Q3 2022 Alithya Group Inc Earnings Call

Speaker 1: Good morning ladies and gentlemen, welcome to L. Lydia's 3rd quarter fiscal 2022 results conference call. I would now like to turn the meeting over to Rachel Andrews, Vice President communications and marketing at L. Lydia. Please go ahead and send.

Good morning, ladies and gentlemen, welcome to your outlet he has third quarter fiscal 2022 results conference call.

Like to turn the meeting over to Rachel Andrews, Vice President Communications and marketing at all Lithia. Please go ahead Ms Andrews.

Good morning, everyone and thank you for joining us for Lithia <unk> third quarter fiscal 2022 results conference call. The press release and MD&A with complete financial statements and related notes were issued earlier today and are posted on our website.

Speaker 2: Good morning everyone and thank you for joining us for L

Speaker 2: The webcast presentation can also be found on our website in the investors section.

Katz presentation can also be found on our website in the investors section presenting this morning are Paul Raymond Alicia as President and Chief Executive Officer, and killed people, our Chief Financial Officer before we begin I'd like to specify that this conference call is intended for the financial community. Please be advised that this call will contain statements that are forward looking.

Speaker 2: Presenting this morning are Paul Raymond, Alithia's President and Chief Executive Officer, and Claude Dibault, our Chief Financial Officer. Before we begin, I'd like to specify that this conference call is intended for the financial community. Please be advised that this call will contain statements that are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated.

And are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated for more information. Please refer to the cautionary notes in our presentation and to the forward looking statements and risks and uncertainties section of our MD&A available on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars.

Speaker 2: For more information, please refer to the cautionary note in our presentation into the forward looking statements and risk and uncertainty section of our M. D. and eight available on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. And be aware that we will refer to certain indicators that are non measures.

Unless otherwise stated and be aware that we will refer to certain indicators that are non <unk> measures. Please refer to our cautionary note in the presentation and in the MD&A for more results now I would like to turn the call over to Paul.

Speaker 2: Please refer to our cautionary notes in the presentation and the in the for more results. Now I would like to turn the call.

Yes, sure good morning, everyone Basel.

Speaker 3: Merci Rachelle, good morning everyone, bonjour. I look forward to discussing some of the highlights of another Aligia record quarter for revenues and client go live.

I look forward to discussing some of the highlights of another elite via a record quarter for revenues and client go lives, but before I dive into the highlights of our third quarter I'd like to take a moment to reflect on our most recent acquisition on February one as you remember, we announced <unk> acquisition of vital as a U S based learning and workforce development.

Speaker 3: But before I dive into the highlights of our third quarter, I'd like to take a moment to reflect on our most recent acquisition. On February 1st, as you remember, we announced Alipia's acquisition of Vitalist, a US-based learning and workforce development company with a blue chip customer base of Fortune 1000 companies and the leading Microsoft partner in their field.

Company with a blue chip customer base of Fortune 1000 companies and the leading Microsoft partner in their field.

Speaker 3: Here are the key highlights of this transaction. One, Vitalist will accelerate our entry into the massive learning and workforce development industry, recently valued at over $50 billion in North America alone.

Here are the key highlights of this transaction, one violets will accelerate our entry into the massive learning and workforce development industry recently valued at over $50 billion in North America alone.

Speaker 3: The transaction also enhances Allevia's revenue mix with new high margin subscription based recurring revenue streams. And three, it presents strong organic growth prospects and promising cross selling potential with Allevia's current services and client base. Oh, and by the way, it also enhances our already solid partnership with Microsoft.

The transaction also enhances the Lithia is revenue mix with new high margin subscription based revenue recurring revenue streams and three it presents a strong organic growth prospects and promising cross selling potential with <unk> current services and client base and by the way. It also enhances our already solid partnership with.

Microsoft.

Speaker 3: On a final note, our new Proprietary Adaptive Learning platform now enables us to provide post-implementation change enablement to our customers. We can therefore accompany them over the long term in their digital transformation journey.

On a final note our new proprietary adaptive learning platform now enables us to provide post <unk> implementation change, enabling them to our customers. We can therefore accompany them over the long term in their digital transformation journey.

Speaker 3: Olivia will now be able to evolve the adaptive learning platform as well to fit the needs of our Oracle practice moving forward.

Olivia will now be able to evolve the adaptive learning platform as well to fit the needs of our Oracle practice moving forward.

A reminder, that this acquisition occurred during our fourth quarter and is therefore not reflected in the financial results that we are disclosing today.

Speaker 3: A reminder that this acquisition occurred during our fourth quarter and is therefore not reflected in the financial results that we are disclosing today.

Speaker 3: Now on to Q3, another record quarter. Let's go through our three key takeaways for the quarter.

Now onto Q3, another record quarter.

Let's go through our three key takeaways for the quarter.

Speaker 3: First, Aletheia has posted once again continued industry-leading growth and another record quarter in terms of revenues, with more than 55% year-over-year growth.

Alicia has posted once again continued industry, leading growth and another record quarter in terms of revenues with more than 55% year over year growth.

We also continued to experience substantial organic growth across all of our geographies, including a record quarter for go lives posted by our Microsoft practice for enterprise cloud implementations.

Speaker 3: We also continue to experience substantial organic growth across all of our geographies, including a record quarter for go lives posted by our Microsoft practice for enterprise cloud implementation.

Speaker 3: including Microsoft and Oracle Cloud Enterprise Solutions, we had a record 27 successful client goal lines in the quarter.

Including Microsoft and Oracle Cloud Enterprise solutions, we had a record 27 successful client go lives in the quarter.

Speaker 3: Our Oracle practice experienced record bookings as well for the U.S. in Q3. This is largely due to a sense of urgency amongst healthcare sector clients to accelerate their digital transformation plan.

Our Oracle practice experienced record bookings as well and for the U S. In Q3. This is largely due to our sense of urgency amongst healthcare sector clients to accelerate their digital transformation plans.

Speaker 3: With the current challenges and pressures that the healthcare industry faces, it is more important than ever to provide technology solutions that reduce risk and help clients to focus on improving patient care.

With the current challenges and pressures that the health care industry faces. It is more important than ever to provide technology solutions that reduce risk and help clients to focus on improving patient care.

Speaker 3: We also continue to deepen our public sector market penetration in Canada. In January , we started a $3 million services contract with a federal government agency, the Parliamentary Protective Service.

We also continue to deepen our public sector market penetration in Canada in January we started a $3 million services contract with a federal government agency the parliamentary protective service.

Speaker 3: We also continue to leverage our Quebec government qualifications that allows the company to serve as a trusted advisor to other public organizations.

We also continue to leverage our Quebec government qualification that allows the company to serve as a trusted advisor to other public organizations.

In addition to paving the way to establishing a track record of ongoing successful projects with government agencies the qualification position.

Speaker 3: In addition to paving the way to establishing a track record of ongoing successful projects with government agencies, the Qualification positions Aletheia to take advantage of a recent Quebec government announcement that all of its departments will be migrating to the cloud within the next three years.

<unk> sorry to take advantage of our recent Quebec government announcement that all of its departments will be migrating to the cloud within the next three years.

Secondly in line with the continued growth of our business our recruitment campaigns continue on all fronts as we strive to expand our knowledge and expertise of our workforce. We continue to be very successful in attracting new employees looking for exciting challenges with a rapidly growing digital transformation leader.

Speaker 3: Secondly, in line with the continued growth of our business, our recruitment campaigns continue on all fronts as we strive to expand the knowledge and expertise of our workforce. We continue to be very successful in attracting new employees looking for exciting challenges with a rapidly growing digital transformation leader. We recently hired 192 employees and our growth-related job openings have increased by 92% over the same period last year.

We recently hired a 192 employees and our growth related job openings have increased by 92% over the same period last year. We also continue to strengthen our internal resources dedicated the skills development for our professionals, which includes a series of specialized academies that focus on core expertise.

Speaker 3: We also continue to strengthen our internal resources dedicated to skills development for our professionals, which includes a series of specialized academies that focus on core expertise.

Speaker 3: To mention another highlight from the acquisition of Vitalist earlier this month, Alethea will now be able to leverage the adaptive learning platform in order to sharpen the skills of our own professionals.

Jim mentioned another highlight from the acquisition of vital. This earlier this month, Alicia will now be able to leverage the adaptive learning platform in order to sharpen the skills of our own professionals.

And thirdly, despite the impacts from employee downtime due to COVID-19 and well deserved vacation for many of our people in December we posted a record quarter for billable hours and total revenue in the quarter at close to $110 million.

Speaker 3: And thirdly, despite the impacts from employee downtime due to COVID and well-deserved vacations for many of our people in December , we posted a record quarter for billable hours and total revenue in the quarter at close to $110 million.

Speaker 3: Q3 also saw the completion of our integration of R3V as of December 31st, right on schedule. We are also on track with the ramp-up of our long-term agreements, totaling $600 million in guaranteed revenues over the next decade with QMI and Beneva as announced in our first quarter.

<unk> also saw the completion of our integration of <unk> as of December 31, right on schedule were also on track with the ramp up of our long term agreements totaling $600 million in guaranteed revenues over the next decade with <unk> in Denver as announced in our first quarter.

This brings me to the some highlights of some of our new partnerships.

