Q1 2021 Alithya Group Inc Earnings Call
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Before turning the meeting over to management. Please be advised at this conference call will contain statements that are forward looking.
Subject to a number of risks and uncertainties that but that could cause actual results to differ materially and those anticipated.
I would like to remind everyone that this conference call is being recorded on Thursday August or teach Twentytwenty I will now turn the conference over to Rachel Andrew's Vice President Communications and marketing. Please go ahead.
Good morning, everyone. Thank you for joining us early first quarter fiscal Twentytwenty when results conference call. The press release, and if any was complete financial statements that really didn't know.
Issued earlier today and are posted on our website. The webcast presentation can also be found on our website in the investor section.
Nothing this morning, Hollering elite <unk>, President and Chief Executive Officer.
People Chief Financial Officer.
Following their comments, we will open the call for questions.
Before we begin I would like to specify that there's nothing to call as intended for the financial community also please be advised to the this call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially.
Dissipated.
Please refer to the risk and uncertainties section of RMB any available on our website for more detail.
Let me remind you that all figures expressed on today's call or in Canadian dollars unless otherwise stated.
Well refer to certain indicators that are non IRS measures.
Please refer to <unk> and DNA for more detail now I would like to turn the call over to call.
[music], Rachel and welcome to the illegal.
Good morning, everyone.
The past few months have been challenging for everyone and I want to sincerely. Thank all of our employees for their hard work.
And our clients for their confidence in Libya.
Everyone rose up in a challenging and I'm extremely proud of what we have achieved together.
Please turn to slide four.
We are very pleased with our first quarter results, which were better than expected in the context.
They clearly demonstrate the resiliency of our business model as well as a growing demand for digital transformation services.
Our revenues were essentially flat at $70.7 million compared to last year, when we exclude the impact from the divestiture of our UK operations.
In essence, the contribution from our latest acquisitions offset the negative impacts from depend network.
Our problem for the three acquisitions, we completed last year generate at high single digit organic growth as a whole.
This means our integration have been successful and that our skill as plan has created more business opportunities.
If you remember in recent quarters, a few of our largest store broken even clients had been reducing their spending levels. Although our year over year revenues are still impacted by this trend and by the cobot Nike.
These large clients are in aggregate stabilizing on a sequential basis, which is very encouraging.
More importantly, despite the negative impacts from the pandemic or adjusted EBITDA improved 8% that 3.3 million at the first quarter and was higher by 62% on a sequential basis.
This increase is a great reflection of the proactive and rapid measures taken by our teams to mitigate the effects of the current operating environment.
Furthermore, we generated a record net cash from operations this quarter, which slowed will explain in a moment.
Turning to slide five for some operational highlights.
I'm happy to report that we introduced two new metrics this quarter bookings and the book to Bill ratio.
This is to help the market better understand our business and its cycles.
Bookings essentially referred to new contract wins, while book to Bill ratio reverse the bookings divided by revenues for the same period.
In the quarter, our bookings totaled $80.5 billion, while our book to Bill ratio was 1.14 or 114% revenues. This is ahead of our expectation and an excellent performance in the current environment I.
I would like to remind everyone. However that we believe a 12 month trailing book to Bill ratio is a better indicator of future perspective.
As notable variations can occur when looking at where the numbers alone.
Having started reporting these new metrics as of April 1st we will now be able to provide annual measures by the end of this fiscal year.
Despite the coldest restrictions in place and all of our geographies. We added 10, new clients in the quarter, including two significant multiyear cloud ERP contracts with the city of Montreal, and one of the largest integrated children's health system in the U.S. based out of Jacksonville, Florida.
In addition, our teams are going strong and continue to deliver projects more specifically, we completed more than a dozen ERP CRM DPM system remote go lives since April 1st.
Workovers it was difficult to imagine that such important point milestones could even be achieved with our professionals working 100% remotely.
Finally, a leap year continued to be recognized by its business partners. We achieved a prestigious 2020 2021 inner circle for Microsoft Award for the 15 year in a row.
We were also named a finalist to modernize finance and operations 2020, Microsoft partners the year War.
Our goal is to be a trusted advice to our customer and this Microsoft recognition as a good indicator of what we are that we are living up to that vision.
Well it will now review, our first quarter results at our financial position, though.
