Edited Transcript of PEO.V earnings conference call or presentation 20-Jul-20 12:30pm GMT

Turning to the quarter. People Corporation continued to make significant strategic and financial progress during Q3, generating revenue growth of 25.5%. We grew adjusted EBITDA faster than revenue in the quarter. Adjusting for onetime items, including the impact of adopting IFRS 16, adjusted EBITDA grew by 54.7%. The growth in revenue and EBITDA continues to reflect the success of our efforts to scale the business, including winning new client mandates, enhancing our product suite, optimizing customer service, sales efforts to increase product and service penetration with existing clients, and the success of acquisition and integration activities.

Organic revenue grew by 8.2% in Q3. This is within our long-term target range, and in the context of COVID-19, in particular, I’m very pleased with this result.

Q3 has provided evidence of the strength of our business and operating model. We have positioned People Corporation to be uniquely capable of meeting the 2 primary client needs that we identified some 10 years ago, cost containment and the efficient provision of mass customized solutions. In today’s environment, those needs are stronger than ever.

In addition, early indication suggests that health and wellness has become an even greater priority in people’s lives through this crisis. And as a result, we expect benefits to continue to be an integral attraction and retention mechanism for employers, even when the threat of COVID-19 fades into the rearview mirror.

Our team remains laser-focused on organic growth. While the current environment has caused some negative impact on volumes in certain claims areas, especially as it relates to our self-insured administrative services-only plans, as would be expected, our commitment to driving organic growth has translated into momentum in other areas, such as third-party distribution platforms, specifically MGA+, health solutions, which includes our virtual health and mental health solutions, and our enterprise business segment.

Similar to past challenging environments, People Corporation has proven itself to be a strong and committed consulting and delivery organization with an ability to profitably grow market share and reap the related long-term benefits. Along the same lines, we also took targeted steps to further strengthen our balance sheet during the quarter, with a bought deal that generated net proceeds of roughly $24 million.

Since inception, People Corporation has taken a prudent view on normalized leverage. We utilize debt as required to take advantage of accretive opportunities and then quickly pay that down while integrating the benefit from the broader platform. While we don’t expect to immediately return to the level of M&A activity we generated during 2019, we expect COVID-19 to have a positive impact on M&A in the medium to long term as smaller organizations will be challenged to meet increased client demand.

In Q3, we continue to make progress against our 4 key focus areas: those areas are sales and service; products; strategic acquisitions; and integration. I’ll touch on each briefly, and then hand the call to Dennis, who will review our financials and ongoing integration initiatives.

Turning to sales and service. Our Q3 organic growth of 8.2% was largely attributable to the additional services that we have offered to our acquired companies, increasing penetration with existing clients, our business development discipline across the organization and new consultants we have hired across the country.

On the small group side of our business, we have completed the integration of the Collage HRIS platform into our Sirius small group platform, which follows the previous integration of HR @ Your Service, our preferred provider network in the integration of our health solutions, which included our mental health program and our online wellness offering. The resulting Sirius platform represents a set of products and services designed with our customers’ end-to-end needs squarely in focus.

In the market today, most small group TPA solutions offer pooled pricing underpinned by a platform resembling a bare bones TPA offering. Rather than watering down other offerings and repackaging them together as a small group solution, we have designed Sirius from the ground up to offer seamless access to the actual tools and features more common to larger companies at a significantly reduced cost. And we’ve ensured this can all be delivered across a digital platform that will both enhance the client and member experience as well as enable us to continue to bring incremental products and services to the market with the click of a button.

Based on early adoption results and feedback, we are confident that this is one of the most attractive small group solutions in the Canadian marketplace. With a large-scale — with a large share of the Canadian economy being driven by small and medium businesses, there is a substantial addressable market opportunity here.

At the outset of 2020, we said that we would continue to invest in expanding our distribution capability in capacity, which includes investments in our third-party distribution channel, our direct distribution channel and our enterprise distribution channel as well as investments in our third-party administration platforms and small group solutions.

On our Q2 call, I provided some detail on our MGA+ program, which is a unique solution in the Canadian market for third-party advisers and their clients. It enables third-party advisers to differentiate themselves through an adviser-branded practice management and online enrollment platform and access to People Corporation’s broad selection of customized products and solutions, all while spending more time on client service and less on administrative tasks.