Speaker 3: This brings me to some highlights of some of our new partnerships.

So our success in greater scale and attracting attention from industry, leading solution partners.

Speaker 3: So our success in greater scale and attracting attention from industry leading solution partners.

Speaker 3: Alethea is in the process of finalizing its AWS Advanced Tier Services Partner Accreditation, enabling us to now access the full spectrum of AWS cloud-based services and solutions.

There is in the process of finalizing its AWS advanced tier services partner accreditation, enabling us to now access the full spectrum of AWS cloud based services and solutions.

As you know the Quebec government has awarded some 40 cloud computing contracts totaling more than $55 million over the past year and a half a recent $10 $5 million contract won by AWS alone represents more than 15% of the value of the agreements included since January 2020.

Speaker 3: As you know, the Quebec government has awarded some 40 cloud computing contracts, totaling more than $55 million over the past year and a half. A recent $10.5 million contract won by AWS alone represents more than 15% of the value of the agreements concluded since January 2020. Therefore, Alivia's AWS certification will open up more doors for us for a broader cloud consulting and solutions implementation offering moving forward.

Therefore, <unk> AWS certification that will open up more doors for us for a broader cloud consulting and solutions implementation offering moving forward. We also continue to make the.

Speaker 3: We also continue the critical process of developing strategic partnerships and achieving certifications with other industry leaders our clients care about. For example, our partnership with Vitek, a global provider of cloud-native benefits and administration software for the insurance industry.

Critical process of developing strategic partnerships and achieving certification with other industry leaders our clients care about for example, our partnership with Vitek, a global provider of cloud native benefits and administration software for the insurance industry will enable alenia professionals to unlock a transformative suite of.

Speaker 3: will enable Aletheia professionals to unlock a transformative suite of applications embraced by our current and future insurance customers.

<unk> embraced by our current and future insurance customers.

Speaker 3: We also gain accreditation as a systems integrator of Solutions from Talon, a California-based technology company with a global clientele. This enables us to expand our offering of both on-premise and cloud-based migration.

We also gain accreditation is a systems integrator of solutions from talent.

California based technology company with a global clientele.

This enables us to expand our offering of both on premise and cloud based migrations.

Despite the context surrounding COVID-19 around the world. We are encouraged by our continued strong bookings. They are the best predictor of what is to come.

Speaker 3: Despite the context surrounding COVID around the world, we are encouraged by our continued strong bookings. They are the best predictor of what is to come. In Q3, bookings reach $125 million, which translates into a book-to-bill ratio of 1.14.

In Q3 bookings reached $125 million, which translate into a book to bill ratio of one one for.

As for the trailing 12 months, even excluding our $600 million 10 year contract other bookings are in excess of $330 million.

Speaker 3: As for the trailing 12 months, even excluding our $600 million 10-year contract, other bookings are in excess of $330 million. That translates into a book-to-bill ratio above 1.

That translates into a book to bill ratio above one.

Our continued superior bookings reflect not only strong demand for our digital transformation services for our business from our existing clients, but also the fact that we are gaining market share and new customers, who are now turning to alleviate.

Speaker 3: Our continued superior bookings reflect not only strong demand for our digital transformation services from our existing clients, but also the fact that we are gaining market share and new customers who are now turning to Aletheia.

Before I turn things over to <unk> I would just like to shine a light on the significance of the collective achievements of our company in Q3.

Speaker 3: Before I turn things over to Claude, I would just like to shine a light on the significance of the collective achievement of our company in Q3.

Speaker 3: Powered by our rapid growth, the completion of the R3D integration, and the addition of our latest acquisition, Vitalist, Aletheia's scale now enables us to fine-tune our cross-structures in order to reap the benefits of past investments. This scale and strong financial position also enables us to continue our creative acquisition strategy. I will now pass it over to Claude to cover some of the financial highlights. Claude? Merci, Paul.

Powered by our rapid growth the completion of the <unk> integration and the addition of our latest acquisition vital. This alleviates scale now enables us to fine tune our cost structures in order to reap the benefits of past investments. This scale and strong financial position also enables us to continue our accretive acquisition strategy I will.

Now pass it over to Claude to cover some of the financial highlights.

And amidst it Bob Boswell good morning. Please.

Speaker 3: please turn to slide 8 for the key third quarter highlights.

Please turn to slide eight towards the key third quarter highlights.

Revenues for the quarter increased 55, 4% or by $39 1 million to $109 7 million.

Speaker 3: Revenues for the quarter increased 55.4% or by $39.1 million to $109.7 million.

Speaker 3: Excluding the impact of the R3D acquisition, which occurred on April 1st, 2021, true organic growth was 33.5% or 35.1% on a constant currency basis.

Alluding the impact of the <unk> acquisition, which occurred on April one 2021.

Through organic growth was 33, 5% or 35, 1% on a constant currency basis.

Speaker 3: In other words, significant and accelerating organic growth.

In other words significant and accelerating organic growth.

Speaker 3: In Canada, revenues increased 80.2% to $72.1 million due to organic growth in all areas of our Canadian operations, a general recovery of activity levels, and revenues of $15.4 million from the R3D acquisition.

In Canada revenues increased 82% to $72 $1 million due to organic growth in all areas of our Canadian operations in general recovery of activity levels and revenues of $15 $4 million from the <unk> acquisition.

Speaker 3: including intercompany revenues, and finally growth from the two associated long-term contracts.

Including intercompany revenues and finally growth from the two associated long term contracts.

In the U S revenues increased 22, 2%.

Speaker 3: In the U.S., revenues increased 22.2% to $33.7 million as we experienced strong organic growth in all areas.

$33 $7 million.

As we experienced strong organic growth in all areas.

The increase was partially offset by foreign exchange rate variations.

Speaker 3: The increase was partially offset by foreign exchange regurgations.

Speaker 3: as the increase would have been 26.4%, assuming a constant U.S. dollar.

As the increase would have been 26, 4%, assuming a constant U S dollar.

Speaker 3: As for our international operations, they are showing a similar strong performance.

As for our international operations, they are showing a similar strong performance.

Looking at gross margin it increased by $7 $9 million or 38, 3%.

Speaker 3: Looking at gross margin, it increased by $7.9 million, or 38.3%.

Speaker 3: to $28.3 million for the third quarter.

To $28 $3 million for the third quarter.

As a percentage of revenues the third quarter gross margin was 25, 8% or if excluding the impact of the <unk> acquisition 28, 1%.

Speaker 3: As a percentage of revenues, the third quarter gross margin was 25.8% or, if excluding the impact of the R3D acquisition, 28.1%.

Speaker 3: That is down from 28.9% for the same quarter last year.

That is down from 28, 9% for the same quarter last year.

As previously mentioned the <unk> revenues historically show a higher proportion of billable sub contractors and a corresponding lower gross margin profile.

Speaker 3: As previously mentioned, the R3D revenues historically show a higher proportion of billable subcontractors and a corresponding lower gross margin profile.

When excluding our treaty the decline in gross margin percentage, mainly comes from eight and.

Speaker 3: When excluding R3D, the decline in gross margin percentage mainly comes from A.

An increase in subcontractors revenues relative to those from permanent employees cut.

Speaker 3: An increase in subcontractors' revenues relative to those from permanent employees, coupled with an increase in the average cost of subcontractors, explain in part.

Coupled with an increase in the average cost of subcontractors explained in part by the tightening labor market.

B increased costs in certain customer projects.

Speaker 3: B, increase costs in certain customer projects.

And see decreased software revenues, which typically carry higher margins.

Speaker 3: And C, decreased software revenues, which typically carry higher margins.

Speaker 3: SG&E expenses in Q3 totaled $25 million, an increase of $4.6 million, or 22.4%.

SG&A expenses in Q3 totaled $25 million, an increase of $4 $6 million or 22, 4%.

Speaker 4: This increase is primarily driven by the ART3D acquisition.

This increase is primarily driven by the <unk> acquisition.

Speaker 4: as well as by certain increases in employee compensation and recruiting costs, in line with our strong organic growth.

As well as by certain increases in employee compensation and recruiting costs in line with our strong organic growth.

Speaker 4: partially upset by decreases in share-based compensation and a favorable U.S. dollar exchange rate.

Partially offset by decreases in share based compensation and a favorable U S dollar exchange rates.

Speaker 4: As a percentage of revenues, total SG&A decreased to 22.8%.

As a percentage of revenues total SG&A decreased to 22, 8%.

Speaker 4: for the three months ended December 31, 2021, compared to 28.9% last year.

For the three months ended December 31, 2021, compared to 28, 9% last year.

Speaker 4: As Paul mentioned, we have now completed the migration of R3D's commercial and administrative functions into Aletheia's infrastructure, resulting in certain additional costs

As Paul mentioned, we have now completed the migration of our <unk> commercial and administrative functions.

<unk> infrastructure, resulting.

Resulting in certain additional cost savings to come.

Speaker 4: Overall, our third quarter adjustment amounted to $4.5 million, an increase of $2.2 million compared to the same quarter last year.

Overall, our third quarter, adjusted EBITDA amounted to $4 $5 million in.

An increase of $2 2 million compared to the same quarter last year.

As in previous quarters the.

Speaker 4: As in previous quarters, the amount of non-cash depreciation and amortization...

The amount of noncash depreciation and amortization.

