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Ladies and gentlemen, thank you for standing by. And welcome to the Spark Power Corp. First Quarter 2020 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Dan Ardila. Please go ahead.
Thank you, Marcella. Good morning, everyone. And thank you for joining us for Spark Power's 2020 First Quarter Earnings Conference Call. With me on the call today is our entire executive team being co-CEOs, Jason Sparaga and Andrew Clark; Chief Investment Officer, Eric Waxman; President and COO, Richard Jackson; and Chief Commercial Officer, Ron Dizy. Before we begin, I will remind everybody that today's call, including answers to questions posed, may contain forward-looking statements within the meaning of applicable securities laws which reflects Spark Power's current expectations regarding future events. The forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict and a number of factors that could cause actual results to differ materially. Listeners, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this call and except as expressly required by applicable law, Spark Power assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. With that done, I will turn the call over to Jason for his opening comments.
Thank you, Dan. Good morning, everyone. Before we start, I would like to thank our deeply committed employees, customers, our Board of Directors, our suppliers, banking partners, institutional investors and analysts for their continued support. And I specifically want to thank our frontline workers, who are in the field supporting our customers and keeping their essential operations up and running. That said, I'd like to welcome all of you to our First Quarter 2020 Earnings Conference Call. I hope everyone on the call today is healthy and well. As our customers' trusted partner in power, we work hard to earn the reputation of serving our customers' power needs now and ensure that they are better equipped for tomorrow. And now more than ever, we are committed to doing that in a way that preserves the health and safety of our employees and our customers. Our customers have come to value us for the ability to provide independent and high-quality advice and service in the communities in which they operate and with the advantages of continent-wide scale. I am proud to be able to say that throughout the first quarter and continuing through April as we face the impact of the COVID-19 pandemic, we were able to continue providing our services in all jurisdictions in which we operate, both in Canada and the United States. And despite the impacts of COVID-19 during the second half of March, we did deliver excellent results in the first quarter, and this represents our third consecutive quarter of strong financial results. And it demonstrates the momentum that our business platform was generating prior to the start of the COVID-19 pandemic. The evidence is clear in our financial results. And at the end of the first quarter, we were operating at an annual run rate of $233 million of revenue and $36 million of run rate EBITDA. We look forward to recapturing this momentum and returning to this growth path as we emerge from the COVID-19 crisis. Spark Power operates primarily as a physical business, with our technicians working on-site at customer facilities and no part of our business was immune to the effects of COVID-19. With particular restrictive essential work orders, our Ontario business has experienced the most significant impact, particularly in April, resulting in significant postponement of projects at many of our customers. Other parts of our business have been less impacted, demonstrating the value in our long-term approach to focusing on diversity and strategic value of our revenues in our customer base. First, we have diversified by customer type. The stability of revenues from our regulated utility and renewable asset customers has helped offset the significant reductions we are currently seeing in certain parts of our commercial and industrial business. Second, within our commercial and industrial segment, we have been somewhat protected by virtue of our focus on key verticals such as food and beverage, data centers, material handling and fulfillment and distribution, which has qualified us as an essential service provider in all jurisdictions in which we operate. And third, our geographic diversity across North America. With that, we have found that different jurisdictions have weathered this crisis with less impact than others, providing further revenue protection. I am extremely proud of the way the Spark Power team has reacted to and addressed the COVID-19 challenge. In fact, we began planning on how to react to a pandemic as early as January of this year as we took note of what was happening in Wuhan. By mid-March, when it became clear to us that COVID-19 could have a significant impact on our business, we immediately took swift, aggressive but measured actions to address the health and safety of our employees and to support our customers and manage liquidity. We advocated early on for a wage subsidy, so we could keep our employees on our payroll. We are applying for the Canadian Emergency Wage Subsidy Program and have already received funds under the U.S. Paycheck Protection Program, allowing us to keep salaried employees on our payroll and to recall technicians who were laid off due to the unprecedented impacts of the pandemic. We remain particularly thankful to have our partnership with the Bank of Montreal, who continue to demonstrate their confidence in and strong support for Spark Power, our leadership team and our response to the pandemic. Dan will be providing more detail on these new facilities in his remarks. As we look forward to revival and recovery, our 2 key strategic imperatives for 2020 remain in full effect: integration and predictable operational excellence. And I'm going to hand this call over to my co-CEO, Andrew Clark, who will provide a bit more color on these key strategic imperatives and particularly on integration, and culture and why it has proven so important for both of these in these challenging times.