Thank you Paul in a good morning.
Let's review some Q1 numbers, please turn to slide six.
Excluding our small UK operations divestiture revenues for the quarter, we're only slightly below the first quarter last year.
$70.7 million.
As the contribution from acquisitions, the continued transition from low margin to higher margin business.
Well as new contract wins offset most of the moderate impacts we suffered from the pandemic.
Gross margin amounted to $20.4 million or 28.9%.
Down slightly from $21.2 million or 29.3% last year.
This variation mainly was due to the negative impacts from Covance 19.
Especially in Europe and in the U.S.
It was partially offset by a positive revenue mix variation in Canada.
And some government, which subsidies in Canada and Europe.
Of note on the sequential basis gross margin increased from 28.6%.
The 28.9% despite over 90.
As previously disclosed certain Canadian subsidiaries obtain $1.5 million through the Canete, Canada emergency wage subsidy program.
Which $1 million was recorded in Q1.
A major portion of which was recorded to cost of revenues.
As reported as Judy expenses amounted to $90.4 million up 2.6%.
From $18.9 million last year.
However, if we looked at SGN expenses, excluding share based compensation, which is a noncash item.
And excluding the adjustments considered in our adjusted EBITDA calculations.
We had $70.1 million of as Ginny in Q1 significant decrease from 18.9.
Million dollars in Q4 fiscal Twentytwenty.
This is also notably lower than Q1 of last year.
Which was $18.1 billion.
And that number being before our three recent acquisitions of fiscal 2020.
The decrease this decrease is mainly related to permanent and temporary decreases in expenses caused by cope with 90, including salaries.
Travel and business developments.
Well again as certain government subsidies.
Adjusted EBITDA amounted to $3.3 million were 4.6% of revenues versus $3 million, 4.2% for the same period last year.
This increase was driven by the contribution from acquisitions.
Increased margins from higher value added business.
As well as the abovementioned reductions in as DNA.
These factors were partially offset.
By the impact of cold like Pete.
On a sequential basis adjusted EBITDA increased over 60%.
From $2 million into fourth quarter of fiscal 2020.
To $3.3 million.
Net loss during the quarter amounted to $4.5 million or eight cents per share compared to a loss of $1.5 million or three cents per share for the same period last year.
As in previous quarters, the amount of our accounting loss is basically equal to the amount of our noncash amortization and depreciation expense.
Now turning to our liquidity and financial position on page nine.
Net cash flow generated from operating activities amounted to 8 million $8.1 million.
In the first quarter, a record for a single quarter and almost doubled the $4.2 million generated during the same quarter last year.
This record cash flow was mainly driven by diligent working capital management in the context of it.
Given our better than expected results combined with our prudent cash management, we ended the quarter in a solid financial position.
At the end of June we at $9.8 million up MEP bank borrowing.
Which is net of art $17.5 million in cash and restricted cash.
Which is significantly down by $17.1 million compared to a net bank debt.
Up $26.9 million at the end of March 2020.
This reflects the above prudent working capital management.
And positive cash flow from operations.
As well as a $6.3 million us dollars and PPP loans.
We will shortly make application for forgiveness of such PPP loans. We believe we have used the funds for qualifying expenses and otherwise comply with all relevant rules and regulations of the program.
However, there is still can be no assurance that the company will it thing forgiveness.
In whole or in part of the loans.
We are also considering the new Canadian government wage subsidy rules, which have removed the obligation to reach the find revenue reduction level for eligibility.
And we'll claim any amount which may become available.
As it stands today, considering or low net bank borrowing and the funding received from various government programs.
We believe we are in a good financial position to navigate the current ongoing uncertainty.
And keep pursuing our business plan and objectives.
I will now turn it back to Paul.
Thank you closed.
Please turn to slide seven.
So to summarize our first quarter results.
Were better than expected in the context of that pandemic and demonstrate the resiliency of our business model as well as the need more than ever for digital transformation services.
Despite this success and given the ongoing pandemic, we continue to implement our business continuity plan.
Including managing our operating expenses brutally taking advantage of government programs and efficiency opportunities as well as monitor new developments very close.
Having said this we are seeing positive sign in our markets. Most projects would have been bosler delayed the start of the pandemic have resumed.
And as mentioned earlier reduce spending by a few large Canadian clients appears to be stabilizing.
