Morneau Shepell Reports 2015 Third Quarter Results

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TORONTO, Nov. 9, 2015 /CNW/ - Morneau Shepell Inc. (TSX: MSI) (the "Company" or "Morneau Shepell") today reported its financial results for the three-month period ended September 30, 2015 (all amounts are in Canadian dollars, unless noted otherwise).

Highlights⁽¹⁾

• Revenue for the quarter was $140.8 million. Organic Revenue growth was 6.2 per cent.
• Adjusted EBITDA increased 6.0 per cent to $25.9 million
• Adjusted EBITDA margin was unchanged at 18.4 per cent
• Normalized Free Cash Flow increased by 40.8 per cent to $13.2 million

"The Company continued to deliver good financial performance in the third quarter, said Alan Torrie, President and CEO of Morneau Shepell. "In assessing our performance year to date, we are on track to deliver another year for the Company in line with our expectations and historical performance."

As a result of the wind down of the Health Republic Insurance of New York (HRINY), one of the Company's U.S. health exchange outsourcing clients, a non-cash charge of $15.1 million (or $10.7 million after tax) was recorded in the third quarter for deferred implementation and internally developed software costs that have been determined to be non-recoverable.  Regulatory authorities have directed HRINY to discontinue its operations by the end of November because of its worsening financial condition. HRINY represents approximately 3.5 per cent of Morneau Shepell revenue, with an insignificant contribution to earnings.  

"Overall, we are confident in our U.S. growth strategy and the progress we continue to make in expanding our core benefits administration and technology business. In the third quarter, we closed our deal to acquire Ceridian's health and benefits administration in the U.S., significantly strengthening our national team in the U.S. and positioning the Company well for ongoing growth opportunities in this rapidly evolving landscape for health care providers," said Torrie.

^{(1) Compared to the same period in 2014.}

Q3 2015 Financial Review

In thousands of dollars	Three months ended September 30, 2015	Three months ended September 30, 2014	Nine months ended September 30, 2015	Nine months ended September 30, 2014
Revenue	$140,778	$132,703	$421,590	$404,671
Adjusted EBITDA	$25,886	$24,429	$80,590	$76,346
Adjusted EBITDA margin	18.4%	18.4%	19.1%	18.9%
Normalized Free Cash Flow	$13,177	$9,357	$43,406	$37,084
Profit	($3,487)	$7,235	$13,996	$24,679

For the three months ended September 30, 2015, the Company reported $140.8 million in revenue, an increase of 6.1 per cent or $8.1 million from the same period in 2014. Total operating expenses (excluding depreciation and amortization expenses, and the write-down of deferred implementation costs and impairment) were $118.3 million in Q3, 2015, compared to $112.5 million in Q3, 2014.

Adjusted EBITDA of $25.9 million increased by $1.5 million or 6.0 per cent from $24.4 million in Q3, 2014. The increase is primarily due to growth in revenue of $8.1 million, partially offset by an increase in salaries and other operating expenses of $6.6 million after EBITDA adjustments.

Adjusted EBITDA margin was 18.4 per cent – unchanged as compared to the same period in 2014.

Normalized Free Cash Flow for the three months ended September 30, 2015 increased by $3.8 million to $13.2 million compared to $9.4 million for the same period in 2014. The increase was primarily due to lower capital expenditures of $1.6 million, and higher cash generated from operating activities, before non-cash operating working capital and EBITDA adjustments of $2.7 million.  This is offset by higher current taxes of $0.5 million.

The twelve month rolling Normalized Payout Ratio at Q3, 2015 was 65.9 per cent compared to 70.6 per cent at Q3 2014.

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

Notice of Conference Call

Management of Morneau Shepell will host a conference call on Tuesday, November 10, at 11:30 a.m. ET. The conference call is open to all those wishing to attend, with a Question & Answer period to follow the presentation. In order to participate in the live conference call, please call 416.695.7806 (participant code 1126174) in the Toronto area, or 1.888.789.9572 (participant code 1126174) throughout the rest of Canada. A replay of the call will be available via the Morneau Shepell Web site at morneaushepell.com.

About Morneau Shepell Inc.

Morneau Shepell is the only human resources consulting and technology company that takes an integrative approach to employee assistance, health, benefits, and retirement needs. The Company is the leading provider of Employee and Family Assistance Programs, the largest administrator of pension and benefits plans and the largest provider of integrated absence management solutions in Canada. Through health and productivity, administrative, and retirement solutions, Morneau Shepell helps clients reduce costs, increase employee productivity, and improve their competitive position.

Established in 1966, Morneau Shepell serves more than 20,000 clients, ranging from small businesses to some of the largest corporations and associations in North America. With almost 4,000 employees in offices across North America, Morneau Shepell provides services to organizations across Canada, in the United States, and around the globe. Morneau Shepell is a publicly-traded company on the Toronto Stock Exchange (TSX: MSI). For more information, visit morneaushepell.com.

Financial Measures

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

(1)	"Adjusted EBITDA" is defined as profit before finance costs, income tax expenses, depreciation, amortization, impairment losses, and certain unusual expenditures.
(2)	"Normalized Free Cash Flow" is defined as cash provided by operating activities, adjusted for changes in noncash operating working capital, capital expenditures, current income taxes (net of income taxes paid), and certain unusual expenditures.
(3)	"Normalized Payout Ratio" is defined as dividends declared divided by Normalized Free Cash Flow.

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

SOURCE Morneau Shepell - Investor Relations

Helen Reeves, 416.345.5633, [email protected]