Thanks, Jay, and good morning, everyone. Over the past few years, we've acquired 13 businesses. As we've achieved the scale, we also recognize the value we can unlock by integrating these great companies into what we're calling One Spark. We can deliver a holistic Pole-to-Product set of offerings to our customers. We create compelling opportunities for our employees, and we create a purpose and vision and brand that can inspire and be the North Star for Spark Power. Our integration strategy is comprised of 4 key pieces: operations, systems, brand and culture. Our operational integration is well underway, with our regional structure now fully implemented. Richard is going to provide a bit more color on this later in the call. Our systems integrations continues too, as we bring our acquired companies on to 1 common platform. Our branded integration is well underway. We are transitioning all our acquired brands to Spark Power with the exception of Bullfrog, which we will retain as our sustainability brand. We launched this initiative in the fourth quarter last year and while COVID has slowed that activity a bit, we're well on track to have this completed by the end of 2020 and probably earlier. This leaves culture, which we as a team feel is fundamental to the long-term success of Spark. Each of those 13 businesses we acquired had their own cultures, some of them very strong. We recognize the opportunity in capturing the best from each of these cultures and integrating them into a strong single culture built for Spark Power. We know that a great culture provides the platform from which we can provide outstanding employee careers and experiences, best-in-class customer service and long-term growth and success. A strong culture will also serve us well as we continue our strategy of balanced growth and add and integrate other companies into Spark. We partnered with an outside organization, with experience creating and sustaining leadership capabilities with high-performing organizations. Their approach began at the end of Q4, with an anonymous diagnostic survey given to all employees, followed by confidential one-on-one interviews and focus groups in early Q1 to gather relevant and meaningful context around: one, the underlying thinking and assumption that drives employees' current behaviors; two, aspects of our collective behavior that may impact the way we effectively work; and three, to assist leadership in understanding our role and impact in cultivating a high functioning, high-performance and entrepreneurial work environment. The executive team and I are committed to using these insights we gained from these efforts to develop and implement a cultural transformation plan. Our goal is to further support systems operation and brand integration that we have embarked on and to invest in our people, who we truly believe are our biggest asset. The COVID-19 crisis presents an incredible challenge to our business, but there is a silver lining. It has provided the opportunity for an impetus for us to really come together as One Spark. Some parts of our business were affected much more deeply than others, but all parts of the business have been working together with the best interest of Spark Power as our focus. This opportunity to take what we have already learned from the feedback we've received, means that we're able to use this crisis as a way to help build the culture we want. And I'll say that over the past 6 weeks, in the midst of this pandemic, I've seen the Spark Power values of strong work ethic, accountability, customer service, determination, entrepreneurial spirit, and genuine commitment to take care of employees and customers really shine. Seeing these values across leadership, the corporate team and our technician workforce really speaks to the people and culture behind the face of the business. And I'd just really like to thank everyone for their dedication and commitment to the company over this -- during this crisis. So with that, I'll turn it over to our President and Chief Operating Officer, Rich Jackson, to share more detail on how we're operationally integrating and how that served us in reacting to COVID-19.
Thanks, Andrew. Good morning, everyone. While obviously, my time over the past 6 or 7 weeks has been focused on managing through the pandemic, I do want to provide some updates on our operational focus through most of the first quarter. We ended the quarter with 35 locations, including 18 branches in Canada and 6 branches in the United States. Our decision over the last year and this past quarter to focus on integration and our operational platform has served us very well. And I think it's provided the foundation that has allowed us to react very quickly and very effectively to the challenge that COVID-19 has presented. Our regional operating model is now fully implemented, with our business now divided into 5 groups: Eastern Canada, Western Canada, U.S.A., renewables and sustainability solutions, which continues to operate under the Bullfrog brand. We worked hard in the first quarter to really operationalize this change, including a new monthly approach to how we conduct our operating reviews, constantly ensuring our functional teams are supporting our business priorities and enhancing our management reporting capabilities. The regional organization, first and foremost, has produced greater operational efficiencies and is starting to generate more cross-pollination and cross-selling opportunities for our Pole-to-Product services. Over the long term, it will also support our balanced growth strategy by providing a foundation for both organic growth opportunities, meaning adding branch locations to serve our customers' expansion as well as providing a platform into which we can more effectively and efficiently integrate. Our SG&A cost management plan that we announced last fall is well on track, and we have now delivered about 80% of the planned benefits. We have completed essentially all headcount rationalization and have implemented travel expense management. We have started our margin improvement efforts, including work towards our supply chain transformation. We also continue to drive our commitment to be our customers' trusted partner in power in our brand promise. We have refreshed all marketing documentation to reflect this, along with this focus on the Spark Power brand. The strong platform we have created to date has positioned us very well to be able to quickly respond to the COVID-19 crisis. Over the past 6 to 8 weeks since facing this crisis, our operational focus has been centered around managing the impact of the pandemic in 3 key areas: health and safety, maintaining service to our customers to keep them up and running, and liquidity. In mid-March, as soon as we realized the crisis was likely to significantly affect our business, we immediately began conducting daily leadership meetings with all operational and key functional leaders, which has provided the information we needed to make the difficult but necessary decisions required to protect our employees, customers and our long-term viability. As a result, we have been able to ensure that our employees remain safe and secure, protect the health of our business and to stay ready to serve our current and future customers when they are ready. I'm happy to report that we still have not had a single employee test for COVID-19. In a business with over 1,000-plus employees across Canada and the U.S., transparency and providing clear communication, especially in unprecedented times like these, is essential for ensuring that all levels of the organization are on the same page. In early April, as employees let us know that they were hungry for even more information, we implemented daily communication updates. We also implemented a weekly video message with Jason and Andrew to provide the CEO perspective. Employees have told us that they find these helpful and reassuring. In fact, I'm so pleased with our operational response that we are looking for ways to capture some of these as best practices that we intend to continue even after the pandemic is behind us. Meeting the essential service requirements across all jurisdictions in which we operate has allowed us to remain open for business to keep our essential service customers up and running with significant safety measures in place. These include our permanent crew policy where possible, wipe down procedures, risk hazard analysis procedures, the use of cloth masks and implementation of the company's COVID preparedness response plan. Shifting our focus from a place of business continuity at the tail end of Q1 to business revival and recovery in Q2, I know that we are well positioned operationally and financially to come out of this pandemic even stronger as a business. Through this whole crisis, we have been thinking 6 to 12 months ahead, both strategically and operationally to ensure that the health of our business remains strong as we look to opportunities that can drive future growth. New protocols are in place to protect the health and safety of our employees and customers, our sales force is developing new product offerings such as thermographic scanning solutions, which measure elevated body temperatures in the new state of normal. And our focus and investment in health and safety makes us a preferred and desired partner in these times. Most recently, we had significant new renewables project wins in Ontario and Texas for solar and storage, as well as evidence of renewed activity within our existing customer base. This is a very strong indicator of the continued underlying demand for our services and our ability to drive opportunities that will support our recovery and get us back on track to our long-term growth strategy and creating a meaningful shareholder value. I know that we have the management team, the platform and the best people in place to enable us to not only weather the storm but to come out of it ahead. I'd like to turn this over now to Chief Financial Officer, Dan Ardila, to share our financial results. Dan?