We launched MGA+ in Q2 and through Q3, we continued to see strong momentum, both in terms of new advisers during the platform and a significant increase in new premium volume. In addition, our team is actively working on growing People Corporation’s reach within third-party advisers already on the platform by expanding the suite of products and solutions available to third-party advisers. Similar to Sirius, we believe this is one of the strongest offerings in Canada, in this case, for third-party advisers and their clients.

We’ve also been working to strengthen our enterprise distribution capabilities. We have added a select group of experienced enterprise consultants, disability consultants and beta for the analysts at People Corporation, with most of those individuals scheduled to start midway through Q4 and into early Q1. Enterprise trends tends to have a longer sales cycle and, ensuring we have the right sales and service resources in place, supported by robust underwriting and analytics capabilities, is key to success.

As these new team members get up to speed and we marry their expertise with People Corporation’s national capabilities, third-party admin platforms, broad suite of products and solutions all supported through our robust client excellence group, we expect to see sustained momentum in enterprise, particularly given consolidation activity in recent years, which has left clients with a reduced set of choices in the market.

On the enterprise side, we have continued to invest both in talent and capabilities as we have spoken about on our last few quarterly calls. Our client excellence team has already had an impact on the way that our consultants go to market. This team is tasked with ensuring that when one of our consultants walks into a potential or existing client, they have the entire power and portfolio of People Corporation behind them. And this begins with ensuring we have the right consulting and proposal methodologies all the way through to the right service and renewal methodologies, supported through our broad suite of products and solutions.

Over the coming quarters, we will continue to deliver even more robust plan benchmarking tools, member survey tools and a proposal team, which will include marketers, proposal and RFP raters and graphic designers, further supporting our clients, prospects and our consulting teams across Canada. We had several significant enterprise wins during the quarter and a credit to client excellence team for playing a meaningful role in these wins.

Turning to products, health solutions, which includes our virtual care, digital wellness and preferred provider networks, continues to be a growth area, and we think this is a long tail opportunity, which is especially relevant in the COVID and post-COVID world. Through Q2, our primary focus was on assembling a robust suite of virtual health and mental health solutions prior to expanding access through our distribution pipeline in Q3. Currently, our offering includes a 24/7 online health care on-the-go solution; an on-demand virtual care application, providing members and their families with direct access to medical consultants; an online prescription delivery offering; a health care navigation solution, providing a single point of contact through diagnosis, treatment and rehabilitation; and a second opinion medical program to assist members and their families with making informed decisions regarding their health.

In Q3, we began offering this virtual and mental health solution on a broader basis, and the response has been very strong. From inception, we have designed People Corporation with strong product and service development capabilities, and perhaps, even more importantly, with a broad and efficient national distribution pipeline. It is one thing to design a product or service and quite another to deeply understand customer needs, design or integrate an appropriate product or service and rapidly get into the hands of those same clients. The power of this platform design will continue to grow, underpinning organic growth as we scale.

In Q3, we were quiet on the M&A front as we temporarily paused acquisition activity in favor of integration activity until we could better access the economic effect — the economic impact of COVID-19 and the duration of that impact. Our pipeline remains very robust. And since Q3, we note a pickup in activity particularly as it relates to preliminary discussions and analysis of potential acquisitions. While we will remain prudent and will continue to monitor the impact of COVID-19 in the context of potential acquisitions, we expect to return to a more normal level of M&A activity for People Corporation.

While we are highly focused on organic growth, we also see plenty of opportunities to continue to integrate on an internal basis to leverage our national platform as we scale. We’re just getting started and as we make incremental adjustments along these lines, we are focused on serving clients better, continuously enhancing our go-to-market approach in driving efficiencies over time.

With an essential service offering designed to provide clients with benefit cost containment, a concentration of clients in more defensive sectors and a robust organic growth engine, as further demonstrated in the third quarter, together with a solid balance sheet, the company is very well positioned to successfully navigate the current environment as well as to execute on accretive opportunities as they arise.

I’ll now pass the call to Dennis.