And we are continuing to sign new clients and new deals.
Although we remain cautiously optimistic this is very encouraging in the current environment.
Our bookings and pipeline remain healthy providing a good based the bill Don.
Do I would like to remind you again, we believe a better indicator of book to Bill will be over a trailing 12 month period.
A quick note for modeling purposes, our second quarter is typically seasonally soft given the vacation period and we believe this year will not be any different adding to the overall global uncertainty.
Finally, we finished the quarter to solid financial position, which will allow us to continue to focus on the execution of the growth portion of our strategic plan to increase as scale organically and through acquisitions, we have a strong foundation to support future growth. Despite the potential headwinds from the cobot 90 crisis.
We are well positioned to continue to focus on delivering our long term plan, becoming a north American leader in strategy and digital transformation.
So to conclude I would like to reiterate my sincere gratitude to our professionals, our clients and our shareholders for their unwavering support and trust in these unprecedented times.
We will now be pleased to answer any questions you may have joanne.
As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please press the pound or hash key please standby, we compared to Q and a roster.
Your first question comes from the line of Mayor Yagi from Deutsche Bank. Your line is now open.
Hi, Thank you for taking my question I wanted to ask you guys or both.
Your com.
The business starting to come.
The most that you saw would the corporate situation.
Can you discuss a little bit or how widespread.
Improvement is happening.
In the U.S. and Canada I heard there are differences.
And also.
When it comes to your existing client base in Canada.
With the some of the bigger companies that you are.
Our client.
Clients and kind of that have you seen some stabilization or improvement on that.
Okay.
Good morning, My that thank you for the question. So so on the first part.
We can give you a lot of color on this because as a as everybody else we've been managing our business is very closely.
Those are than ever since the beginning of the pandemic.
I think like everybody as of March and April.
We were very concerned with what was happening a lot of projects were being put on hold everywhere. The authorities were trying to figure out what to do.
We did see a gradual pick up in the quarter, which finisterre very strong. So that's why you're saying in the quarter a lot of the stuff that we had seen slowing down as a tick back up you can also see it from our bookings a lot to customers that we mentioned the password delaying decisions at the beginning of the quarter.
Excuse me.
Those have picked up and we saw the bookings a we were we were also pleasantly surprised that the acceleration of the bookings, which is a very good sign for Uh huh.
As for your second question in Canada again, we.
When we look at quarter over the same quarter last year.
We see the same decreases however, when we look sequentially our numbers of the large Canadian customers as a whole we are seeing stabilization that increases the on a sequential basis. So yes. It is very encouraging.
Okay, Great and maybe if we can talk a bit about the bookings that you had in the quarter.
I would say a quite a good number when you compare a with other companies in the sector, who many had below one type of a book to bill.
Can you talk about the type of projects booked in here.
Are they from if you can maybe.
Percentage wise, what is the renewal versus new customers in that and not booking number and the type of projects that are in there.
Yes. Thank you for the question I I can't give you. The information this morning on the new versus old, but I'll I'll qualify and we'll look at that for coming quarter as an additional that measure I think would be very useful.
It's both so we added 10, new customers in the quarter, which again I think is a is also very impressive given the fact that we can't meet customers face to face anymore. It's over the past quarter. Our sales have been done virtually so these is using the tools that we haven't done a lot of this is.
As a reputation and referrals.
Good example is Microsoft we were talking about the remote go lives. We did Microsoft did their annual inspire conference, which is there a huge conference they do every year.
Elite yet was actually use that as an example, and the leader or Microsoft practice actually gave an interview during the inspire conference on how to do remote go lives those types of a recognition and visibility generates a new opportunities. So we had that we had both some existing in some new I think the too.
The two significant ones that we closed the quarter, which are very large cloud ERP implementations. One this for the CEDIA Montreal.
Which is a major project in a major undertaking that we were we were selected to do that.
As well as the the one in the U.S., which we can name, but a very large healthcare group and I think it's important to mentioned those because those are a direct.
The result of the cross selling that we have done between our existing business and the new acquisitions without the new acquisitions, we would not have been able to close those two deals and the new acquisitions on their own would not have been able to close those two deals because of their side. So I think those are great indication and to me. The fact, we can we can.
Still do deals like that during the pandemic.
Very good sign.
