakeven on that investment in them. So I don’t see any significant acceleration that would go beyond the traditional experience in Intelligence until, I would say, the first quarter of next year.

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [40]

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Okay. That’s helpful. And then, I guess the update would come around the AGM time frame. Is that a fair assessment?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [41]

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We will be — I think that’s a fair assessment, yes.

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [42]

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Okay. And then in terms of — as obviously, you’re trying to push the SaaS revenue model for some of the products that you’re developing in the Intelligence segment. The recurring revenue right now, is this meaningful at all for the Intelligence business? Or is it still very low single digits?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [43]

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As a percentage of Intelligence?

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [44]

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Yes.

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Scott E. Stewart, IBI Group Inc. – CEO & Director [45]

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It’s not low single digits. We will be at the end of the first quarter providing detail on the ARR because we’ll also have the comparison of Q1 this year and Q1 last year. And so we will have disclosure on it. But it’s much more than single digits.

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [46]

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Okay. That’s very helpful. And then last question. Again, given the value that is being ascribed to some of the sort of similar intelligence-type assets in the marketplace right now, any thoughts on showing/crystallizing value in the segment? Any thoughts on that front?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [47]

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Not yet. We still think it’s a little too early to provide that kind of breakout and valuation. I mean we’re certainly very mindful of it internally and what we should be looking at in terms of valuations around our ARR and how that then compares to how we’re then being seen in the marketplaces, A&E firm only. And that certainly leads us to conclude that there is a significant opportunity for growth in the share price. And that’s a large part of what’s driving the whole approach to become much more of a technology-driven design firm.

And the other comment I want to make on that, that is really important as an illustrative factor, is that the more that we have this technology in place underpinning our traditional Buildings and Infrastructure practice, the more we become insulated and protected against downturns. We, as an example, have deployed 5 of the 6 toll systems in Greece. We operate the clearing and settlement of the financial transactions and the electronic transactions between those systems. So when we had the crash in Greece, we didn’t lose any revenue and our margins were strengthened, because, in fact, the cost of services then had dropped for us. That’s where we — that is an indicative objective of where we want to go in all of — using the Buildings and Infrastructure rest to market, so that we then become much more insulated against those kinds of downturns and then strengthens the firm with long-term relationships with the clients.

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Maxim Sytchev, National Bank Financial, Inc., Research Division – MD & AEC-Sector Analyst [48]

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Yes. No. It makes a lot of sense. I mean it’s such a — obviously, a great capability. And then maybe just one last question. I mean given the very strong balance sheet, any thoughts on potential buybacks given where your stock is right now?

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Stephen B. Taylor, IBI Group Inc. – CFO [49]

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I don’t see any buybacks. I think the initiative is going to be on growth and expansion, and either by way of — or a combination of further investments internally, but also by a way of acquisition, again, geographically and functionally.

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Operator [50]

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(Operator Instructions) And the next question is a follow-up from Michael Tupholme, TD Securities.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [51]

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Just to clarify, Steve. The payments for settlement that occurred in the U.K. business, $600,000, was that — that hit the fourth quarter? Or was that over different quarters in the year?

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Stephen B. Taylor, IBI Group Inc. – CFO [52]

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No. It hit the fourth quarter. And it’s significantly larger than — due to the nature of that particular claim than we experienced. Generally, our claims payment experience across IBI is very low. That one, due to circumstances, was just unusually large. And it came in, in Q4, and it hit the U.K. results.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [53]

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Are there any other situations like that? I mean I realize that to an extent that sort of nature of the business in normal course, but as you said, that was larger. Is there anything else like that, that you’re monitoring that could come forward over the course of 2020?

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Stephen B. Taylor, IBI Group Inc. – CFO [54]

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Well, I think the answer is that there are always claims that are out there that we’re monitoring. And I’ll once again revert back to my comment about, our actual amounts of payouts on those is very low in our industry. The insurance guys we deal with generally are — there’s a lot of claims and a lot of people paying out, insurance companies paying out significant dollars in this industry at the moment. So some of the others in our industry are really not popular clients with their insurance brokers. We continue to be a popular client.

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Michael Tupholme, TD Securities Equity Research – Research Analyst [55]

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Okay. And then lastly, this is probably a difficult question to answer. But with respect to COVID-19, you talked about having adequate backlog for the current year. And to the extent that there is an impact on the economy, this probably affects the backlog and the revenue picture more in 2021. But just from the perspective of being able to carry out work and — can you just talk about your risk around that in terms of actually executing that work this year and your level of preparedness? And to what extent are people working from home at present? And anything else that you can say on that front?

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Scott E. Stewart, IBI Group Inc. – CEO & Director [56]

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We have put in place a crisis management plan that had been well developed in advance, and it deals with internal communications and actions to be taken and notifications. And we had also put in place a work-from-home policy and had set up the necessary, if you will, infrastructure on our IT side to support that. So we were, from that perspective, well prepared. In North America, we have about — have had in total 17 people who have been self-quarantined. Approximately 7 or 8 of those are back to work. The rest are — there’s actually 2 more that are self-quarantined as of this morning. So we have, in North America, about 10 people. They are working from home. So we don’t have any disruption there. There is an event in India where we had — in our Gurgaon office, there was an event that took place on one of the floors of our building. And as a result, the building is shut down. So all of our Gurgaon staff, our Delhi staff are now working from home. And again, everything has been set up, but it’s the way we operate it. As a technology company, that’s the way we operate this. So we can operate from anywhere, from planes, and trains and homes. And that’s part of what defines IBI. It makes us much more resilient in terms of being able to work from anywhere. So I don’t see that, at the moment, any of the events that we’re experiencing is affecting our ability to do work.

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Operator [57]

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We have no further questions at this time. You may proceed.

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Scott E. Stewart, IBI Group Inc. – CEO & Director [58]

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Thank you very much. That we’re delighted to speak to everyone today, and we wish everybody a very good weekend. Thank you.

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Operator [59]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Have a great day.