Speaker 4: Totaling $4.8 million is notably greater than the quarter's accounting loss of $3.5 million.

Totaling $4 $8 million is notably greater than the quarter's accounting loss of $3 5 million.

Sure.

Looking at long term trends on slide nine.

Speaker 4: we can see the impact of our acquisitions and, more importantly, of our strong organic growth of the past several quarters.

We can see the impact of our acquisitions and more importantly of our strong organic growth of the past several quarters.

Regarding gross margin, we see a similar trend in dollars, but recent challenges in percentages for the reasons I mentioned before.

Speaker 4: Regarding gross margin, we see a similar trend in dollars, but recent challenges in percentages, for the reasons I mentioned before.

Speaker 4: We believe most of these factors are largely cyclical, subject to some natural recovery over time.

We believe most of these factors are largely cyclical subject to some natural recovery overtime.

And we aim to reverse the trend also with a number of targeted initiatives focusing on labor mix and costs.

Speaker 4: And we aim to reverse the trend also with a number of targeted initiatives, focusing on labor mix and cost, utilization improvements.

Utilization improvements.

Selling prices adjustments and focusing future growth in our higher margin segments.

Speaker 4: setting prices adjustments, and focusing future growth in our higher-margin sector.

Okay.

Speaker 4: On slide 10, our long-term EBITDA trend reflects our growth, but also our recent gross margin percentage challenges, as well as some...

On slide 10.

Our long term EBITDA trend reflects our growth, but also our recent gross margin percentage challenges.

As well as some increases in SG&A despite.

Speaker 4: despite their gradual expected decrease as a percentage of revenue.

Despite their gradual expected decrease as a percentage of revenues.

I would like to take a moment to put our recent results in the context of our long term business objectives, which we have often been communicating over the past few years.

Speaker 4: I would like to take a moment to put our recent results in the context of our long-term business objectives, which we have often been communicating over the past few years.

For revenues, we pursue sustained organic growth and selective strategic acquisitions.

Speaker 4: For revenues, we pursue sustained organic growth and selected strategic acquisitions in order to reach the six-hundred-million-dollar target.

In order to reach the $600 million in March.

Speaker 4: Our organic growth and acquisitions of the last year have taken us close to the half-billion-dollar mark, and we certainly intend to maintain the efforts on both fronts.

Our organic growth and acquisitions of the last year I've taken us close to the $5 billion, Mark and we certainly intend to maintain the efforts on both fronts.

For gross margin, we believe our long term strategies. Some discussed on this call remain appropriate and relevant for gradual recovery of further improvement.

Speaker 4: For a gross margin, we believe our long-term strategies, some discussed on this call, remain appropriate and relevant for gradual recovery and further improvement.

In closing as it relates to the two long term agreements stemming from the <unk> acquisition.

Speaker 4: as it relates to the two long-term agreements stemming from the R3D acquisition.

We also intend to keep targeting acquisitions with a higher gross margin profile and the recent vital list acquisition is certainly a very good example of that.

Speaker 4: We also intend to keep targeting acquisitions with a higher gross margin profile, and the recent Vitalist acquisition is certainly a very good example of that.

For SG&A, we believe that we have now reached a certain critical mass and the stabilization of certain SG&A categories, including with regards to corporate and head office costs.

Speaker 4: For SG&A, we believe that we have now reached a certain critical mass and a stabilization of certain SG&A categories, including with regards to corporate and head office costs.

Speaker 4: Going forward, these expenses should grow more slowly than our revenues and, as such, we intend to continue our downward trend of SG&A as a percentage of revenues.

Going forward these expenses should grow more slowly than our revenues and as such we intend to continue our downward trend of SG&A as a percentage of revenues.

Speaker 4: with some acquisition synergies still to come, including longer-term savings relating to rent.

With some acquisition synergies still to come including longer term savings relating to rent.

Also most acquisition targets that we look at typically have a lower as Jenny percentage profile, even before potential synergies.

Speaker 4: Also, most acquisition targets that we look at typically have a lower SG&A percentage profile, even before potential synergies, which would further

Which would further compound the trends.

In a nutshell that is the step by step playbook of how Alicia believes that it can realistically aimed to achieve its three year objective of.

Speaker 4: In a nutshell, that is the step-by-step playbook of how Aletheia believes that it can realistically aim to achieve its three-year objective of $600 million in revenues with an EBITDA margin of 3 to 13%.

A $600 million in revenues with an EBITDA margin of 3% to 13%.

Okay.

Now turning to our liquidity and financial position on slide 11.

Speaker 4: Now turning to our liquidity and financial position on slide 11.

Speaker 4: Net cash from operating activities improved to $10.1 million in the third quarter, a significant increase from the third quarter of last year.

Net cash from operating activities improved to $10 1 million in the third quarter, a significant increase from the third quarter of last year.

Excluding our positive working capital variations the third quarter cash flow from operating activities was $2 3 million.

Speaker 4: Excluding our positive working capital variations, the third quarter cash flow from operating activities was $2.3 million.

Which represents over 50% of the reported adjusted EBITDA.

Speaker 4: which represents over 50% of the reported adjusted EBITDA.

Moreover, considering that we have fairly stable interest expenses and Capex and.

Speaker 4: Moreover, considering that we have fairly stable interest expenses in CAPEX,

And fairly low effective tax rates with our available tax pools.

Speaker 4: and fairly low effective tax rates with our available tax pools.

This conversion percentage should increase exponentially with any future growth and EBITDA.

Speaker 4: This conversion percentage should increase exponentially with any future growth in EBITDA.

On slide 12, we see total debt decreasing from $84 5 million down to $61 6 million during the third quarter.

Speaker 4: On slide 12, we see total debt decreasing from $84.5 million down to $61.6 million during the third quarter, with a similar decrease of our

With a similar decrease of our net bank borrowing.

This comes from cash flow generated by operating activities as mentioned before.

Speaker 4: This comes from cash flow generated by operating activities, as mentioned before.

A transfer of gas cash balances Tibet.

Speaker 4: a transfer of cash balances to debt, and the new CDAE financing facility, reducing bank borrowing.

And the new Sydney, Sydney, CBD, AE financing facility, reducing bank borrowing.

Speaker 4: This decrease of total debt, combined with a higher trailing adjusted EBITDA, shows a steady four-quarter deleveraging trend.

This decrease of total debt combined with a higher trailing adjusted EBITDA shows a steady four quarter deleveraging trend brae.

Speaker 4: breaking us to a 3.1 ratio of total debt to trailing 12-month adjusted EBITDA.

Breaking us to a three one ratio of total debt to trailing 12 months adjusted EBITDA.

Looking at these metrics following the <unk> acquisition on Slide 13, we.

Speaker 4: Looking at these metrics following the vitalist acquisition, on slide 13,

<unk> pro forma total debt to TTM EBITDA multiple decreasing to two six.

Speaker 4: We see the proforma total depth to TTM EBITDA multiple decreasing to 2.6.

This reflects the debt and equity raised for the acquisition.

Speaker 4: This reflects the debt and equity raised for the acquisition and the current profitability.

And the current profitability of the targets.

Speaker 4: Looking forward, even considering the historical profitability of Aletheia and Vitalist, we are expecting the leveraging dynamics to continue.

Looking forward, even considering the historical profitability of Alicia and vital list, we are expecting deleveraging dynamics to continue.

Speaker 4: Of note, we also announced in the context of the Vital List acquisition, an increase of our Senior Credit Facility from $60 million to $125 million.

Of note, we also announced in the context of the vital acquisition.

An increase of our senior credit facility from 60 million to $125 million.

As such considering our permitted five five times maximum ratio.

Speaker 4: As such, considering our permitted 5.5 times maximum ratio.

Speaker 4: This provides us with ample capital to continue on our growth strategy.

This provides us with ample capital to continue on our growth strategy.

Even though we intend to maintain as always our prudent use of debt.

Speaker 4: even though we intend to maintain, as always, our prudent use of debt.

In closing our normal course issuer bid launched on September 20th is progressing as planned.

Speaker 4: In closing, our normal course issuer bid launched on September 20th is progressing as planned.

Speaker 4: Since its beginning, Elysia has repurchased and canceled 330,000 Class A shares for total cash consideration of $1.1 million. Back to you, Paul. Thank you, Claude.

Since its beginning Alicia has repurchased and canceled 330000.

Class a shares for a total cash consideration of $1 1 million.

Back to you Paul.

Thank you.

So our industry, leading growth is a reflection of the quality of the work of our people and the level of trust that our customers have in our ability to guide them through their complex digital transformations accordingly.

Speaker 3: So, our industry leading growth is a reflection of the quality of the work of our people and of the level of trust that our customers have in our ability to guide them through their complex digital transformations. Accordingly, Alivia will continue to focus on those core values that guide us towards the objectives set forth in our three-year strategic plan, which foresee the delivery of more than $600 million in revenue and between 9% to 13% EBITDA by the end of that period.

It will continue to focus on those core values that guide us towards the objectives set forth in our three year strategic plan, which foresee the delivery of more than $600 million in revenue and between 9% to 13% EBITDA by the end of that period.

Speaker 3: As we wrap up Q3, we're also very pleased with the strides we are making in mounting a comprehensive environmental, social, and governance strategy that is in line with LEGIA's values and the many initiatives already underway. For example, our Management Incentive Plan already includes ESG criteria, and we were the first technology services company in Canada to join the 30% Club years ago. We are one of the few IT services companies that provide all of its employees with paid leave to give back to their community.