Okay, Great and my last question is on margins, so gross margins or EBIT margins. What however, you you prefer to look at them.
So when you look at the projects Youre signing right now.
Compared to your existing backlog.
How would you qualify them and when when you look at.
Maybe the environment that's your operating in.
What are the verticals you see.
Potentially outgoing.
The company's overall.
Real quick.
Thank you may or so so I'll start with the first one on the margins.
We saw a lot of pressure at the beginning of the quarter again.
This was a generalized everywhere, where it where it wasn't just a question of pressure on the margins, but some customers were saying well we want your people to work part time or we're going to.
Bring this this project two to four days a week or everybody was looking at all kinds of different formulas to try to with the save on cost.
That's back to normal we saw the evolution the quarter as people were seeing a.
That.
Some of their business was actually increasing.
So I guess, that's the comment that I can make on the the challenging rates and so on.
Because we're a more into value added services like selling ERP implementations that someone and so forth. We're not really competing for rates that type of business really compete it based on day.
Competencies and the the quality of our deliveries delivering an ERP project remotely you don't want to go with the lowest bidder you want to go with people that have actually done it before and get into it successfully so so that piece a we're confident that.
The.
Oh, sorry, the second question was on the what was your second question.
The verticals that you feel you have less crank found the right now that is driving those bookings.
Yes, so we were very fortunate the little bit by design, but the I guess the pandemic has kind of demonstrated our model all of the verticals, where we have a strong presence.
Our part of the Central services, we really have only one large customer, which we've talked about before which is in France, and the airline industry, which of course, you know what's happening with the airline industry and that's going to take awhile before it comes back.
But the balance of our business has been the has been the doing fairly well and holding out within the context of the pandemic.
We're seeing a growth in most of them a financial services as a big sector for us a healthcare and government is a big sector for us which is growing.
The manufacturing that were in is actually in the food.
And the and medical.
Business, which is growing people are eating into the shopping grocery is more that more than ever. So we're very well positioned in that sector, which is doing well as well energy and telecommunications, which again are doing they're doing fairly well. So we're really is seeing a positive signs and all of those sectors.
And maybe close to that.
Gross margins, obviously in a declining topline environment.
We need to make the decision whether we we make some layoffs or not and we're kind of very prudent doing that as you know where in the world of scarce resources and we really wanted to protect our our teams and our expertise. So what happens is your topline goes down but you basically keep.
A lot of costs for forward that very reasons. So.
The fact that we were able to maintain the margin we have despite this and obviously there is a bit of subsidies and thrown in there but did not did not make up for what I just said so.
The good news is when we turn this around that we should be in a good position to have to continue having.
Very good margins.
Great. Thank you guys.
Thank you.
Your next question comes from the line of Paul steep from Scotia Capital. Your line is now open.
Great. Good morning, Paul could you talk a little bit of the U.S. business.
What you've seen maybe on the Microsoft side, and then in the Oracle side the progress on realigning that that part of the business and that's got one quick follow up thank you.
Yeah. Thanks fall for the question.
The U.S.
Business as a whole is the is doing well the oracle reductions we've seen in the past Cup stabilized.
The concerned with the U.S. as more of a geographical.
Issue not as much with our business, what's what's happening in happening in the U.S. as a whole.
As you know the Golden pandemic there as it has accelerated in the past the weeks and months, there's a lot of political uncertainty. So so we're tracking kind of that the macro level to make sure. We keep our people safe and that we can still serve our customers. So I think theres a lot of noise at the macro level.
On the on the business side.
At the beginning of the quarter at the same issues in the U.S. that we saw everywhere else with the customers not too sure what to do.
Delaying decisions.
Stopping projects are delaying projects.
As the quarter progressed, we saw that reverse.
Some of the large contracts like the one we just announced with a healthcare group was signed in the quarter. It was delayed at the beginning of the quarter and we did site in the quarter. So.
We're filling the backlog up pretty well of course the summer is always a the Q2 for US which is the the summer months is always a concern because of vacations and so on and so forth seasonally lower.
But.
Bookings are still coming in.
Oh listen we're cautiously optimistic so far we're happy with where we're seeing a ball.
Thanks, and then the second one would just be to give us a sense of because obviously scored a couple of good size contract wins in the quarter.