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Dennis D. Stewner, People Corporation – CFO & COO [4]

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Well, thanks, Laurie, and good morning, everyone. Revenue grew 25.5% this quarter to $53.2 million compared to $42.4 million in the third quarter of 2019 — that should be the second quarter of 2019. Adjusted EBITDA grew 69.4% to $16.1 million from $9.5 million — sorry, in Q3 of 2019. As we outlined in Q2, $1.6 million of additional revenue was recorded in Q2 that would normally come in during Q3. We did not include that $1.6 million in our calculation of organic growth during Q2, instead including it in Q3 to make the year-over-year periods comparable. Adjusting for the early timing of this revenue, along with a favorable impact of $1 million from adopting IFRS 16 and $2 million of government assistance provided through the Canada Emergency Wage Subsidy, adjusted EBITDA grew by 54.7%.

The growth in revenue and EBITDA is primarily attributable to acquisitions made over the last year as well as our 8.2% organic growth rate. I would also point out that EBITDA benefited from incremental G&A savings related to the naturally reduced discretionary spending in areas such as travel and business development during COVID-19 as well as our focused efforts to control G&A expenditures. A good portion of our cost structure is variable in nature and either adjusts naturally to fluctuations or is otherwise within the company’s control to adjust the changing market conditions. We do expect a portion of the G&A to return to normalized levels as travel restrictions start to ease and face-to-face business development activities to resume. However, we remain cautious on discretionary spending and we’ll continue to manage this carefully over the coming months.

Personnel costs were 59.7% of revenue compared to 64.2% in Q3 of 2019. Adjusting for the timing of RVARC revenues in Q2, the favorable impact of government assistance AIR costs and share-based compensation, personnel and compensation costs would have come in at 56.1% of revenue compared to 58.1% in Q2.

During Q3, as expected, we did see some pressure on claims volumes, and therefore, revenue. However, client activity remained robust as organizations optimized plan designs for the current environment and drove higher than normal quoting and consulting activity in an attempt to reduce overall planning costs. In this respect, even though claims volumes and related revenues were lower, demands on staff remained high. And our great talent, which we retained through the period, enabled us to keep pace with client activity.

We generated net income of $2.8 million in Q3 compared to a net loss of $644,000 in the comparable period in 2019. Adjusted earnings per share in the quarter was $0.06 compared to $0.04 in the same period in the prior year. Adjusted earnings per share excludes fair value changes to noninterest put options and contingent consideration, acquisition, integration and restructuring costs and equity-based REI. We continue to view adjusted EBITDA as the primary metric in evaluating our profitability.

Our balance sheet remains sound as of February 29 — as of — sorry. As of May 31, we had $35.3 million of cash in hand, and $47 million of credit available without leveraging the $50 million accordion feature on our credit facility. We had $78 million of debt at the end of Q3. And as Laurie outlined, we proactively executed a bought deal equity financing for net proceeds of just under $24 million, which further strengthened our balance sheet and put us in a position to execute on attractive opportunities. This is our approach we have utilized since inception, ensuring underlying balance sheet strength in order to take advantage of accretive opportunities and drive sustained organic growth and value for shareholders.

Before I open the line for questions, I’d like to give an update on our fourth key focus area, integration. Integration remains a critical pillar of our growth strategy, particularly as we look to gradually resume M&A activity. We have dedicated teams responsible for integration activities, and we’re focused on efficiently utilizing all the assets within our growing platform.

In addition, while People Corporation has a national presence, we can be leveraging it better and more consistently to provide optimal service to clients and generate solid shareholder returns. We have already started down this path, as Laurie noted.

Last quarter, I shared that we have some — we added — we’ve had — we had added some senior talent to the People Corporation team to help us better leverage our national platform, both from a sales and service perspective as well as in the back office. Over the next few quarters, you’ll be hearing more from us on this as we start to put a real focus on leveraging our digital capabilities and national network to ensure industry-leading client experience, to continuously see improved go-to-market efficiency and efficacy and to enhance and streamline current client and back office platforms.