As we wrap up Q3, we're also very pleased with the strides we are making in mounting a comprehensive environmental social and governance strategy that is in line with <unk> values and the many initiatives already underway. For example, our management incentive plan already includes ESG criteria and we were the first technology services company and <unk>.

Is it that joined the 30% club years ago. We are one of the few it services companies that provide all of its employees with paid leave to give back to their communities. We havent pegged Atlas work environments work from home and employee assistance programs and many more as with everything we do we want to be a leader in the field of sustainability.

Speaker 3: We have paperless work environments, work-from-home and employee assistance programs, and many more. As with everything we do, we want to be a leader in the field of sustainability. It should be of no surprise that we're establishing progressive ESG guidelines that meet the expectations of all of our stakeholders and reflect much of the valuable work our people have done over the years to improve the communities where we live and work.

Alrighty.

So it should be of no surprise that we're establishing progressive ESG guidelines that meet the expectations of all of our stakeholders and reflect much of the valuable work our people have done over the years to improve the communities, where we live and work.

Speaker 3: To that end, and in association with a leading Canadian ESG consulting firm, Elysia completed all of the steps of their Phase 1 recommendations in Q3, and we now turn our attention to Phase 2, and we look forward to sharing our ESG framework with you in the near future.

To that end and in association with a leading Canadian ESG consulting firm Alesia completed all of the steps of their phase one recommendations in Q3, and we now turn our attention to phase II and we look forward to sharing our ESG framework with you in the near future.

So thank you for being with US This morning, and Julie will now be opening up for questions.

Speaker 3: But thank you for being with us this morning, and Julie will now be opening up for questions.

Speaker 1: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Your first question comes from Kevin Chris <unk> with Deutsche Bank. Please go ahead.

Speaker 1: Your first question comes from Kevin Krishnaranthi with Desjardins. Please go ahead.

Hey, there good morning team I had a question first on the gross profit in the quarter and then I'll ask you about forward trends, but just in the quarter.

Speaker 5: Hey there, good morning team. I had a question first on the gross profit in the quarter, and then I'll ask about forward trends, but just in the quarter, you talked about a number of factors impacting it, certain customer projects, tightening labor market, software mix, and then a higher load of unbillable hours at year end. Can you just, I think those are the four elements. Can you just, you know, walk through any way to quantify at least maybe.

You talked about a number of factors impacting it certain customer projects, the tightening labor market software mix and a higher load up on billable hours at at year end can you just I think over the four elements can you need it.

Walk through any way to quantify at least maybe.

I think we.

Speaker 3: I think we just lost Kevin, but I'll answer the question. Kevin, if you can still hear us, I think you wanted more details on the comments on the billable time and margin. So thank you for the question. Basically, as I was mentioning, it was a record quarter for billable hours.

I think we just lost Kevin, but I'll answer the question, Kevin that you can still hear us.

I think you wanted more and more details on the <unk>.

Comments on the billable time at margin. So thank you for the question.

Basically.

Mentioning it was a record quarter for billable hours.

Speaker 3: At the same time, we also had a high number of non-billable hours, especially at quarter end with COVID and more vacations and project ends and starts. So, I guess the positive of that is...

At the same time, we also had a high number of non billable hours, especially at quarter end with the Covid.

And more vacation project.

And then it starts so I guess the the positive of that is the people who were not available in Q at the end of Q3, which are available in Q4, so same cost more revenues with more and more of the billable side. So it's a positive I think it was a temporary thing.

Speaker 3: The people who were non-billable at the end of Q3, which are billable in Q4, so same cost, more revenues with more of the billable time, so it's a positive, I think it was a temporary thing. We also listed a list of other small things that impacted in the quarter, but we see those as temporary quarter-end type stuff, and we're very confident with where we're going with that.

We also lifted.

A list of other small things that impact into the quarter, but we see those as.

Temporary every quarter end type stuff.

We're very very confident with where we're going with that.

Speaker 3: And if you get back on the line, then Kevin, the second part of your question.

And if you get back on the line that Kathryn the second part of your question.

I am I on now.

Speaker 5: Okay, yeah, yeah, we can hear you now. Okay, perfect. So you, you, you talked about.

Yes, yes, we can hear you.

Perfect. So.

You talked about a number of service.

Sorry did you hear the answer.

Speaker 5: Sorry, did you hear the answer? I heard the answer. Yeah, thank you for that. And so I guess, I mean, there are just a number of things. There's not, is there any way to quantify though, maybe perhaps even the, you know, the customer projects, like what would it have been at some of these one-time transitory impacts?

I heard the answer yes, thank you for that.

And so I guess I mean, there are just a number of things. There is not is there any way to quantify though maybe perhaps even that the customer projects like I'm.

Like what would have been ex some of these onetime transitory impacts.

But maybe I can I can just to add a little color I'll give you. One concrete example, so in the quarter. We had 27 go lives, which is a record all time record for US. So these are ERP CRM all of our enterprise solution projects.

Speaker 3: Maybe I can just, to add a little color, give you one concrete example. So in the quarter, we had 27 go-a-lives, which is an all-time record for us. So these are ERP, CRM, all of our enterprise solution projects. So Oracle, Microsoft.

Oracle, Microsoft So whenever a project and the team would get shifted to two new projects. So there's usually a lag in between there. So the closer to the end of the year. Those those go lives work.

Speaker 3: So whenever a project ends, the teams get shifted to a new project, so there's usually a lag in between there. So the closer to the end of the year those go-lives were.

Speaker 3: It means that people aren't restarting a new project, you know, December 15th type thing before everybody goes off on holidays. So a lot of the goal lines that were later in the quarter means the team is basically going to start building on the new projects in January .

The means that people are restarting a new project in our December 15th I think before everybody goes off on holiday. So a lot of the go lives that we're later in the quarter I mean, the team is basically to start billing on the new projects in January so we.

Speaker 3: We use the opportunity to do it.

We used the opportunity.

Let these people take some well deserved communication.

Speaker 3: let these people take some well-deserved vacation and downtime over the holidays. We also have some customers that shut down for the holidays altogether because of the Omicron shutdowns and the COVID situations in different countries. So we use the opportunity to encourage our people to take vacations. Yeah, for sure.

And downtime over the holiday as we also had some customers that shut down for the holidays altogether because of the.

Beyond the fraud in their shutdowns.

On the call as the situations in different countries. So we use the opportunity to encourage our people to take vacations.

Yes for sure understanding well deserved.

Speaker 5: So as I think about, yeah, so then going forward, you talked about a number of initiatives, labor mix, price adjustments, and then obviously looking towards

So as I think about yes. So then going forward you talked about a number of initiatives labor mix.

Price adjustments and then obviously looking towards.

Speaker 5: building higher margin businesses. Can you talk about maybe the timing of that trajectory on gross margin improvement and then if you can help us think about near-term modeling on gross margin exiting this year into the next year. Obviously, I know we've got Vitalist is in there as well and that'll probably help the margin too.

Building higher margin.

Can you talk about maybe the timing of that trajectory on growth gross margin improvement and then.

If you can help us think about near term modeling on gross margin.

Exiting the theory and the internet into the next year and obviously I know we've got vital it is in there as well and that'll.

Probably helped the margin too.

Yes, again here, maybe let me give you.

Speaker 3: Again here, maybe let me give you a color, one very simple factor here that influences your modeling. If you look at our business, one of the things that we've been saying is about moving to higher value, employee-based projects.

Color, one very simple simple factor here.

This will ensure modeling if you look at our business one of the things that we've been saying about moving to higher value employee base at projects. So our three D. As you remember is mostly subcontractor, driven which has very low gross margins.

Speaker 3: So R3D, as you remember, is mostly subcontractor-driven, which has very low gross margins. I mean, it's in the teens. So we said we'd be shifting that over two years.

And the teams.

So we said we'd be shifting that over two years.

Speaker 3: Part of that ship is coming through the agreement we have with the Québécois, which is on track. It's exactly where we wanted it to be.

Part of that ship is coming through the agreement we have with that cubic out at <unk>, which is on track exactly where we wanted it to be.

Speaker 3: So, that's a big part of it. If you look at just our employees, we're way above 30% in terms of gross margins for our employees, which is where we want to be. So, one of the biggest initiatives that we have going forward is replacing those subcontractors with our full-time people. So, you know, if everything else being equal, if we can just get that one.

So that's a big part of it if you look at just our employees, we're well aware of around 30% in terms of gross margins for our employees, which is what we wanted where we want to be so the one of the biggest initiatives that we have going forward is replacing those sub contractors with our full time people.

So if.

If everything else being equal if we can just get that under control over the next two years as part of our agreement.

Speaker 3: under control over the next two years as part of our agreement, it would have a huge impact on

It would have a huge impact on gross margins.

Speaker 5: Okay, so you'd aspire to get the business to a 30% margin and then higher in time on layering on even more higher margin businesses.

Okay. So.

Buyer to get the business to a 30% margin along higher end client on lowering of even more higher margin businesses.

Exactly.