How we should think about the duration of the bookings obviously historically they would have been shorter, but it sounds like a sizable winter too. Thanks.
Sure that thank you it varies so on our existing business.
Typically will be a shorter timeframe the two at the two contracts and question that I mentioned that large.
Implementations ERP implementations are usually over two or three years.
Great. Thank you.
All right.
Your next question comes from the line of Amer ease that from Echelon partners. Your line is now open.
Good morning, Thanks for taking my question.
Paul just a follow up on the bookings.
I mean, you mentioned the ERP project, but can you give us more of a segmentation and how it looks like by product line.
Have like a lot of EPM and CRM projects, some there as well.
Good morning ever thanks for the question.
As I was saying earlier I can't give you more details today on the old versus our existing customers versus new customers. However, I'll make sure we get that level of detail for the next the next call add but it was kind of across the board. So we had the as I said that lot of customers, who were delaying decisions at the big.
Turning to the water.
On a came back and accelerated or the ended the quarter. So so it's really across the board that we're seeing that we're seeing these new bookings.
Yeah.
You mentioned during your prepared remarks that the three acquisitions grew high single digit.
Are you guys disclosed NT dollar amount contribution for the quarter.
From acquisitions.
Yes.
No we're not.
We're not because its.
It would be little bit too detailed in the other thing is we're really integrating our acquisitions very diligently Ns as Paul explained we are pushing cross selling as much as weekend and so when a joint project comes around that we need to decide do we put it in the.
We have the MB acquisitions, BNL or do we put it in our historical PML.
And so and it depends basically.
You know specific circumstances, so it would be tricky to try to.
To provide these numbers after the the acquisitions.
So now we're still we're a number then would still fairly recent so were able to tell you. What we did that we are seeing organic growth.
For these three acquisitions, both sequentially and year over year, obviously, we did not have these numbers in our books last year, but we know them and we know there we have organic growth in aggregate. So.
Yes, I am or that the color I could give you which comes back to the acquisition. So the and the bookings the larger health care group in the U.S. is actually because of the combination of R. M and our ERP practice, the ERP practice came from our latest.
Versus acquisition, the M. was our legacy Oracle business in the U.S.
Both organizations could not have one that deal together and the fact that we're able to invite those services.
As what the push this over the over the top and got US got us that skills and was that competitive deal.
Perfect. That's the that's great color, so I guess like in general on the M&A.
How's the pipeline.
Holding in light of coal, but you know like.
Some companies are.
Expressing difficulty and.
You know like of conducting due diligence in that environment I just wanted to get a sense of what you guys are seeing and how your pipeline looking.
Sure. Thanks.
So at the beginning of the pandemic, our focus was really on making sure and throughout the organization that everything was under control and we're taking the steps that to protect the company and our people. So the focus was not on M&A at the beginning of the pandemic I can guarantee you that.
So we put a lot of.
Of these discussions on hold to focus on our business.
However, I can say that as the quarter evolve.
A lot of these deals which was a comp in the our mutual agreement by the way everybody. We talked to was also putting their efforts on hold so those discussions that restarted our funnel is very healthy.
The pandemic had the benefit of identifying the good targets versus the ones, who did not do as well so was actually a way of validating what people were telling us.
There's still a lot of very nice companies out there and our bundle is still very healthy. So now that we are that you saw the the numbers than the position that we're in we think we're degree position to keep that going.
Great Great maybe one last housekeeping item just looking at your as you may appreciate the color in your prepared comments.
We're looking forward how should we think about I guess, a normalize as you may over the next few quarters is there.
Significant like cost cutting we can expect or are you guys like appeal that you're sort of lean now and can swing Karti Bhatt.
Well, there's always opportunities for improvements ever the as closed was mentioning we have some recent acquisitions there that are being integrated that that's why you're seeing some year over year improvement that's going to continue.
As we integrate the businesses, we always find synergies and ways to do better or not loan if you want to add to that.
Yes, so obviously in this first quarter anything having to do with travel.
Business development training, even recruiting to western expense, even though we did not stop recruiting.
We still for a while were.
I guess less less active on that front.
So those expenses, how the turnaround remains to be seen what's going to happen with covidien restrictions on travel and so on and so for I don't think we're going to go back to.
To how we'd was before ever so remains to be seen exactly what the rebound in his Jenny in these categories will be.