Thanks, Rich. Before I start, I would like to remind everybody that we have reported additional non-IFRS measures that we believe provide the necessary information for existing shareholders and future investors to make the most informed decisions on the performance of the company and the prospects for the future. For more information on these terms, listeners should refer to the company's press release and Management Discussion and Analysis filed on SEDAR. As Jason said, we are pleased with our overall performance in the first quarter of 2020. Of our 11 business units, 10 exceeded revenues from the prior year and 8 exceeded our business plan expectations. Our SG&A clearly reflects the impact of our 2019 integration cost-out plan and when excluding the impact of depreciation and amortization, SG&A met our stated goal for 2020 of being less than 20% of revenue. On the downside, we did see some anticipated margin compression in our results that impacted our overall performance. However, we achieved $5.4 million in EBITDA, which slightly exceeded our Q1 targets in our business plan approved by our Board of Directors. I will speak briefly to some of the details of our Q1 results and then turn our discussion to the current environment that we are operating in. Highlights of our results for the 3 months ended March 31, 2020, are as follows: Revenue increased by $19.2 million in the first quarter or 56.1% over the same quarter in 2019, driven by balanced organic and acquisition growth of 29.8% and 26.3%, respectively. Gross profit increased by $1.9 million in the first quarter and was driven by increased revenue, partially offset by higher operating costs. Gross profit margins were 24.9%, which is a decline from 33.4% in the first quarter of 2019 and 30.7% in the fourth quarter of 2019, arguably a more representative comparable quarter. The decline was attributable to a variety of factors as outlined in our MD&A, including the impact of the acquisitions of One Wind and 3-Phase that historically generate lower gross margins realizations, albeit with a lower SG&A profile. The impact of a quarter-on-quarter $1.2 million margin decline in our Bullfrog business due to the impact of a customer not renewing its contract last July 2019. The decreasing impact of materially higher margins in our Bullfrog business, as this business unit's underlying revenues remained flat, while overall corporate revenues increased by 56% quarter-on-quarter, resulting in a diluted impact on overall corporate gross margins compared to the prior year from our Bullfrog business. Margin compression in our 3-Phase business related to expected performance on 1 large construction job. Also, the impact of a 75% increase in depreciation and amortization. And lastly, the impact of the investment in additional technical and operational staff and other costs made during the first quarter that was required to support the growth being experienced through Q1 and the next step of growth that was anticipated in our business plan for Q2 prior to COVID-19. Selling, general and administration expenses were $13.8 million or 25.7% of revenue in the first quarter of 2020 as compared to $10.8 million or 31.4% of revenue in the first quarter in 2019. First quarter 2020 and 2019 selling and general administration costs included depreciation and amortization of $2.8 million and $1.2 million, respectively. Excluding depreciation and amortization, SG&A as a percentage of sales was 19.8% in Q1 as compared to 27.8% in the first quarter of 2019, representing a decline of 8%. This decline versus the prior year resulted from the impact of management's cost reduction plan initiated in the third quarter of 2019 and the impact of lower selling, general and administration profile of the businesses acquired in 2019, partially offset by increased costs associated with revenue growth. Adjusted EBITDA was $5.4 million in the first quarter or 10.1% of revenue as compared to $3.2 million or 9.4% in the first quarter of 2019 and $4.8 million or 11% of revenue versus pro forma Q1 2019. Investment in non debt-related working capital increased by $4.9 million in the quarter to $49.1 million and was driven primarily by an increase in accounts receivable of $2.6 million and a decrease in accounts payable and accrued liabilities of $6 million, partially offset by a reduction in net contract assets and liabilities of $3.7 million. Total senior secured debt increased to $89.5 million from $84.1 million at the end of 2019. In March 31, 2020, the company had $6.1 million available under its operating lines of credit and $2 million under its acquisition line. I will now turn the discussion to the current COVID-19 environment, its financial impact on our business and our strategies and response. As the extent and understanding of COVID-19 evolved and the potential impact on the everyday life, economy and business practices became clearer, we made liquidity management a key priority for the company, and it was focused on 3 main pillars: one, the daily management of cash inflows and cash outflows; two, an understanding and accessing government subsidies as they evolved; and three, the immediate commencement of discussions and negotiations with our lender to obtain the necessary support to work through what was expected to be a very challenging environment. Our goal with these initiatives was not just to survive through the pandemic but to also ensure we had liquidity available to support the needs of our customers as we exited on the other side. With regards to our cash flow and liquidity management initiatives, we acted swiftly and implemented a variety of initiatives, including the following: We immediately developed a daily cash flow monitoring and forecasting tool with a simple philosophy that cash in must exceed cash out each week and that all decisions on deployment of cash would be done with our employees' health, safety and well-being at the forefront of the decision-making. We developed a constant flow of