Q4 2023 Alithya Group Inc. Earnings Call
Okay.
Good morning, and thank you once again for joining us for <unk> fourth quarter and fiscal 2023 result conference call press.
Press release, and MD&A with complete financial statements and related note as well as annual re gallon regulatory document were issued this morning, and I'll now posted on our website.
The webcast presentation can also be found on our website in the investors section.
Please be advised that this call will contain statements that are forward looking and which are subject to a number of risks and uncertainties that could.
Cause actual results to differ materially from those.
These statements include without limitation, our estimate plan expectation and other statements regarding the future growth results of operation performance and business prospects.
Thanks for the lead Gen side do not exclusively related to historical facts.
Which referred to there kind of characterization of future events.
Including statements regarding our expectations of our clients demand.
And our ability to take advantage of business opportunities and meet our goals in our three year strategic plan.
For more information please refer to the cautionary note in our presentation and to the forward looking statements and risks and uncertainties section of our MD&A available on our website.
All figures discussed on today's call are in Canadian dollars, unless otherwise stated and we may refer to certain indicators.
<unk> measures.
Please refer to the cautionary notes in our presentation and non <unk> measures section of our MD&A for more details.
Presenting this morning are Paul Raymond ALLETE, President and Chief Executive Officer.
Chief Financial Officer.
Ill now turn the call over to Paul.
<unk> good morning, and thank you all for joining us on the call. This morning to discuss <unk> robust fourth quarter and fiscal 2023 financial performance.
First off I would just like to take a moment as I mentioned, our new and recently launched brand platform.
As part of our ongoing integration efforts, the new platform consolidates, our best competitive fees and collective intelligence behind our powerful singular voices that will better resonate with our clients employees and shareholders.
Years of sustained growth has led to a proliferation of knowledge and expertise our redesigned web site now offers a more concise picture of who we are and what we can do for our clients as they navigate through a rapidly evolving digital world.
The robust performance that we will be highlighting this morning demonstrates how the collective intelligence of our teams contribute to the continued health of relationships with our clients, which ultimately creates greater long term value for our shareholders.
That notice, let's start by highlighting a few milestones for this quarter that we are particularly proud of first off we passed the $5 billion milestone in terms of annual revenues, which brings us closer to our strategic plan target and provides us with the scale, we need to better a company our clients and our largest most critical initiatives.
Secondly, our pipeline and bookings continue to grow with Q4 bookings reaching $124 million.
Our clients have demonstrated unwavering loyalty and trust in our people in fact over 80% of our revenues we're generating from existing clients. We had at this time last year.
We are and we started working with 32, new clients in the fourth quarter. Those additions brings our fiscal 2023 total to 144 new clients.
Thirdly, we continue to improve our year over year gross margins as a percentage of revenue, which stands at 29, 9%.
This represents a 400 basis points increase over last year.
And finally, our adjusted EBITDA grew from Q3 to end Q4 at $10 5 million. This represents a 73% increase compared to the same quarter last year.
Now, let's look at these achievements in some greater detail.
Our fourth quarter revenues increased by 13, 5% over Q4 fiscal 2022 and sequentially by four 2% over Q3.
Our revenues to $136 $2 million for the quarter.
That achievement was largely driven by growth in all areas of our operations.
Our Canadian Q4 revenues experienced a year over year increase of seven 5% or $5 $7 million in Q4.
And as predicted in previous meetings, we are starting to see pressure, especially in the banking sector to focus on efficiency driven projects and longer decision, making on larger projects based on conversations with senior leadership on those clients. We remain cognizant of a long term technology investment commitments.
In the United States, our enterprise solutions implementation business unit had a great quarter.
Despite recently, our recent quarterly results from top cloud infrastructure providers, indicating that businesses are looking for ways to trim cloud costs.
April and May are also showing strong bookings as those are the year ends from both Microsoft and Oracle.
It should also be noted that we are seeing some software providers are getting out of the services business to focus on higher margin product sales. We see we see this as a very positive development for us.
In the U S. Our clients across the board continue to grow their projects beyond enterprise cloud implementations with stronger demand for additional strategy and post implementation services.
Our Oracle practice had a strong finish in terms of revenue with Q4 being the highest grossing quarter of the fiscal year.
Many of the clients are requesting are implementing the Oracle suite of apps are in the health care sector, where Gardner is forecasting a nine five increase in spending in the coming year that positions us very nicely for further growth.
As for our Microsoft practice, our strong Q4 revenue performance includes fresh revenue generated by the integration of our two most recent acquisitions both completed during the 2022 calendar year.
That said, we are all seeing so seeing growing demand for our hyper automation services, which is a disciplined approach that clients use to rapidly identify and depth and automate as many business and it processes as possible.