We had also some headcount reductions we talked about that in our Q4 reporting.
So I guess.
These structural.
Basis, our reduction as GE and it will mainly come from increased scale.
As we said often our existing infrastructure can take us do a billion dollars.
You know and maybe more with minimal increases in mid level or junior levels in our corporate functions.
So that's what I would see but you can probably expect difficult bid.
You know if theres a return through two normality I mean, some categories would would increase back and that can be.
A few hundreds of thousands of dollars on a quarterly basis easily.
But right now for second quarter me, wherein we havent seen much change yet, but as you can imagine so.
Yes.
Okay. Thanks, that's it that's that's very helpful I'll pass the line.
Thanks Amir.
Your next question comes from the line of Gavin Fairweather from Cormark. Your line is now open.
Hey, good morning.
Ordering Gavin.
Hi, just to start out on on.
No the project kick off so nice to see the good bookings number in the quarter I guess just curious.
The extent to what you're seeing delays in project kickoff.
Kind of in general, but then also specific to the traversing business just given what's going on your okay.
Sure. Thank you so on the project kick off as I was saying earlier, we saw a lot of the delays at the beginning of the quarter.
As people were trying to figure out how to do things in the and the new context, and as I was mentioning earlier, especially in the large projects like the ERP implementations.
Even considering doing those remotely in the past what would have been seen those heresy.
I think a lot of people realize they could do things a lot better remotely doesn't that face to face.
We've done the over a dozen go lives in the quarter and of course. They came later in the later in the quarter.
And the the results have been quite impressive.
Quality of the.
The project kickoff and implementations have actually done very smoothly, we have been giving training on how to do it we were highlighted at the at Microsoft inspired conference for how we do these things.
We actually posted a lot of video training on our web sites and for our customers on how to do these types of things because of the experience. We had so I'd say all in all the we were able to turn that around that come up with a new way of doing things that is very appreciated out there in the current market conditions.
Okay. That's very helpful. And then just a clarification. If you had a project that was a pause late and I guess your Q4 or early in Q1, and then it kind of came back online that's not factoring into your book to Bill ratio that would be kind of on top right that was already in the backlog.
I'm, sorry, I'm not sure understood the question the Gavin.
Project that was pause it if you had a project that was delayed kind of let's say earlier in this quarter that came back later in.
In the quarter that wouldn't be included in your bookings number factor in the book to Bill order backlog my thinking about that correctly.
So the bookings are based on the sign contracts.
Whether we signed the contract that typically when we signed the contract and when the project starts are two different dates because you signed the contract answers that kick up and the ramp up so it varies depending on the type projects.
But there are two different things.
Okay. Thank you.
Again, if you would like to ask a question. Please press star one on your telephone. Your next question comes from the line of Deepak crucial from Stifel. JMP. Your line is now open.
Oh, Hey, guys, sorry, Paul good morning.
Morning, Deepak learning.
Hey, you don't quote you guys have given really good color on the quarter and the dynamics from the beginning to the ended the quarter I'm kind of curious what are your customers sharing with you about their outlook for the fall.
How far they kind of planning ahead right now.
And likewise, what's kind of your outlook for the fall how far you guys plenty of headroom CAD.
Thanks for the question Deepak, we don't provide outlook on our numbers, but I can give you color on what we're hearing out there I think it might be helpful.
I.
Again I go back to March when I think the whole plan. It was kind of wondering what was going to happen.
We went from that to I'd say.
It May June where people were realized that the world was not stopping despite all the challenges businesses were still we're still operate.
Still needed their back office to operate.
I think a lot of companies realize that the more.
Cloud based they are the better so that there are people can work from home was a lot of the of panicked organizations at the beginning of the quarter trying to figure out how to work from home that was not an issue for US we actually said everybody home before it was required to do so because everything.
Within the Lithia is cloud base, we've already implemented all the system. So from an infrastructure perspective, we're in a great position.
We saw gradually the different sectors coming back. So for example financial services all they realize that people still need to do their banking and shopping that the food the.
Industry, you know if you look at the large grocers, a and the the food production.
Manufacturers, which is our customer base.
Couldn't keep up with demand so again, they had to adapt and so so depending on the different sectors that were looking at I think everybody is realizing that it is a new world. It's a new way of doing business, but they still have to do business.