Turning to acquisition, integration and restructuring, or AIR, costs in the quarter, AIR costs are not included in EBITDA or adjusted earnings, given their nature, but they remain critical to value creation. AIR costs will be part of our business as long as we are acquiring and integrating companies into the platform and we expect these costs to continue to be very accretive given our deeper product set, growing distribution channel and large M&A pipeline.

As we guided on our Q2 call, AIR costs were lower sequentially in Q3 at $2.8 million compared to $4.3 million last quarter. Looking forward to Q4, we’ll continue to integrate recent acquisitions, as I mentioned earlier, begin to streamline enhanced client and backlog as platforms, and we expect Q4 AIR to come in at a similar level to Q3.

We expect CapEx to be slightly higher in Q4 versus Q3 as we continue to integrate with a view to driving organic growth and efficiencies.

We are very pleased with our Q3 results, which continue to demonstrate our ability to grow and generate value for shareholders.

At this point, I’d like to ask the operator to open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Scott Chan from Canaccord.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [2]

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Laurie, last quarter, you talked about organic growth potentially being in that 5% to 10% range over the coming quarters. And with the pandemic, it came slightly lower. On an adjusted basis, you talk about all the new clients, new products. Do you think this is kind of the low end this quarter in terms of what you can see for organic growth over the coming quarters?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [3]

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No, not necessarily, and the reason why I’m saying necessarily, a few things. Number one is, on the one hand, we are seeing claims volume coming back. Remember, claims volume is you don’t just step back when somebody gets a benefit program. There’s insured benefits. We really haven’t seen any change in that, really. It’s more about things like dental. So obviously, there is a period of time where dentists were closed. And industry-wide and ourselves included, those came down something like 95%, which is not typical, obviously, people need to see a dentist. As dental offices open up, we’ll see a gradual return of that.

So how could that be impacted if there was a serious wave 2 that shut down the economy for an extended period of time? That could have an impact. That said, though, as we know, our country is in relatively good shape. And we do expect some of those claims that were — some of those will be kind of for that period permanent. But some are deferred. An example, obviously, if somebody needed a filling, that wouldn’t have been classified, generally speaking, as an emergency. So you wouldn’t have seen a dentist unless you had serious problems with that. So there’ll be some catch-up in that.

Drivers during — for a few months there came down about 20% industry-wide. They were kind of at 80%, just people were afraid to necessarily go somewhere or weren’t necessarily taking care of their health, and then some discretionary. Those are back at 100%.

So I think it does have an impact on that. For us, in terms of on gross — kind of the gross sales side, we are winning on the small group side. I believe April was like a record month of new sales for us in our history. And so we’re seeing very strong momentum there.

On the enterprise side, similarly, we’re seeing very nice new mandates and a generally very strong retention on the client side. So while we don’t have an exact measure, we believe we are gaining market share during this period of time. And eventually, this COVID period will be over.

On the organic growth side, I mean, the reality is we did take out — we had some early timing in Q2, which normally comes into Q3. And so we did take that $1.6 million because it was so material out of Q2 and put it into Q3 because that’s when it normally hits, in Q3. So for Q3 to Q3 to be comparable, we do look at — as our organic growth is over 8%. I know there’s some reports already coming out excluding that, but we don’t think — we can’t exclude it in Q3 and also exclude it in Q2. In Q2, we reported organic growth of 12.2%, which was really excluding the impact of the $1.6 million, which would have taken our organic growth to 14.3%. So we did not publish 4.2 — 14.3%. We did 12.2%. And because it was such a material timing difference on renewal, we put it in there for a comparable basis. So we still look at that being in the 5% to 10% range. And we have confidence over the medium and long term that we can definitely hit those numbers.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [4]

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And Laurie, when you look forward like on a quarter-over-quarter basis, is this timing differences, are you going to call it out every quarter? Just to provide…

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [5]

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No.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [6]

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No? Okay.