information and consolidated efforts between accounting and operations to improve cash collections, invoicing cycle times and monitoring credit risks. We executed a variety of cost savings and cash deferral initiatives, including a reduction and deferral of all executive salaries and bonus payments; a reduction in SG&A wages by implementing a 4-day a week policy to reduce cost by 20% and to minimize the need for layoffs; we negotiated rent deferrals with 7 of our large land -- several of our large landlords; and we deferred capital expenditure plans that were not 100% tied to revenue recognition; and finally, we eliminated all nonessential SG&A overhead costs. Regarding government subsidies, we have closely monitored and acted on opportunities available to support the business and its employees. In this regard, we worked closely with our lender to apply for funding under the Payroll Protection Plan in the U.S. We were successful in securing in excess of USD 1.8 million of funding for our U.S.-based business. Under this plan, funds are available for a 2-year term at 1% interest. In addition, this loan may be forgiven in whole or in part, based on deploying the funds for specific purposes, namely, employee wages, rents and utilities. It is management's belief that the company will meet a substantial amount of the requirements for loan forgiveness as we currently understand them. The company is also finalizing its application for submission under the Canadian Employment Wage Subsidy Program. Upon successful submission, the company expects to be receiving funding in the magnitude of $5.2 million, covering payroll costs over the 8-week period commencing April 12, that will be used to fund costs associated with recalling employees previously put on layoff and support -- and provide support to keeping all our employees on our payroll during this crisis. As discussed earlier, we commenced discussions with our lender about amending the company's credit agreement very early in the COVID-19 outbreak. This process has gone through two steps. First, our lender agreed to defer our Q1 principal payments of approximately $2 million to the end of the term and agreed in advance of the quarter to waive Q1 covenants, despite ultimately not being required. The second phase of our discussions was to work with our lender to understand the impact of various scenarios on our business and to amend our credit facilities, such that we had the necessary liquidity options and covenant structure available to manage through the pandemic to support the expected increase in demand as the economy started to return to some level of normality. In this regard, we recently agreed to an indicative term sheet that we believe will meet our current needs. The indicative term sheet is focused on the following: additional liquidity by way of a short-term COVID relief term loan to support potential increased working capital demands during the crisis; an additional postponement of quarterly principal payments on the term loan, acquisition line and capital expenditure line beyond Q1; an amendment to the borrowing base calculation to include longer-aged balances to provide greater availability under the operating line of credit; and an increase to leverage requirements that supports the company's forecast, with a step-down plan to original covenant levels over time. We look forward to announcing the specific details of these changes in the days to come. Lastly, due to current market uncertainty, the Board of Directors has suspended the strategic review process announced on February 6, which was focused on enhancing shareholder value. A special committee appointed by our Board of Directors was authorized to identify, evaluate and consider a broad range of alternatives available to the company, focusing on providing the necessary capital to execute on the company's strategic plan. The Board will continue to monitor market conditions and assess whether the strategic review process should be recommenced at a later date. With that, I will now turn the call back over to Marcella for questions. Marcella, please go ahead.
[Operator Instructions] Your first question comes from the line of David Quezada from Raymond James.
My first question here, just on the COVID-19 impact. I think you mentioned in the release that you're starting to see an upswing in demand, and then certainly appreciate this is very uncertain. But do you feel that you've perhaps seen the worst of it already and things appear to be getting better at this point?
David, it's Jason Sparaga. Thanks for your question. Yes, it is fluid. But I would say that we feel like -- I'm putting an asterisk on this, but we do feel like we're seeing the worst of it behind us, and we're far more optimistic than we were, say, a couple of weeks ago. In fact, I was catching up with a couple of the senior operators last night. It appears that 2 or 3 of our significant projects that were put on hold we've now got calls back, and we're going to be restarting them over the coming 1 or 2 weeks. And then just general activity has picked back up, and I'm primarily referring to Ontario because -- and I'll put Western Canada aside a little bit and talk about that in a second. But generally, we haven't seen nearly the impact in our business outside of Ontario that we did here. And it's the nature of the work that we do in Ontario, which is a strength 99% of the time but of course, in this unprecedented pandemic has given us significant challenges to continue. And so we do feel like, yes, the momentum is starting to gain. Our predictions of timing are starting to play out. We expected the first half of May to start to move back on to some key sites. And we're hopeful that by the end of May, a significant portion of our Ontario revenue will be back on stream. The next stage, of course, is to deal with getting that work caught up, plus the work that was already scheduled in the June, July, August time frame, which we're working on as we speak.