So the demand for a digital transformation services is still as filled they're still going to be there, it's not going to slow down people need their technology more than ever and I think some of the larger organizations, which in the past we're looking at technology more as a cost of doing business are now looking at how do we leveraged technology to be better.
And do things faster and more efficiently. So I think you've seen a change in the mindset of a lot of Ceos and leaders out there that technology.
It's not just a bad thing as an expense on the on the under the PNM and the balance sheet is how do we leveraged that and do it smarter, which is basically where were lined up.
I look up the fall I'd say your guess is as good as mine everybody, who is very concerned with what's happening in the us just because the us drives a lot of what's happening in Canada and many other places on the planet.
I'd say, we were at we're very happy with our business model, we're happy with how our business is as a bit resilience in the past quarter and how it's it's doing within all of that uncertainty that we're seeing out there.
So were work I'd say, we're cautiously optimistic, but you know what everything again, the geographical and political issues that the us I'd say your good your guess is as good as mine is what's going to happen in the fall if there's going to be a second wave or when is the vaccine going to show up I think.
Going to be in this mode for quite some time.
I think at traveling to the airline travel we're still a year away from from any kind of normalcy.
And that if we get a vaccine by them.
So were we really adapted to operate the way we're operating now and it's also impacting how we look at acquisitions. So we look for acquisitions that are in the same essential services. As we are that have a complimentary offering are having a very high recurrency a revenue in the and predictability.
So it's a it's.
It's a it has changed some of the it's added I'd say some of the betting.
Conditions that we added on our list of what to look forward with the look out but I'd say, it's introduced a lot of discipline in the in the industry.
And we've been able to do that to do that the very well and at that very well you also remember that in the us even before the pandemic.
All of our team worked remotely. So the difference was we traveled to a customer site for a kick off of a project we traveled to a customer sites with the implementation. So you can do that the hand holding in the address issues as we go so I'd say the biggest challenge was adapting to that of doing that remotely and also the business development side.
Which again.
People are not going to be traveling today at the conferences and all kinds of other places in the near future. So adapting our sales model to be able to sell remotely has gone very well. So again, that's something that we're going to be leveraging in the coming quarters. It because we do believe this things at last for a while.
I hope that excellent question, the D., but yeah, that's a long answer can color.
Yeah, I don't know, it's very helpful color I appreciate that you mentioned in the outlook large organizations.
On the leverage technology do you have a subject in this new normal before we get to a vaccine and it's widely spread and Theres not community do you have a sense of is the new normal.
A bigger or smaller than the old normal like if we can think of it on the same store sale type of basis.
You have a sense of where this all might shake out are we 10% higher than what you thought going into Colgate or well prequaled bid or are we 10% lower than that.
I would say this and this is just a personal opinion that the back I I think this new normal is around for awhile.
I think there's always going to be the need for people to go into offices, a deep personally and the duty building and build company culture, but I don't see organizations going back to the levels of before I think this is going to have a huge impact on the retail commercial retail and the medium to longer term.
On how we shop, how we travel how we work.
I think it will have a long lasting in back on the digital environment of how we use tools, how we how we.
Oh, we leveraged the digital world, how we work and how we live.
Again, I I've been around the industry for quite some time I know that's sometimes we see these things of their fabs.
They go by and they change every four years.
But I do think.
The idea of you have to be on site. All the time I need to see you all the time to be able to figure out if you're working or not.
I think thats out the window.
Okay, great color.
If I may quad not too many of you I've.
Good cash flow this quarter, how much of the working capital changes are permanent.
And what can you tell us about some of the nonrecurring costs here.
This relocation cost in the ERP system integrations.
In fact that how much of those should be expecting over the next couple of quarters.
Thats it.
Yes, so by the weight was poll at talking before and the friendly we have a very similar voice, but it was falls I don't know I'd say, thank Paul and I didn't want to leave you out so close on how to use again in July.
Okay.
And I would add by the way on the rents, which is our second largest expense in itself you can expect our needs to be decreasing over the coming quarters in years.
The reasons ball was explaining however, the sub leasing market right now as you can imagine is pretty soft.
But certainly when we look at acquisitions, it's fairly safe to see that.
The need for space will be very limited so those synergies are becoming very.
Very easy because we have space in our existing facilities because of Cowen.