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [7]

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No, no. So no, we historically haven’t. We did a couple — I think there was one other time in the last 5 years we did. And the only reason we did that is because it was so significant. If something very significant like that happens again, that could have like a couple of point impact, yes. But that’s not typical. And like I say, I think in our 5-year history, it’s only been 2x, and this being the second time that we did that.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [8]

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And just on acquisitions, you talked about a robust pipeline. But you also talked about kind of pausing or normalizing acquisition activity. Is the reason integration or higher acquisition multiples? Or how do we reconcile those kind of comments near term?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [9]

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No. I think the only reason we put them on pause was entirely related to COVID. What I can tell you is that our corporate development team, though, is back. And there’s quite a bit of activity on the go. But we did pause for a few months. We want — out of an abundance of caution.

And basically, the discussions we had during pre-COVID are back on the table. I don’t think there is anything that we have lost through that period due to the target kind of walking. So all of those and, in fact, a handful of new ones are in discussions right now.

So we expect — right now, we’re re-ramped up, but when we’re on pause for a couple of months there, that was the — it was really entirely COVID-related. So because we put those on pause, we redirected some efforts during the period to even more resources, allocated to tap into integration activities. So we will now move to a little bit more rebalancing. Having said that, we’ll continue an escalation of integration activities, but, at the same time, acquisitive growth will continue.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [10]

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And then on like potential acquisition —

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [11]

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If anything — sorry, if I could just add. If anything, we are seeing and I expect to see a progressive increase in the rate of acquisition opportunities simply because — especially during this period, there was a bit of an unintended test, and probably a terrible way to have a test. But it is really a challenge for a smaller player to be able to support their clients to the same extent that our platform and some of the other bigger firms are capable during periods like this. So they think that was in part why during this period of COVID, you can imagine enterprise accounts, like bigger companies, their number one focus living on their benefit plan. But even during that period of time, we did move some large enterprise clients over, like prospects, over to become clients during this period, and a handful of brand names as well.

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Scott Chan, Canaccord Genuity Corp., Research Division – Director of Research of Financials & Financial Services Analyst [12]

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And just lastly, can you share any information on kind of valuations, kind of what you’re seeing right now versus pre-COVID? Have they kind of come back like the market has come back almost? Or are you kind of seeing attractive opportunities from a valuation perspective?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [13]

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Yes. I’m not convinced that multiples will really change very much. I don’t expect them to go up. And I know that’s not what you’re — who you are leaning towards. I could see — I think a couple of things, and we’re already seeing this happening a little bit. Structures are changing a bit, maybe put a little bit more risk on the vendor at close. So perhaps a little bit more deferred payment, really in order to kind of see the kind of medium- to long-term impact or certainly, the medium impact of — medium-term impact of COVID. And number two, probably not so much for us because we typically view this anyhow, but a greater scrutiny of the nature of the client base of the target. So if you had a client base that was a highly defensive client base, it might not have any impact. If you have a client base that is obviously has been in certain industries that has been seriously impacted, then that could affect pricing.

But I think in all cases, generally speaking, we probably see a little bit of more deferred proceeds for the vendor because of the impact of the ability to kind of look back — look in the future in hindsight in terms of the impact of COVID.

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Operator [14]

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(Operator Instructions) The next question comes from Jaeme Gloyn from National Bank.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [15]

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Just a couple of clarification questions first. You talked about, I believe it was adding staff in — that will start in mid Q4. Can you just refresh those comments again? Was that in the enterprise business? And just a little bit more color around that.

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [16]

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Yes. So that — yes. So have — we’ve seen good momentum in enterprise. We have hired some folks from across the industry, and they’ll be onboarding in Q4 and Q1. And it’s just really with a view of growing the enterprise channel. We’ve spent a lot of focus over the last year, 1.5 years, on our small group channel. And as I articulated in my comments, there’s good momentum and good scale there. We’ve seen very strong momentum on the enterprise side. And as a result of that, we’ve been able to kind of be comfortable with making investments in some top talents from across the industry.

What we’re finding is on the enterprise side, there really used to be kind of 6 big organizations in Canada that people could go to if you want to — if you’re an enterprise style account. And today, there’s really the big 3, and we’re one of them.