Okay. Great. That's really helpful. And then maybe just a follow-up on that topic. Could you talk about maybe just ballpark the proportion of your projects that, I guess, are considered essential services or the proportion of your customers that are essential services and have not been affected? Any color or context there?
Yes, you bet. I'm going to kind of split the question. So here's the reality, we're an essential service provider in 100% of the case, that our customers are. So we have qualified it as an essential service provider in all jurisdictions. In fact, we've issued letters proactively making it clear that we qualify in all of the jurisdictions to our key customers. Some have asked for them, some have not, but we've provided them. So I just -- with that said, it really comes down to what our customers are doing on their sites and to a certain extent, whether they are in an essential environment or they foresee additional risks outside of the regulation. So in Ontario, like I said, we've seen the largest hit, we're in -- so food and beverage, generally, they've continued forward with a significant amount of the work. But there has been some, I'll say, small to medium-sized projects that have been temporarily put on hold while they kind of figure out their day-to-day operation. And so it wasn't because we weren't an essential service provider. I'm going to contrast that with the work that we're doing out in Alberta for the likes of Enbridge and AltaLink and others, where they're -- not only are we an essential service provider their utility operation, we're in field that it's critical infrastructure that must be maintained. And in fact, on AltaLink, they had us go through a very significant set of protocols and process to make sure that we were following the health and safety protocols they want us to follow. And they have issued an order to us saying that we are absolutely critical to them as one of their most important providers. And so we haven't missed a beat with AltaLink. In fact, I would argue that we probably are up a little bit with them. The third geography I would talk about is Manitoba. Manitoba, as you may know, with our 3-Phase acquisition, we do a significant amount of base building construction work. We've actually continued as planned, if anything, actually higher than we predicted. But again, Manitoba hasn't been nearly as impact as many parts of the continent. So it really depends on the community. I hope that answers your question, David.
It does. That's very helpful. And then just one more for me, maybe on a more positive note here. And appreciate it's backward-looking, but organic growth was really strong in the quarter. Wondering if you could point anything specific that drove that.
I would say just it was pretty broad across the organization. We can all be relied on that. Although we've been talking about how to [ launch ] here before the COVID, prior to COVID again, our Ontario business continue to show strong growth. Of course, year-over-year, with the additional work that we have with AltaLink and other utilities out west, that's driven some growth. Our U.S. business is significantly up, although it's still in, I'll call it, the start-up mode. We're seeing significant growth there. One Wind, been a great acquisition, early growth right out of the gate. So that's exciting. And I should kind of revert to your prior question, David, to say that in the renewables category with One Wind and Northwind now being integrated, that has shown also to be very resilient, both in the face of COVID and also just generally from a growth standpoint. And we're super excited about the recent wins we had, in particular, in Texas with our first significant win. That was our first, I'll call it, significant win in solar work down in the U.S. So yes. We're pretty excited about the fact that the growth has really been seen right across the organization, and we're expecting that to continue once we get through this pandemic period.
That's great. I hope everyone is staying healthy and safe over there.
We are. And again, we feel fortunate that we haven't had one confirmed case of COVID within our organization. I think we're feeling very fortunate right now. So thank you.
Your next question comes from the line of David Newman from Desjardins.
Hope you're personally faring well amid all this or not turning into The Shining in your house.
Not so far.
Not so far. I just want to talk about a little bit about the ability to rightsize, I guess, for the reductions that you're seeing in April. And I know you've made a series of moves, but it's often hard to kind of remove cost out, there's some stickiness to that and there are lags in that. So you had a 30% reduction in April. What has been your ability to rightsize from some of the things you've done in terms of salaries and wages and reducing cost, the work reproductions, the small furloughs and things like that? In other words, what might be, if we had to look at the run rate EBITDA $36 million, what might be sort of the impact on the EBITDA line?
Yes. So I'm going to -- thanks for the question, David. And I think I clearly understand the nature and purpose of it. We're going to be a little careful, obviously, with predicting financial projections, but I think we can answer it more specifically around the activities we've undertaken. So to do that, I'm going to turn it over first to Rich Jackson to speak a little bit from an operations standpoint, and then I'd ask Dan to talk maybe from the financial side.
So on the operations side, so the one thing we carried coming into the crisis as we had some momentum that we were already building around our SG&A reduction initiatives in our overall cost-out program. And so we had come into the crisis already significantly down, just structurally down by way of the work we had done late last year and into Q1. The second part of it is, much of our SG&A buildup in the business, specifically across all of our lines of businesses is it's very activity based costs. So just by way of the sheer volume of business dropping, it helped contribute to the overall reduction of SG&As in April and obviously, coming into May. We did make some very concerted efforts as well. So -- and we did put together what we call our work smart program, and that really was having all of our employees work from home wherever possible on a reduced basis. So basically, everyone in the organization in some way, shape or form, was impacted directly by way of a pay reduction or a temporary layoff until we could apply for the wage subsidy and the PPP in the U.S. But that was very pointed and we did that very early on, just to make sure that we could see the costs come down as we saw the business coming down. So I would say those were the 2 main things. Mainly, operational activities coming down so dramatically that we see the natural reduction in SG&A and then some concerted effects around pay reductions, reduced hours per week and so on.