The working capital variation I mean that may be one silver lining of having decreasing revenues. Obviously, that's good for working capital you have your receivables going down.
Typically and that brings cash and we.
We went over and above that however, I don't want to.
I want to take a little bit of credit.
Our.
Dsos so our.
Our receivables and days of Ceos have been stable, if not slightly down. Despite covance. So we could have expected plans to slow down on payments that has not happened.
Neither in Canada, nor into us.
However, as our revenues stabilize and hopefully start increasing again you may have some some reversal that those.
Those positive working capital variation, so it's pretty tough to forecast in itself. We are we pretend to be a growth company, we've always said that which means that each quarter. If you remove these.
These timing differences you know as we can get bigger you can expect we will need to be investing in our working capital the sustained basis.
With regards to ERP those expenses are decreasing obviously, where we're nearing the end up our.
In fact, we have more while now we're more investing when we need to integrate our acquisitions onto our Oracle platform, that's where the bulk of the spending.
On the ARPU will be so that you can expect we'll be continuing its gone down and then a few for as you as you saw so that trend will.
We'll continue even though you never stop investing in your ERP system and the good news is that's what we do for living so our clients are stuck with the same thing.
You always need to bring in the new modules and updates and.
And personalization of certain functions and training and bug fixing so it'll never stopped but you can expect that amount to go down.
And the other one you were.
Referring to.
What was that what was the.
Relocation.
This relocation.
So thats, mainly behind us indeed.
We will have a little bit coming but really not much in the second quarter, we're bringing our met these this folks in our eskey the folks we're bringing them to our main offices, but it's small dollar so that will be going down as well.
Okay. Thank you so much quote and thank you again, Paul for your earlier answers appreciate the time.
Your next question comes the line of Susan's to Kumar from eight capital. Your line is now open.
Hi, guys. Thanks for taking my questions here.
So given the growth of recent.
Acquisitions, I, just kind of wanted to get an update on any progress on software driven IP, where I think it's.
It's still fairly low.
Obviously, we resell that Oracle and IBM, and Microsoft licenses, but as far proprietary IP.
That's a small amount.
Still.
We really looking after IP that we can sell services around.
That's our business model.
But if you look to our financial statements.
I think.
We still haven't notes.
No we remove that actually.
It's pretty limited this weekend. It go ahead. Your question is very good. One this is Dan it's something that we have said that we want to grow and look into.
Yep.
Today, It's very limited the last acquisition, we did was a less kedah.
They they have a significant portion of IP, but when you look in the greater scheme of things given the size of elite yet still.
It's still small the as compared to the rest of our revenues today.
Okay got it.
Okay, great. Thank you and then just I wanted to circle back on to comment you made.
A couple of.
The question to go just on the changes in priority than M&A given the current environment. I was just wondering if you could kind of just to circle back on those comments and I'm, just trying to little bit more color.
Sure. So we we have a very disciplined approach to our M&A in terms of what we look for.
The cultural fit management's sticking around.
The complementary nature of the services and the industry is that there is so we have a checklist that we go through and we qualify all these companies before we even though the next step.
We added to that list based on their Covance. So for example, the sectors was something that we looked out of the past, but I think the visibility of the sector, whether it's in the central services or not is now at the top of the list because as we've seen from from cold into this thing last for the next two years.
Much better to have a targets that are in similar sectors to us and that our kovac resistant let me put it that way. So that's an example, so we've added a few a few new criterias that we look at as we scan these companies.
And given that the pandemic, we're now in two months six of it.
It's really easy that out how that has impacted the targets that were looking at so it's a it's very interesting. So we added a few do a criterias and I've got to go into detail because I think it's part of our secret recipe.
But theres still some interesting targets out there despite all these things.
Okay.
Okay. That's perfect. Thanks, guys I'll pass the line.
Well. Thank you as is.
There are no further questions at this time I will turn turn the call back over to the presenters.
Thank you Ed Joanne so so again.
Very happy with the quarter. Thank you everybody for being on the call today, just wanted to remind everybody that our annual general meeting of shareholders.
I will be held as a virtual meeting this year on Wednesday September 16th 2020 and to access at the meeting documents you can visit our Investor section on the lead via web site. So thank you again being on the call today and we look forward to speaking with you on the next quarterly call. Thank you have a nice day and stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.
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