Speaker 5: And sorry, just 1, I just want to poke 1 more question here on the on the GM, the, the software mix. So you call that out. So I'm just curious broadly. What was the mix of software versus services in this quarter versus a typical quarter? Like, how how different was that mix?

And sorry, just one I just wanted to talk one more question here on the on the GM. The software mix. So you call that out so I'm just curious broadly.

Broadly what was the mix of software versus services in this quarter versus <unk>.

Typical quarter like how how different was that mix.

Okay. So it's not a miss.

Speaker 4: Okay, so it's not a mess. Software revenues will vary depending on the customer assignments that we have. In any event, software revenues are always below 5% of our top line. We aim to increase that, obviously, but...

Software revenues will vary depending on the customer assignments that we have.

In any event software revenues, our own ways below 5% of our topline we aimed to increase that obviously, but.

Speaker 4: Historically, we're talking about low dollar amounts, but the margin is very good. So, a difference of, you know, a small difference to these small amounts makes a big difference on the margin percentage.

Historically, we are talking about low LOE.

Dollar amounts, but the margin is very good so a difference of.

A small difference to the small amounts makes a big difference on the margin percentage.

Okay, Yeah, I understand gotcha.

Speaker 5: Okay, yeah, I understand. Gotcha. Look, I'll switch gears just more to the top line. Really, really good results there. Impressive organic gains. You talked about Oracle, you know, quite a number of times. You know what?

I'll switch gears just more of the top line really really good results. There are impressive organic gains you talked about.

Or a call.

Quite a number of times.

Speaker 5: So how did, you know, Oracle versus Microsoft perform in the quarter? Are you just seeing particular strength in Oracle? And you want to touch on sort of what really is driving that, you know, talk about your, you know, expertise in the healthcare vertical, you know, any incremental color you can just talk about on just how you're seeing that strength was particularly strong.

So how did oracle versus Microsoft performed in the quarter are you seeing particular strength in Oracle and you want to touch on sort of what really is driving that.

<unk> ear.

Expertise in the healthcare.

Vertical.

Any any any incremental color you can just talk about on how youre seeing that strength was particularly strong.

Speaker 3: Actually, both those, both Microsoft and Oracle, are doing extremely well right now. It's just that where we were involved with our Microsoft and Oracle solutions are in different industries. So, again, Microsoft doing very well on their side, Oracle doing very well on their side. One of the things that we were talking about is we are seeing a big acceleration on the healthcare side.

Actually both said both of those both Microsoft and Oracle are doing extremely well right now.

It's just where we are involved with our Microsoft and Oracle solutions are in different industries. So again, Microsoft doing very well on their side Oracle doing very well on their side.

One of the things that we were talking about is we are seeing a big acceleration on the healthcare side.

Speaker 3: I think COVID put in light a lot of the issues that many health care providers have around their systems.

I think COVID-19 put into light a lot of the issues that many health care providers have around their systems and making sure that they have more time to give the patient care versus administrative issues and challenges as we've heard and seen in the past two years, So theres really the access.

Speaker 3: in making sure that they have more time to give the patient care versus administrative issues and challenges as we've heard and seen the past two years. So there's really an acceleration on that side and given our very strong positioning on the healthcare side, we're getting a big chunk of that. So we're seeing a lot of growth there. But again, Microsoft doing very well, a record number of goal lines on our Microsoft side in the quarter.

<unk> on that side and given our very strong positioning on the healthcare side.

We're getting a big chunk of that so we're seeing a lot of growth there, but again that Microsoft doing very well with a record number of go lives on a Microsoft side in the quarter.

Speaker 3: So we're at no signs of slowing down there.

No.

No signs of slowing down there.

Speaker 5: Okay, last one for me, maybe for both of you, just thinking about future quarters. Obviously, very strong growth in Canada. You've been adding quite a bit of revenue quarter over quarter. I think you're coming up on a tougher comp year over year. In Canada, organic trends were 40% this quarter. And then in the US, I think you're facing a bit of an easier comp, but revenues are trending there. How do we think about

Okay last last one for me and for both of you just thinking about that future quarters.

Obviously very strong growth in Canada, you've been adding.

Quite a bit of revenue quarter over quarter.

I think it's coming up on a tougher comp year over year in Canada.

Ganic trends were 40% this quarter and then in the U S. I think you're facing a bit of an easier comp.

But revenues are cleaning there I guess, how do we think about that.

Speaker 5: you know, you know, the near term, you know, wave of modeling the bookings translating to revenue, just in light of the strong growth has been recently posted.

The near term.

Wave of modeling bookings translating to revenue.

In light of the strong growth in retail.

Total.

So I guess, maybe the one thing you can you can look at.

Speaker 3: So I guess maybe the one thing you could look at is our Q4, which is based on calendar Q1, January , February , March, usually has less holidays or less, you know, downtime than others. March has many more billable days this year, as Easter is not in March this year.

Q are Q4, which is based in calendar Q1 January February March.

<unk>, usually has less holidays are less downtime than others March has many more billable days this year as the Easter is that.

It is not in March this year.

Speaker 3: The way the Christmas holiday December-January fell this year, there were more vacations in December than in January from looking at the calendar.

The way the way the.

The Christmas Holiday December January fell this year, there were more vacations in December and into January from looking at the calendar.

No.

Speaker 3: uh... assuming we have the same number of people and no you know we'd be in better shape so uh... we're we're pretty optimistic on Q4

Assuming we have the same number of people and no growth.

We'd be in better shape so.

We're pretty optimistic on Q4.

Speaker 5: Yeah, and so I'll leave it at that. Congrats on a good top line quarter for sure, given the seasonality and the schedule in the month of December . So congrats, and I'll pass the line.

Yeah.

So I'll leave it at that congrats on a good top line quarter for sure.

India.

The seasonality in the schedule and the.

The month of December so congrats and I'll pass the line.

Thank you Kevin.

And your next question comes from David Fairweather from Carmack Securities. Please go ahead.

Speaker 1: Your next question comes from Gavin Fairweather from Carmark Securities. Please go ahead.

Speaker 6: Oh, hey, good morning. I thought we'd start out on the bookings. It looks like a nice strong bookings print in the quarter. Any kind of trends that you would call out, you know, by region or vendor or mix of work under the hood there?

Oh, Hey, good morning, I thought we'd start out on the bookings it looks like a nice strong bookings in the quarter any kind of trends that you would call out.

By region, our vendor or a mix of work under the Hood there.

Hey, good morning, Gavin Thanks, Thank you for the question.

Speaker 3: Good morning, Gavin. Thank you for the question. Actually, it's really everywhere, Gavin. I think, you know, we've been talking about our shift to higher value and digital transformation, and we're really reaping the benefits of that. All of our business now is driven by digital transformation. I think we're one of the leaders in the sector, and it's being recognized not just by our customers, but by, you know, new…

Actually it's really everywhere Gavin I think.

We've been talking about our shift to the higher value in digital transformation and we're really reaping the benefits of that the all of our business now is driven by digital transformation I think we're one of the leaders in the sector and that's being recognized not just by our customers, but by new news.

Speaker 3: new logos that are calling us and joining us and of course we're getting a lot of

Logos that are calling us and joining us and of course, we're getting a lot of <unk>.

Speaker 3: referral directly from Microsoft and Oracle on those solutions. But our digital solution center is also growing leaps and bounds and doing projects for customers and accelerating their move to the cloud. Like I said, the recent Quebec government announcement, they want to move every department to the cloud within the next three years is also something that's driving a lot of growth for us. So it's really everywhere right now.

Referral directly from Microsoft and Oracle on those solutions, but our our digital solution Center is also growing leaps and bounds in doing projects for customers and accelerating their move to the cloud like I said that the recent Quebec government announcement, they want to every department of the cloud within the next three years.

Also something thats driving a lot of growth for us So it's really everywhere right now.

Speaker 6: That's great. And then just, you know, thinking about your fiscal fourth quarter, obviously, we've seen, you know, Omicron is kind of perked up and we've been living under, you know, COVID for, you know, called a couple of years now. So, I guess, to what extent are you, are you thinking that that could present some challenges in terms of billings and the Q4, or do you find that most of the projects are kind of able to move, you know, despite.

That's great and then just thinking about your fiscal fourth quarter. Obviously, we've seen omicron has kind of perked up and we've been living under covered for I'll call. It a couple of years now so I guess to what extent are you are you thinking that that could present some challenges in terms of billings in Q4 or do you find that most of it.

The projects are kind of able to move despite that.

Speaker 3: Yes, I think our the number of real lives in the quarter kind of our best indicator of that Gavin we I mean 27.

Yes, I think our the number of go lives in the quarter kind of our best indicator of that Gavin.

27.

Speaker 3: ERP system go live remotely executed.

ERP system go lives at remote we executed I.

Speaker 3: You know, I remember at the beginning of the pandemic, some of you on this call, you know, the first quarter, we've done a few and we were amazed that we were able to do them remotely. Now it's it's kind of de facto. We have to do it remotely. So the teams really developed an expertise around that.

I remember at the beginning of the pandemic. Some of you on this call. The first quarter. We've done a few and we were amazed that we were able to do that remotely now.

Kind of the factor we have to do them remotely. So that team has really developed an expertise around that.

Speaker 7: Uh, no, no, uh, no.

No no.

Those no sense of that slowing down.