Rich, if I could just interject before jumping over to Dan. So you had this cost-out program, I think it was going to be $6.5 million. I think you realized $1 million, and you talked about 80% being done. But obviously, 80% being done is not realized yet. So I got to think that's got to cascade through the year. And when do you ultimately think you'll get to the $6.5 million or whatever the number is? And then the other part is, you've got this wage subsidy in the U.S. protection plan, is that naturally going to flow through the financials based on what the salaries and the wages would have been for those employees that are back at work?
Okay. I'm going to let Dan answer the second part of that. I'll let him talk to the financial aspects of how it will flow. But what I would say, the overall SG&A cost-out plan was -- it's a broad plan. It's not just a rationalization of headcount. It's also a very focused approach to all other SG&A costs, anything in our business that we felt we could reduce or be more optimal with as an integrated organization. So it really was predicated on integrating all of our businesses. That amount in SG&A was actually higher than the 6.5%. The 6.5% was really the salaried headcount component. We've achieved -- we basically met that figure on an annualized basis at the end of Q1. So we'll see that impact over the next 9 months, you'll see that on a full basis flowing through the financials. So we're -- I would say we're essentially finished on that part of the overall cost-out program. The second piece of it is the other SG&A piece, which really is phased in 4 different quarters, right up to the end of Q3 this year. So the full effect of that additional cost-out, they'll be seen throughout the year but ultimately, ending at the end of Q3 and then on a full run rate basis thereafter. Okay. I'll pass it over to Dan for just maybe some financial commentary on that.
Yes, sure. Thanks, David. Just to follow up on the SG&A side. That $6.5 million is realized in our numbers. You've got to realize that quarter-on-quarter, it does not fully materialize because there was a significant ramp-up through 2019 in SG&A through Q2 and into early Q3 that really became the basis for taking $1.5 million a quarter out. So as Rich indicated, it's there. You're going to see it more clearly in the numbers as you go into Q2 and Q3 because the comps will really fall out in the MD&A, and you'll see where that materializes. In terms of our go-forward with managing costs, let's first talk about the wage subsidies. So we had let off circa 100, 150 people in response to COVID. And as various subsidies became aware, we decided as we indicated earlier, about putting our employees first, that we would see how those subsidies played out before we took any necessary additional action to support the business. So these subsidies have come in. We've returned all those employees to work and have not done any additional layoffs, which we were certainly looking at when we were anticipating north of a 30% decline in April. So those subsidies really are going to be offsetting cost of people that we brought back and cost of people that we did not lay off because we relied on the subsidy coming through. So you will see that flow through the P&L. I think -- I hope that answers your question.
Yes. So it's not a onetime. It will just flow through COGS?
Yes, it will throw through COGS and SG&A based on the employee base, and it will go through for the 8-week period that, that current wage subsidy program exists. In terms of other costs, yes, a lot of things are sticky. But on the SG&A side, there's a lot of costs that aren't, and as you can imagine, in a work environment like this, where there's no travel and people are working from home and nonessential things just don't happen. And quite frankly, it's going to have a pretty significant impact on our SG&A through the second quarter, to the positive, obviously. And I mean, we talk about positives that come out of an unbelievable situation like this. And it's -- you really start to find where maybe some costs that you were spending really don't need to be spent in the go forward, and you can deploy those resources to more revenue-producing type activities. So I think that's a positive that's going to come out of this as we really cut back on our expenditures.
For sure. And then the last one for me is, overall, I know you haven't sort of given the granularity around it. But just kind of the headroom that you might get out of the new credit facilities, and the banks have been very supportive to the companies in Canada and supporting through this wicked time we're kind of going through. But any level of materiality that you can kind of give to us or notionally a range of what the headroom that you might be able to get out of the new credit arrangements to kind of skate you through this period?
Well, I hate to give out numbers, but maybe the philosophy of how we went to the bank might work. We presented them 2 very comprehensive models. One was an absolute draconian worst-case scenario and then there was one where we called it a base case, where we felt it was based on the current environment, something that we should be managing our business towards because it's potentially highly probable. We worked with our bank in the context of both of those scenarios because who knows, right? That worst-case could come to the fore really, really fast if there's a resurgence of COVID-19 and we go through this all again. So we really painted 2 goal posts to the bank. And we negotiated with them to put a structure in place that made sense in the context of both of those scenarios.
Okay. And did the covenants for a short period of time, are they actually -- there's no covenant for a period of time, and then they kick in? Or is it just you have an elevated covenant and then it kind of tapers off?
The intent is that we would get a significant uptick in the requirements from a leverage perspective immediately. And then there's certain hurdle points over the next 12 to 18 months that we have to bring those leverage ratios down.
Okay. Well, very good guys. It sounds like you're on top of it. So great actions being taken here. So appreciate it, and stay safe.
David, just before we let you go, maybe I could just add a couple of pieces of color.
Sure. Yes, please go ahead.