Also, during this period of time, we’ve had a bit of a loose-fit strategy, and we’ve been able to get some top talent and with a very strategic focus on actually going after some great talent in the industry, and a number of those people have accepted and will be joining us. Some have already joined us, and we’re very excited about that.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [17]

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Okay. And just around the capacity that these individuals that you’ve hired are going to add. Would it sort of increase capacity by 10%, by 50%? Could you ballpark that?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [18]

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More than 10% and less than 50%. How’s that? I didn’t — we didn’t really equate it into a percent. All we know is we’re seeing very good momentum on enterprise. And we know that when we marry great talent with our kind of platforms and capabilities, we, generally speaking, haven’t gone wrong. We’ve been able to — it’s been very accretive for us.

So we expect this to be a very positive move. How much it will increase capacity? For sure, more than 10%, especially since the enterprise group is, I’d call it, kind of medium-sized. And if there — as we search for more great talent out there, we’re open for business to bring that talent on. This is an opportunity. We see this as an opportunity during this period of time for us to gain market share.

And if you make the fundamental assumption that COVID will eventually be solved in some fashion, such as the economy can return to normal. And I’m not going to sit here and predict nor pretend to predict. For our — for us, we look at our strategy as around ensuring we have a strong balance sheet, continuing to invest on our solutions, but looking for great talent during this period of time. Because it’s about — it gives us an opportunity to increase our market share.

Even if we go through COVID 2, and we think medium and long term, it will serve us extremely well. We did the same during the Great Recession, and it served us well as well. It’s the same. Money changes hands at the bottom. And so we look at this as an opportunity for us right now. But at the same time, laser-focused on still delivering on our quarters.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [19]

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Right. Okay. Still in enterprise, you mentioned some wins in the quarter. Have that — have those wins hit the revenue line? Or is that expected to hit in future quarters?

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Dennis D. Stewner, People Corporation – CFO & COO [20]

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Both. It will hit in future quarters. A number of them. Actually, I would say that over half of them have not hit yet.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [21]

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And you talked about claims activity or claims-related activity as being the headwind during the quarter in terms of revenue generation. Have you disclosed or can you share with us what is the mix between claims-related revenues versus, let’s say, like subscription-based revenues?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [22]

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Yes. So okay. I’m not sure about claims-related versus subscription base. So for clients across the platform, and that’s whether they’re on our TPA platform or whether they’re just an agent of record, right? For those clients that are self-insured, that, obviously, when their plan members couldn’t go to a dentist or didn’t get certain drugs, prescriptions filled, that’s what impacts the claims volume. That was a good couple of points, at least, on organic growth.

What I can tell you is since the inception of People Corp., and you’d be hard-pressed to even look at the last 20 years, even, you — this — this is clearly a function of the pandemic, and so it’s a — well, hopefully, a once in a lifetime event for me. But who knows? I think the reality is, is that it had a good couple of points, at least. Part of — the reason why I say at least, it’s hard to measure. Typically, those volumes slightly increase year-over-year because of inflation. So there’s utilization rates. So this really impacted what we call utilization rates. People not actually being able to spend.

It did not impact — so things like our — so that’s where it would impact kind of claims. It didn’t really impact — whether it’s basically service, service commissions and certain parts of the business. Things like the pension consulting, we had a slight uptick because, now more than ever, people needed some consulting to make sure that their plans are in good shape where they stood personally or where, particularly plans stood overall from a governance perspective.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [23]

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Okay. One more on the revenue side. The Canada Emergency Wage Subsidy that you received, my understanding is that you needed to show a reduction in revenues of 15% for March or 30% for the following months versus, I guess, January and February 2020. So maybe you can just walk me through how people qualified for this benefit from the government? And what that says about revenues either in that period or in the subsequent months?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [24]

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Yes. Dennis will add to this, but without going through all the detailed formulas, this gets claimed on an entity-by-entity basis. So it did depend on our entity. We had a — we already — we had a number of subsidiaries through the acquisition. And so it was about entity by entity.

Dennis, you might add…

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Dennis D. Stewner, People Corporation – CFO & COO [25]

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Yes. Our — just to back up a little. Our overall objective was to keep our people on the payroll. That was the overall objective. There were definitely pockets though when you look — and to Laurie’s point, it’s — those credits or those government grants were based on tax filer. So we have a number of tax filer entities. And so when you sort of look across the organization, there were a few that qualified. And as Laurie mentioned in the script, we had increased volumes and requirements from clients in this period. So the goal was finding that right balance with keeping our people on the payroll but leveraging the programs that were designed to help and to keep people here, so to keep people here, keep people here long term. So that’s really the basis for that.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [26]

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Okay. And so if I understand correctly, there would be certain entities — I don’t know, maybe, for example, in like Alberta, that would be — that have worse performance where you could leverage the government benefits from those entities and retain employees across the board elsewhere, I suppose. Is that kind of the way to think about it?