Speaker 3: no sense of that slowing down. As you know, we just opened an offshore center in Morocco, which is also growing. So we know that's something we'll be able to leverage from a cost perspective going forward as well, and also help with recruiting.

As you know we just opened in offshore center in Morocco, which is also growing so we know that's something we'll be able to leverage from a cost perspective going forward as well and also help with recruiting.

Speaker 3: So, no, we're very optimistic about the future and.

So we're very optimistic about the future and what.

Speaker 3: what remote and teleworking has given us as an opportunity and the acceleration of digital transformation that's come with it.

What remote and Teleworking has has given us as an opportunity and the acceleration of digital transformation that come with it.

That's great and earlier you had talked about.

Speaker 6: That's great. And, you know, earlier you talked about, you know, the, the leverage in the business as you shift your mix more towards FTE from subcontractors, you know, obviously, the hard part is, is finding the FTE.

The leverage in the business as you shift your mix more towards FTE from subcontractors.

The hard part is finding the FTE and the current labor environment. So maybe just walk us through how you are feeling about your ability to kind of execute on shifting that mix and then maybe just touch on the Morocco development hub.

Speaker 6: current, you know, labor environment. So maybe just walk us through, you know, how you're feeling about your ability to kind of execute on shifting that mix.

Speaker 6: And then maybe just touch on, you know, the Morocco development hub and, you know, the size of that operation and how scalable you think it is and how that plays into that shifting next door that the.

The size of that operation and how scalable you think it is and how that plays into that shifting mix toward that.

Speaker 6: So, the first part, the last part was on Morocco and the shifting, the first part again, Gavin, the first part of your question, sorry? I mean, you talked about the leverage of shifting from sub to hiring in the business and just your ability and how you're planning to execute on that.

So the first part the last part was on Morocco, and the shifting the first part again Gavin the first part of your question Sir.

You talked about the leverage and.

Shifting from.

Yes in the business and just your ability and how you are planning to execute on that environment.

So the hiring we're still.

Speaker 3: So the hiring, we're still doing quite well despite what we're seeing out there.

During quite well despite despite what we're seeing out there.

Speaker 3: Again, we hired over 190 people in the quarter, we're opening up a lot of new positions.

We hired over 190 90 people in the quarter, we're opening up.

Lot of new positions.

Speaker 3: The team is doing an amazing job in hiring in the current conditions, as you know. I think our biggest selling feature is the type of projects that we do. We keep attracting people who want to work on newer technology and exciting projects.

The team is doing an amazing job in hiring in the current conditions as Jeff as you know I think our biggest selling feature is the type of projects that we do we keep attracting people who want to work on to our technology and exciting projects.

Speaker 3: We have a similar challenge to everybody in terms of, you know...

We have a similar challenge to add that to everybody in terms of.

Speaker 3: turnover and the likes. I like to believe, based on the numbers I've seen, we're doing better than what's happening out there, which is good. We're also, I think the highest turnover rate you're seeing out there in many companies is the people that have been hired in the last two years, right? People hired during COVID.

Turnover and the likes I like to believe based on the numbers I've seen we're doing better than whats happening out there which is good.

We're also I think the highest turnover rate youre seeing out there in many companies is that people have been hired in the last two years right people hire during COVID-19 .

Speaker 3: which have not been able to have that human interaction with other individuals within the company. So we're getting very good at managing remotely. I mean, we have all the tools. The team is set up that way. We were working that way in the U.S. before the pandemic. So we're

Which which has not been able to have that human interaction with other with other individuals within the company. So so.

We're getting very good at managing remotely.

We have all the tools team is set up that way, we were working it that way in the U S before the pandemic so.

Sure.

We're kind of built for this environment right now is strangely enough. So it's doing very well and as things start reopening I guess, that's only going to be positive in terms of trying to bring some people back.

Speaker 3: We're kind of built for this environment right now, strangely enough, so it's doing very well and as things start reopening, I guess that's only going to be positive in terms of trying to bring some people back to do some face-to-face meeting and team building events and so on and so forth. So we like our positioning on the hiring front. Our most successful recruiting is actually referrals from other employees. I mean, that's where we have the biggest...

Back to do some face to face meeting and team building events and so on and so forth. So so we like our we like our positioning on the hiring front.

Our most successful recruiting is actually referrals from other employees I mean, thats, where we have either the biggest.

The biggest.

Speaker 3: The biggest positive results is when the referrals come from our own people, which is working very well. We have a very effective recruiting team that manages all that.

Positive results is when the referrals come from our own people, which is working very well, but we have a very effective recruiting team that manages all that that Morocco was ramping up.

Speaker 3: Morocco is ramping up. I'd like it to go faster. The challenge is not finding the people, as I've mentioned this before, one of the challenges in Morocco and each geography has their own thing, but people have to give two to three months notice.

I'd like it to go faster that the challenge is not finding the people is as I mentioned this before one of the challenges in Morocco in each geography has their own thing, but people have to give two to three months notice in that country before they change jobs. So it's ramping up we're very happy with that.

Speaker 3: in that country before they change jobs. So it's ramping up, we're very happy with it, and the intent would be to make it bigger than what we had originally planned. But we are looking at other options as well. As you know, we're always active on the M&A front, Vitalis is a great example, great margins, a model that's decoupled from headcount, which is great.

The intent would be to make it bigger than what we had originally planned but we are looking at other options as well as you know we're always active on the M&A front.

<unk> is a great example of that great margins.

Our model, that's decoupled from head count, which is great and.

Speaker 3: And we're also looking at targets that have offshore extensions as well. So, we're at a scale now, you know, you look at our run rate right now, you know, $110 million in the quarter, multiply that by four, add in vitalists. I mean, we're basically with very little growth, we're going to be over $500 million next year, you know, if I just do the math in my head. So, we're basically one, two acquisitions away from our three-year plan.

And we're also looking at targets that have offshore offshore extensions as well so we're at a scale now.

If you look at our run rate right now $110 million in the quarter multiply that by four Adams vital. This I mean, we are basically with very little growth, we're going to be over $500 billion next year. If I just do the math in my head. So we're basically one two acquisitions away from our three year plan.

Speaker 3: So, one thing that would make sense with the scale that we have today is to have more offshore capability for our projects, which would also help with the recruiting and the workforce issues globally. So, these are all things on our menu for the next little while.

One thing that would make sense with the scale that we have today is to have more offshore capability for our projects, which would also help with our recruiting in.

The workforce issues.

Globally. So these are all things that are on our.

Our menu for the next for the next little while.

That's great. That's Super helpful. And then just lastly for me just on pricing I mean, you mentioned.

Speaker 6: That's great. That's super helpful. And then just lastly, for me, just on pricing, I mean, you mentioned that as a lever for gross margins, particularly given the strong demand environment, can you perhaps share, you know, what kind of price increases you're looking at on when you're bidding on new business?

That is the lever for gross margins, particularly given the strong demand environment can you perhaps share.

What kind of price increases youre looking at on when Youre bidding on new business.

It varies it varies tremendously Gavin.

Speaker 3: It varies tremendously, Gavin, in all of the areas that we're at, but again, as we've said in the past, our aim when we bid on projects is not to win because of price. We want to win because we have the best solution or the best reputation, or we're the ones who the customers believe will deliver the project with the least risk possible.

All of the areas that we're at but again.

As we've said in the past our aim when we bid on projects is not the win because of price we want to win because we have the best solution or the best reputation where.

We're the ones who their customers believe will deliver the project with the lease risk possible so by doing that.

Speaker 3: By doing that, we're not as driven by reducing costs, but more driven by the quality of what we deliver.

We're not as as driven by reducing costs, but more driven by the quality of what we deliver so we're really focused on that so yes. We're look we're seeing pricing increases at around <unk>.

Speaker 3: So we're really focused on that. So yes, we're seeing prices increases around the, you know, across the board and our offerings, but at the same time.

Across the board and our offerings, but at the same time.

Speaker 3: You know, being able to leverage offshoring and lower cost centers to help us with the delivery on the cost side, I think would have a much greater impact on our gross margins.

Being able to leverage offshoring and lower cost centers to help us with the delivery on the cost side I think we would have.

Much greater impact on our gross margins.

Great. That's it for me thank you.

Okay.

And your next question comes from Paul steep from Scotia Capital. Please go ahead.

Speaker 1: Your next question comes from Paul Steaks from Scotia Capital. Please go ahead.

Hey, good morning.

Speaker 8: Paul, could you talk just maybe a little bit about, obviously, some of the...

Paul could you talk maybe a little bit about obviously some of the bookings and maybe the transition in the business what the how we should think about the duration, reflecting that a lot of it's still consulting business, but if theres anything else you wanted to call out in terms of maybe longer term contracts X the <unk> deals.

Speaker 8: how we should think about the duration, reflecting that a lot of it's still consulting business, but if there's anything else you want to call out in terms of.

Speaker 8: longer term contracts x the CR3D deals just to give us a sense.

Give us a sense of where that's been trending over time.

Speaker 3: Thanks for the question Paul, a very good point. You know, if I go back five years ago...

Thanks for that thanks for the question Paul.

Very good point.

Go back five years ago.

Speaker 3: Most of our work was time and material. It was very few projects where we had full control of the projects. Today, I have over 200 projects at any given time in the company and that's only going to increase.