For your benefit. So number one, I would say that when we went into this from a financial and a cash management standpoint, we kind of had 3 objectives going into the crisis. One was liquidity, and that was like, by far, the number one priority as anybody knows going into financial crisis or otherwise, liquidity is king. Number two was try to preserve your balance sheet coming out of this. And number three was establishing the maintenance of value in the medium to long term. And so I'll talk about each one of those. So from a liquidity standpoint, the way Dan -- again, Dan's got significant experience managing through prior crises in other organizations. And very simply put, we want to see as much, if not more, cash coming in than it goes out on a daily basis. And so he's maintained that continuum through this crisis. And in fact, our liquidity is, I'll call it, double what we thought it was going to be. I won't quote exact numbers but we were targeting a certain level of liquidity through this crisis, and it's been double. And one thing that we've been very pleased at, and I'm going to knock on wood with this today, is that our customer collections on receivables have actually been very, very strong. And you talk about something that comes out positively, again, a renewed focus in integration on -- focus on cash collection. So...
So you're not worried at all, Jason, about anybody out there that might -- their ability to pay?
So far -- I'm going to put an asterisk on this, so far, we haven't seen it. Could that start to creep in? As Dan said, another resurgence, some other impact. But we've been remarkably surprised at how strong our payments have been and they've been pretty much on time, if not slightly ahead of what we thought. So liquidity has been great from that standpoint. And you couple that with the support we've got from the bank even towards what if downside draconian scenario, we don't have any real concerns over liquidity. So that's kind of checkmark number one. Number two, around balance sheet. What we want to see is that we've been able to not defer because that's a liquidity thing, but eliminate costs that we are going to -- and when I say costs, I mean balance sheet costs on CapEx and CapEx permanently, permanently eliminate the cash-out payments or finally, receive inbound grants, if you will, to fill the balance sheet hole from a -- what you believe to be your EBITDA miss that you're going to realize in a particular period, right? And so...
Have you guys put maintenance CapEx on hold and growth CapEx on hold? Or just a minimum amount of maintenance CapEx?
Very minimal maintenance CapEx, as Dan said, only if it's directly and immediately revenue generating, otherwise zero. And quite frankly, we don't expect there's a bunch of them. I won't quote an exact number, but it's a significant 7-figure number that we probably will just not do because we've realized that they're not necessary for the ongoing operation through this. So that's -- and then you couple that with the magnitude of the subsidies we received on both sides of the border, we feel that our balance sheet on a net basis will come out pretty close to, if not on, where it was prior to the pandemic. Now again, asterisk is we don't want to see another resurgence and who knows of the moment. But that's where we're headed. And then finally, in terms of value, when we think about looking forward because a company is only as good as its future. We look at Q2 as the capture period, where we want to see -- it basically is a period of darkness where we manage through it, but it is not indicative of the value of this business. In Q3 and Q4 of 2019, Q1 of 2020 and then Q3 of 2020 and Q4 of 2020, we want to see us coming out of this. And we really want to be able to say, look, just -- we're just going to have to ignore Q2 of 2020, when we consider the value of our business that we're building because it was so unusual. I mean even looking at things like SG&A levels, right, how do you separate the difference between the SG&A cost-outs and managing the onetime furloughs and reductions. I mean the analytics are going to be impossible, you'd have to create an [ algorithm ]. So we're really saying, let's take a look at Q3 and Q4 and Q1. And you almost got to kind of suspend reality for Q2 because if that's our objective, that's the one that's remaining to be seen. But we're highly confident we're going to be able to do that.
Last question, because I know I've held the line for too long. But if you look at the green shoots or the silver linings that you're seeing in the May period overall, would that be above the plan that based on the cash management preservation, the balance sheet and maintenance of the business, would that be over and above the more dire plan? And second of all, is there a pent-up demand that comes on the back of this? Because things break down and equipment breaks down. And when people get back to work and your customers get back to work and they actually start working in the low -- obviously, the low voltage work, is there pent-up demand there?
Yes. So maybe I'll let Rich Jackson, if you want to jump in. My general, my highest level answer to your question is we're planning for and expecting some of that. And I think yes, we do think that there's going to be some impact to that. But Rich is closer to the day-to-day action when it comes to that question. So I'll let Rich jump in here.
Yes. So I would say that inside our operating businesses, specifically in Eastern Canada because it has been the most impacted through the crisis, we now have a daily call inside that line of business where they're talking about the tsunami, which is essentially the pent-up demand that they expect to see coming out of the crisis. Most of their work has been delayed or postponed. It hasn't been canceled. So the full expectation is that we'll see and again, similar to Jay's point, putting an asterisk beside it, we expect based on where we're at today to see a pretty steep recovery in the short term, notwithstanding anything else that could come out of the crisis we're not aware of today. And that would mean that the summer months, which are typically busy in our business already, would see a pretty significant pent-up demand and that would be right across most of our businesses, probably with the exception of renewables, where we've seen less of a direct impact in terms of workload and so on. So the answer is, yes, we do believe there's pent-up demand, and it really comes down on the fact that these jobs, most of these projects have not been canceled. They've been mostly delayed and postponed.
[Operator Instructions] Your next question comes from the line of Raveel Afzaal from Canaccord.