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [27]

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No. So first, I’ll just jump on the Alberta comment. The reality is, actually, our Alberta operations has still fared quite well through this. So there’s a lot of — when you go through the formula, the reality is, is it takes a look at month-over-month or year-over-year, and you’re going to get timing differences by entity. So it’s not like any entity. What I can tell you is that there isn’t any specific entity that has gotten a severe hit that’s permanent, that — some get affected by claims volumes a lot more than that. So again, that’s a — most of it was tied to planning volume as opposed to kind of gross new sales and client retention.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [28]

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Okay. And are you still receiving any wage subsidy benefit? Or is that — has that now ended?

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Dennis D. Stewner, People Corporation – CFO & COO [29]

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Yes. So what we recognized in the quarter was what we were sort of entitled to for the quarter. As we look forward, we’ll continue to monitor. But — so there’s no ongoing element to that program unless you qualify. So at this point, we qualified in that period and we quickly made the claim and we’ll continue to monitor.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [30]

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Okay. So no longer qualifying today is what I understood from that answer.

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Laurie Marc Goldberg, People Corporation – Executive Chairman & CEO [31]

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Yes. I think the answer is yes. However, we’ll see what happens in the marketplace and see what programs are. Obviously, we’ll avail ourselves if that — it helps us with — from an employee perspective and based on how the various entities performed. But at this point, that’s all we’ve put in, yes.

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Operator [32]

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(Operator Instructions) The next question is a follow-up from Jaeme Gloyn at National Bank.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [33]

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I just wanted to follow up on the OpEx and normalization of operating expenses. Did you do any math where you could sort of quantify how much of a benefit there was to COVID-related savings on G&A and on travel and compensation and things like that? And then in terms of normalizing that OpEx line, would we see more normalized OpEx as a percentage of revenues in Q4?

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Dennis D. Stewner, People Corporation – CFO & COO [34]

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Yes. So it’s hard to tell exactly. Obviously, if I look at G&A as a percentage of revenue quarter-over-quarter, it was down materially from 16% to just over 10%. So when you — and then if I strip out AIR, it’s still down about 5 points. Some of that is going to be leveraging the benefits of the integration work we’ve done. So we have invested in AIR to leverage some cost savings across the organization, which has led to increased margins sort of quarter-over-quarter. But there’s definitely an impact there from savings on travel and business development and that would be at least a couple of points.

So we do expect — as we said in the script, we do expect some coming back to more normalized levels. But I think if you look at the trend, we have been able to generate quarter-over-quarter improvements on both people costs and G&A.

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Jaeme Gloyn, National Bank Financial, Inc., Research Division – Analyst [35]

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Okay. And I think the number that you referred to in the — on the comp side was 56% as a percentage of revenues. Is that — I mean, that’s significantly lower than the run rate in 2019 and in Q1 2020. So is that more representative of the level that you would expect to run at? Or should we see that sort of bump back up towards the high 50s, low 60s?

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Dennis D. Stewner, People Corporation – CFO & COO [36]

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That would be — It’d be a little lower. Again, that trend has been going in the right direction in terms of — as a percentage of revenue, it has been decreasing. It would be a little bit lower this quarter simply because we have, in addition to — we’ve been careful, like everyone, with COVID. We’ve been careful to — so there’s a normal level of attrition in our organization with over 1,000 employees. And we would have been careful about replacing those in this market.

So there is a bit of lower people-related costs in the quarter versus what we expect to see going forward. So all the way back up to probably not to the levels you referenced. But we will see a bit of a bump up there.

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Operator [37]

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Thank you, ladies and gentlemen. This does conclude your conference call for today. We thank you for participating, and we ask that you please disconnect your lines. Enjoy the rest of your day.