Most of our work was time and material. It was very few projects, where we have full control of the projects today I have over 200 projects at any given time in the company and Thats only going to increase so so these are projects, where we take responsibility for the customers. Some are fixed price some are not but.

Speaker 3: So these are projects where we take responsibility for the customers. Some are fixed price, some are not, but these are projects where we can manage the intake.

These are projects, where we can manage the intake and produce an outcome, which again comes back to helping out of the gross margin because we can stop those projects with people that we we choose based on what we think we need to deliver the project and not based on a resume and somebody so it's really selling our <unk>.

Speaker 3: and produce an outcome, which again comes back to helping out of the gross margin because we can staff those projects with people that we

Speaker 3: based on what we think we need to deliver the project and not based on the resume of somebody. So it's really selling our qualifications and our delivery capability.

Applications in our delivery capability.

Speaker 3: So our intent is to do more of that. We're seeing the impacts of that. We're seeing how positive it is. Most of the new business that we're picking up with the $600 million contract with Beneva and QMI are projects. So that is a big driver in terms of gross margins when you can...

So our intent is to do more of that we're seeing the impacts of that we're seeing how positive. It is most of the new business that we're picking up with the deal the 600 million dollar contract with vanilla and acuity.

Our projects so we are.

It is a big.

The big driver in terms of gross margins when you can focus on the outcomes and manage their manager cost and how you deliver them and again, leveraging fulltime employees and leveraging offshore and leveraging all of these things. So so we're finally at the critical mass around half a billion dollars, where we can do those things.

Speaker 3: focus on the outcomes and manage your costs and how you deliver them. And again, leveraging full-time employees and leveraging offshore and leveraging all these things. So, we're finally at the critical mass around half a billion dollars where we can do those

Speaker 3: You know, one of the other areas that we're doing a lot more of is these academies that we put in place where we hire college grads and train them in a very concentrated area of the business, whether it's in Microsoft or Oracle or another technology.

One of the other areas that we're doing a lot more of these academies that we put in place, where we hire college grads and train them and a very concentrated area of the business, whether it's Microsoft for Oracle or another technology, which again is a great source for us in terms of recruiting we typically pick college grads that do not have.

Speaker 3: which, again, is a great source for us in terms of recruiting. We typically pick college grads that do not have a technology background, but have a business background.

A technology background, but havent business background and training them on a business driven technology, which is working very well and again, that's an expensive proposition. When you train. These people as an investment but the payback is within a year so coming back to close comment earlier, we are investing in growth and we know there is a.

Speaker 3: and train them on a business-driven technology which is working very well and again that's an expensive proposition when you train these people as an investment but the payback is within a year.

Speaker 3: So, you know, coming back to Clode's comment earlier, we are investing in growth.

Speaker 3: And we know there's a huge payback and we're seeing in the growth that we're getting.

Huge paid back and we're seeing in the.

The growth that we're getting so our scale makes a big difference for a company our size, we are seeing as well in the SG&A percentage it keeps going down and again, our objective is to get that under 20%. So we were going in the right direction.

Speaker 3: So scale makes a big difference for a company our size. We're seeing it as well in the SG&A percentage that keeps going down. And again, our objective is to get that under 20%. So we're going in the.

Great and then either to you quote how should we think about I know over time, we talked about.

Speaker 8: And then either to you or Claude, how should we think about, I know over time we talked about... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...

Integrating our three D and transitioning the staff from maybe a subcontractor to a full time basis.

Speaker 8: R3D and transitioning the staff from maybe a subcontractor to a full-time basis. Maybe talk to us a little bit about where...

Maybe talk to us a little bit about where you're at in that journey is discussing it with some of those folks and shifting them over to BBB in full time.

Speaker 4: It's progressing, that's a constant effort, and as I mentioned in my notes, in Q3 it's already...

It's progressing that.

Constant efforts and as I mentioned in my notes.

In Q3, it so happened that the.

Speaker 4: the trend unfortunately reversed with, you know, having to manage that significant growth.

The trend Unfortunately reversed.

We're having to manage that significant growth.

And looking for resources to fill to fill these services, we unfortunately needed to turn to our subcontractors to a larger extent that we would like.

Speaker 4: In looking for resources to fill these services, we unfortunately needed to turn to subcontractors to a larger extent than we would like.

Yes.

Speaker 4: But I would say it's probably a mid-term effort to get to where we want to go.

But I would say is probably a mid term.

To get to where we want to go.

Speaker 4: uh... even though it is it is progressing uh...

Even though it is it is progressing.

In terms of the SG&A.

Speaker 4: In terms of VSG&A, we have some savings to come still. Most of it would be behind us, so I don't want to...

We have some savings to come still most of it would be behind us So I don't want to.

To tell you that the large numbers are still ahead of us in terms of.

Speaker 4: to tell you that the large numbers are still ahead of us in terms of reductions.

Reductions.

Speaker 4: But it's still, you know, it will still move the needle going forward. And that that is immediate. That is will be completed over the fourth quarter. For whatever was left to be to be saved on that front.

But it's still.

It will still move the needle going forward then that is immediate that is will be completed over the fourth quarter.

For whatever was left to be here.

To be saved on that front.

Just on that same topic, just to manage it and I know.

<unk> discussed it briefly earlier.

Speaker 8: Given where you're at in the cadence of some of these projects, should we, you know, obviously Vitalist will give you a bit of an offset on the gross line next quarter, but should we expect.

Given where you're at in the cadence of some of these projects should we obviously vital still give you a bit of an offset on the gross line next quarter, but.

Should we expect that.

Still presumably got some of those same sub contractors employed working through these projects should we think that maybe there's a little bit of pressure on GM.

Speaker 8: we got some of those same subcontractors employed working through these projects, should we think that, you know, maybe there's a little bit of pressure on GM?

Speaker 8: into the next quarter and then over the year it starts to ease in.

The next quarter and then over the year it starts to ease as you.

Further work out the plans that you've articulated.

Speaker 4: On gross margin, it's really, we need to look at recovery on short, mid and long term. Before the third quarter, you've seen our gross margin. It was already at reduced levels following the R3D acquisition. So I would say on the short term.

On gross margin, it's really we need to look at recovery on the short mid and long term.

Before the third quarter, you have seen our gross margin it was already at reduced levels.

Following the <unk> acquisition.

So I would say on the short term.

<unk>.

We should be getting back to those levels those kinds of levels in Q.

Speaker 4: We should be getting back to those levels, those kinds of levels. Q3 was really a combination of different factors that just happened to...

Q3 was really a combination of different factors that just happened to.

Speaker 4: to come together impacting more than usual the third quarter. Same factors that I explained, the labor mix.

To come together.

Impacting more moored unusual third quarter same factors that I explained the labor mix.

Certain projects, we always have hundreds of projects undergo at all times and sometimes challenges.

Speaker 4: certain projects. We always have hundreds of projects on the go, at all times, and sometimes the challenges on projects seem to occur in a more concentrated fashion. This should average out going forward.

When projects team to seem too.

Occur in a more concentrated fashion this should average out going forward.

Speaker 4: a fairly short-term basis. Software revenues, there's no trend to be seen there, it's really

A fairly short term basis software revenues there is no trend to be seen there it's really.

Speaker 4: Not at random, but depending on the specific projects, specific software percentage.

Not at random, but depending on the specific projects specific software percentage.

That those projects have and when the billing occurs can have a significant quarter to quarter.

Speaker 4: that those projects have and when the billing occurs can have a significant quarter to quarter

Speaker 4: variations, so no reason to expect that Q3 is setting any trend to be continued. So on the short term, we can expect some of these negatives that all happen to be bundled together in Q3 to ease off.

Variation. So no reason to expect that Q3 is setting any trend to be continue so under short term. We can expect some of these negatives that all happen to be bundled together in Q3 each of these off.

And then turning to the mid term the labor mix is something we.

Speaker 4: And then it turning to the midterm, you know, the labor mix is something we.

We are working on continuously as I as I said then.

Speaker 4: We're working on, you know, continuously, as I said, and.

Growth has a lot to do with it I mean, we've been investing in growth and we've been succeeding in obtaining growth and Paul talked a lot about that.

Speaker 4: Growth has a lot to do with it. I mean, we've been investing in growth and we've been succeeding in obtaining growth and Paul talked a lot about that.

Speaker 4: Maybe, you know, focusing more on performance and

Maybe.

Focusing more on performance and.

And how we deliver on that growth as best we can as probably in the cards over the midterm and then long term as everything else we've talked about.

Speaker 4: and how we deliver on that growth as best we can is probably in the cards over the midterm and then long term is everything else we talked about. Service mix, higher value add.

Service mix higher value added.

Sure.

Speaker 4: projects and obviously acquisitions that will be driving that gross margin going up. So it's really needing to look at the three levels.

Projects and obviously acquisitions.

That our drug will be driving that that gross margin going up so really needing to look at the three levels.

Perfect without providing specifics because we do not provide guidance as you know.

Speaker 4: without providing specifics because we do not provide guidance, as you know.

That helps thanks, guys I appreciate it.

Thanks, Paul.

Speaker 1: Thanks Paul. Your next question comes from Amr Izzat from Echelon Partners. Please go ahead.

Your next question comes from Omar Saad from Echelon partners. Please go ahead.

Okay.

We can't hear you.