I'll just start off -- I hope you guys are doing well as well and staying safe. I'll just start off with the receivables that Jason was touching upon. So maybe you can just give us some more color on that. What is the days sales outstanding target for you guys? Where are you tracking to right now? And then when I look at the 90-day-plus bucket, is that mostly Orbis? Or is there something else sitting in there?
I won't quote a days sales number, Raveel, because it's difficult with our contract asset flow and deferred revenues that vary. But from a -- we sort of monitor it on a factor of where we were in the past. And going into this environment, we really expected the collections to slow down and take a significant liquidity hit on our receivables. And as Jason indicated earlier, we're flat or even performing at a better level as we sit here today, which has been a big, big driver to the positive position we have from a liquidity perspective. We are cognizant that the longer this goes, there may be some deterioration, but we have not seen it as of yet. In terms of 90-day, we monitor that bucket. So we're pretty closely looking at the 90 and 120-day categories that are consistent in our business, some of them by terms, some of them due to holdbacks and some of them just due to customers performing at that level. And we've seen essentially zero deterioration through this crisis in those buckets, expanding to any material sort of mark. So again, it's been a pretty positive position from a receivables perspective and how we've performed.
Perfect. And then with respect to rent deferrals and Canada's Emergency Commercial Rent Assistance Program, do you guys qualify for some of that where you will have to pay 25% of the rent? Any color on that?
Well, we negotiated with our major rental properties prior to that subsidy coming out. We haven't looked closely. I thought that was more directed at the landlords who would apply for that to then be able to support any concessions they gave to their tenants. I could be wrong, but that was my understanding.
Dan, [ it's Ron ] here. Raveel, no, we wouldn't qualify for that. We're too big of a business to qualify for that rent assistance.
Perfect. And then just finally, moving on to some color on the growth opportunities. Of course, like your O&M business is doing super well. You won your first solar contract. Congratulations on that. It looks like there's a lot more solar coming online in Texas. So some more color on the pipeline that you see for yourself on that business and the new branch openings, like I understand now probably you want to delay branch openings. But how does the pipeline look for new branch openings for low voltage and high-voltage or especially low voltage?
So I'm going to suggest, Ron. Do you want to jump in? Ron Dizy, do you want to jump in and talk to growth opportunities, both parts of the question?
Sure. Well, I mean it's -- the branch openings, I think you're right, we will likely defer and they were mostly going to be near the end of the year anyway. And we just won't -- as Dan sort of said, and as Rich has said, we just won't incur the cost required in those things. In terms of new business, to the renewable asset owners and in fact, things like batteries, we are seeing continued pretty strong demand in those areas. We are working hard to try to broaden the regions that we do that in. So if you think about things like storage, it's been a heavily Ontario-dependent thing based on the tariff structures. We're trying to look for other places where we can bring that skill and expertise. And you noted the solar, but we're looking at how do we do more of what we've been doing in Canada, but in other jurisdictions and look for where I think those markets can be a bit competitive for niches that we can compete. So whether that's with existing customer sets, right, where we can really expand on that principle of being our customers' trusted partner in power, where we do a broad set of services for them, we think that customers perceive a lot of value from that. We also have launched just really in the first quarter, so it's still nascent, but a new offerings introduction team. So how do we think about ways to bring new offerings to existing customers. The near focus will be things like energy efficiency that we think is still quite underpenetrated, especially in the core industrial market that we have a lot of customers in so we think there's some pretty significant opportunities there if we can develop the right and compelling offering. And then we even think more broadly about electrification that we think will be a broad longer-term trend. I think electrification for example, of fleets, I think -- we think there's a bunch of opportunities in that, too. Does that answer?
Ron, you might also [ comment ] on the fulfillment, material handling and distribution, given what's going on. It's actually -- we expect it to drive exponential growth, and we're very strong in those markets. So Ron, maybe you want to talk a little bit to that.
Yes. So if you think to the customer types that we pursue, and I think one of the things that I think this pandemic has done, again, if you look to silver linings, is we've been saying for some time, there was a lot of value in the customer mix that we had. Food and beverage, data centers, distribution centers, right, materials handling. That's really proving to be true. And I think now you sort of have the evidence that when you have something as dramatic as a pandemic that those businesses continue to be strong. And as Jason has just said that those businesses continue to grow and expand, and we're there with them, right? Customers' trusted partner in power, we are the leader in terms of bringing additional capacity into those places and helping them with longer-term strategies around energy cost reduction and resiliency.
Yes. It's Andrew here. Also, Raveel, I just wanted to add to that, that we're also watching closely what the government is going to do coming out of this pandemic with respect to stimulus spending. We're working closely with a lot of the associations, both in Canada and the U.S., specifically on renewal entity. And we expect that there to be some pretty significant stimulus spending on EV, battery storage, solar and wind. So we're also monitoring that closely and providing our input to the associations and directly to government because we feel that there's going to be a lot of money thrown at that after -- as we come out of this pandemic as well, which is -- positions us extremely well going forward.
There are no further questions at this time. I'll turn the call back over to the presenters.
Thank you, everybody, for joining us today. We look forward to updating you on our business at the end of our second quarter, and we wish everybody to stay safe and healthy. Thank you.
This concludes today's conference call, you may now disconnect.