Speaker 9: Sorry. Good morning. This is Michael Vaccarino on behalf of AdMob.

Alright. Good morning. This is <unk> on behalf of AMR.

Speaker 9: Congrats on a strong quarter. So most of my questions have been answered so far, but I'll throw in a couple of quick ones. In your prepared remarks, you spoke about the leveraging. Can you provide some color in how you're looking at M&A going forward? Is your current 2.6 times net leverage a peak whereby you wouldn't look at acquiring anything further or just kind of trying to get a sense of your application?

Congrats on the strong quarter. So most of my questions have been answered so far but a store in a couple of quick ones.

In your prepared remarks, you spoke about deleveraging can you provide some color on how youre looking at M&A going forward.

Your current $2 six times net leverage of peak, whereby you wouldn't look at acquiring anything further or.

Just kind of trying to get a sense of your appetite here.

Well there is obviously two moving parts to this ratio.

Speaker 4: Well, there's obviously two moving parts to this ratio.

Speaker 4: The first one is what performance will be going forward in terms of EBITDA and we are not commenting on that other than what we've said before.

The first one is what performance will be going forward in terms of EBITDA and we are not commenting on that other than what we've said before.

The other piece of the equation is that in itself and obviously that depends if we are going to be doing additional acquisitions and we've always said that was certainly in our in our strategic plan to do acquisitions.

Speaker 4: The other piece of the equation is debt in itself and obviously that depends if we are going to be doing additional acquisitions and we've always said that was certainly in our strategic plan to do acquisitions.

On a regular steady piece, so but depending on the timing of that every quarter that goes by especially if we deliver good cash flow as we did in Q3.

Speaker 4: on a steady pace, but depending on the timing of that, every quarter that goes by, especially if we deliver good cash flow as we did in Q3, the deleveraging could occur very fast. Our sweet spot has always been around two times.

The deleveraging could occur very fast our sweet spot has always been around two times is what we.

Speaker 4: we aim for. Don't forget that the chart only shows the actual reported epithelium.

We aimed for don't forget that the chart only shows.

The actual reported EBITDA.

Speaker 4: Our bank covenants actually looks at acquisitions on a pro forma basis. So they give us credit for detrailing 12 months of the acquisitions, even before we own them, which is how we should look at it because.

Our bank covenants actually looks at acquisitions on a pro forma basis. So they gave us credit for the trailing 12 months of the acquisitions, even before we owned them, which is how we should look at it because.

Speaker 4: once you spend cash to make an acquisition, you should consider the potential profitability in that ratio.

Once you.

Spend cash to make an acquisition.

You should consider.

The potential profitability in depth in that ratio.

Speaker 4: So it's tough to project the number because of those reasons, but our sweet spot, what I can tell you is our comfort zone is around two times.

It's tough to project the number because of those reasons, but our sweet spot what I can tell you is our comfort zone is around two times.

Speaker 4: a little more when we have acquisitions that are very

A little more when we have acquisitions that are very.

That have a lot of recurrence to its revenue profile and Thats the case with <unk> certainly.

Speaker 4: that have a lot of recurrence to its revenue profile and that's the case with Vitalist.

Thank you and then that's on your comments on utilization.

Speaker 9: And then back on your comments on utilization, I know you don't release your utilization rates But can you give us a sense of where you are currently sitting right relative to Q3? Are you close to fully utilized?

I know you don't release your utilization rates, but can you give us a sense of where you are currently sitting right relative to Q.

Q3 are you close to fully utilized.

Yes, we're not talking about Q4 today sorry, Michael.

Speaker 3: Yeah, we're not talking about Q4 today. Sorry, Michael. No worries.

No worries.

All for me thank you.

Alright, thank you.

And your last question for today comes from Nick Agostino from Laurentian Bank Securities. Please go ahead.

Speaker 1: And your last question for today comes from Nick Agostino from Laurentian Bank Securities. Please go ahead.

Yes, good morning, gentlemen.

Hey, good morning.

Good morning.

Speaker 10: So just on the gross margin side, I mean obviously it feels like obviously in this case you had lots of growth.

Just on the gross margin side I mean, obviously.

Seals like obviously in this case you had lots of growth.

Speaker 10: and you've had to go out and get subcontractors to help you guys fulfill that growth, so it almost feels like...

<unk> had to go out and get sub contractors to help you guys fulfill that growth so.

It almost feels like added growth will impact your gross margin near term and slower growth you can maybe offset that.

Speaker 10: added growth will impact your gross margin near term and slower growth you can maybe offset that as you get more and more FTEs in the door. I'm assuming that that's the short-term view that we should be having here and my question is are you guys still comfortable now that you've completed the R3D integration, are you still comfortable that you can get to that 25 percent gross margin level plus or minus?

As you get more and more ftes in the door I'm, assuming that that's a short term view that we should be having here and my question is are you guys still comfortable now that you've completed the <unk> integration.

Are you still comfortable that you can get to that 25% gross margin level, plus or minus I think it's within a two to three year time period, just given the growth that you guys are seeing in front of you.

Speaker 10: I think it's within a two to three year time period, just given the growth that you guys are seeing in front of you and the rate at which you're adding people within North America and within Morocco.

And the rate at which you're adding people within North America and within Morocco.

Speaker 3: Yeah, thanks for the question. On both of those, you're absolutely right. There's a short-term pressure just because we're ramping up so fast.

Yeah. Thanks, Thanks for the question.

On both of those you're absolutely right. There is a short term pressure just because we're ramping up so fast but on the on the.

Speaker 3: But on the plan for the Bénéval and Québécois ramp-up and gross margins on those contracts, we're right on track. We're very comfortable with the target, the 25. And remember, that contract is guaranteed margins.

Plans for the <unk> ramp up in our gross margins on those contracts. We're right on track, we're very comfortable with the target of 25 and remember that contract is guaranteed margin. So if something happens and we can't make the margin. There is there is a mechanism for compensation of that so.

Speaker 3: So if something happens and we can't make the margin, there's a mechanism for compensation in that. So that's why we're 100% confident on that one.

That's why it's worth.

100% confident on that one.

Okay, and that's very helpful. And then just given you talked earlier about <unk>.

Speaker 10: Okay, and that's very helpful. You talked earlier about various markets, and I'm just wondering, in the recent past,

Various markets and I was just wondering in the recent past Q you talked about or highlight some higher education initiatives that you had launched community gave us an update on what youre seeing when it comes to the higher education market and the opportunities in that market and how may behave contributed in the current quarter.

Speaker 10: You talked about or highlighted some higher education initiatives that you had launched. Can you give us an update on what you're seeing when it comes to the higher education market and the opportunities in that market and how maybe they've contributed in the current quarter or what your expectations are for upcoming quarters?

Or what your expectations are for upcoming quarters.

Yeah, Yeah. Thanks, Doug So in terms of higher Ed we have very high expectations, we see that a little bit like what we're seeing in health care right now.

Speaker 3: Yeah, yeah, thanks. So in terms of higher ed, we have very high expectations. We see that.

Speaker 3: A little bit like what we're seeing in health care right now, you know, a lot of higher education institutions have been struggling in the past two years with COVID, with remote delivery of services, with

A lot of a higher education institution that had been struggling in the past two years with COVID-19 with remote delivery of services.

Speaker 3: with students being on-site, off-site, the delivery of classes and so on and so forth. So, we're seeing tremendous potential there. It's ramping up, but they're not at the same speed or same level that we are in health care. I think they're a year or two behind health care. I think it's also the nature of those institutions.

With students being on site off site delivery of classes and so on and so forth. So.

We're seeing tremendous potential there.

It's ramping up.

We're not at the same at the same speed or same level that we are in healthcare I think a year or two behind health care.

It's also the nature of those institutions.

Speaker 3: The decision making is very collegiate, it usually takes more time.

The decision, making is very collegiate that usually it takes more time.

Speaker 3: But we see tremendous potential there, similar to what we're living in healthcare today down the road.

We see tremendous potential there similar to what we are living in health care today down the road.

Speaker 10: Okay, that's helpful. And then my last question on prior calls and news releases, there was talk about a Canadian fixed price contract. Can you just give us an update as to the status of that contract and specifically, if it has been or how close you are to completion? And I'll leave it there.

Okay.

And then my last question.

On prior calls and news releases there was talk about a Canadian fixed price contract can you just give us an update as to the status of that contract.

Specifically, if it has been or how close you are to completion.

Leave it there thanks.

Yes, we as we mentioned last quarter that one is over and done with the there are no more overages on that project. It is mostly complete and implemented and everything else. We're doing there is new new business with the customer.

Speaker 3: Yes, as we mentioned last quarter, that one is over and done with, there are no more overages of that project, it's mostly completed and implemented, and everything else we're doing there is new business with the customer.

Okay, great. Thank you.

Thank you.

There are no further questions at this time I will turn the call back over to the presenters for closing remarks.

Speaker 1: And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.

Thank you very much Julie Thank you everybody for joining us today.

Speaker 3: Thank you very much Julie. Thank you everybody for joining us today. Appreciate your questions and looking forward to talking you in the next call. Take care.

I appreciate your questions and looking forward to talking to you on the next call take care.

This concludes today's conference call you may now disconnect.

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Okay.

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Speaker 1: The host has ended this call. Goodbye.

The host has ended this call goodbye.

A question.