Thanks to our data acquisition in July 2022, we are well positioned in a robotic process automation modern VIP platforms and intelligence document processing, which incorporates the latest AI developments occur.
According to Gartner the process agnostic technologies, enabling hyper automation will experience at 15% to 30% increase in terms of worldwide revenues between 2021 and 2026.
It should also be noted that the last two acquisitions contributed $45 $9 million to our fiscal 2023 year or approximately 50% of our growth.
<unk> now represents over 30, 36% of our overall business.
Our performance continues to advance towards the realization of the milestone established by our strategic plan.
In fiscal 2023, our revenues increased by an industry, leading 19, 5% to $522 7 million.
Baird to $437 $9 million last year.
Now looking at gross margins, we experienced a 31% year over year increase in Q4.
Gross margin as a percentage of revenue increased to 29, 9% and those achievements were driven by continued increases in revenues for our permanent employees versus subcontractors and an ongoing focus on higher value business.
This has also resulted in higher average revenue per employee.
Another contributor to gross margin improvement is our push to increase sales of subscription based services subscriptions.
Subscription software and other revenues now represent 12% of our total revenues compared to six 7% a year ago for the same period.
In terms of adjusted EBITDA, we are proud to report a 73% increase over our Q4 2022 performance our $10 5 million for the three months ended March 31 2023.
Once again contributions from our latest acquisitions were also instrumental.
Our business continues to be fueled by strong bookings in all of our geographies during the last quarter of our fiscal year, we continue to fill our healthy pipeline of projects for the quarters to come.
Fiscal 2023 bookings reached $525 4 million, which translate into a book to bill ratio of 115, when we exclude the two large 10 year contracts signed in April 2021.
And we now have a backlog would represent over 16 months of revenue.
We also took great strides toward the fulfillment of objectives outlined in our long term strategic plan as we continue to implement measures designed to move us up the value chain and to improve efficiencies. We see continued opportunities to add to increase our profitability profile.
We continue to closely monitor global economic factors as I said potential short term variations across our markets and we remain focused on a disciplined approach to our long term plan of building a trusted global digital transformation advisory firm.
With 32, new clients added in the fourth quarter and 144 added this past fiscal year, we believe that our mission vision and business approach are conducive to achieving that long term goal.
Now I'd like to turn the meeting over to Commscope at ECS, Chief Financial Officer, who will expand on the financial highlights that I have outlined both.
Thank you Paul good morning.
Revenues for the quarter amounted to $136 $2 million, an increase of 13, 5% or $6 2 million.
Compared to revenues of $120 million for the fourth quarter of last year.
Our last two acquisitions completed respectively on February one and July one 2022 contributed revenues of $11 $9 million during this fourth quarter.
Excluding the impact of the two acquisitions organic growth in Q4 was eight 1%.
For the full fiscal year revenues amounted to $522 7 million.
Including $45 $9 million.
From the two latest acquisitions.
Presenting an increase of 19, 4% year over year and passing the half billion dollar Mark for the first time.
Back to the fourth quarter, and Canada revenues increased organically by seven 5% to $81 2 billion.
Growth in all areas.
In the U S revenues increased 22% to $49 $3 million due primarily to increased revenues from the acquisition of <unk> list, which contributed one additional month of revenues in the fourth quarter compared to the prior year.
Revenues from Datum U S business.
Organic growth in all areas.
And a favorable U S dollar exchange rate impacts of $3 1 million between the two periods.
As for our international operations. They also reported a strong quarter in terms of growth increasing 41, 2%.
Due to good organic growth and activity levels and revenues from the acquisition of <unk> International businesses.
Now, let's look at our Q4 gross margin, which overall increased by 31% or by $9 $6 million.
$247 million.
From $31 $1 million last year.
As a percentage of revenues our fourth quarter consolidated gross margin increased to 29, 9%.
I'm 25, 9% for the same period last year.
The increase in gross margin percentage in Canada is derived from increased revenues from permanent employees relative to sub contractors and from higher margin offerings.
In the U S gross margin as a percentage of revenues increased as a result of the positive margin impact from the acquisition of <unk> U S business.
Higher average revenue per employee.
And improved project performance in other areas of the business.
Gross margin as a percentage of revenues also increased on a sequential basis.
Compared to the third quarter.
Mainly due to improved project performance in certain areas of the business.
Yes.
Our consolidated gross margin percentage on.
On a sequential basis remains very close to the third quarter.
Despite the fact that employer benefits reset on January one.
Which always ways, notably on margins in Q4.
And which means we had a compensating improvements at different other levels.
Now looking at SG&A total grosses G&A expenses in the fourth quarter totaled $36 million, an increase of $9 $8 million or.
Or 37, 3%.
Compared to $26 2 million in the same quarter last year.
The increase is mainly explained by our latest acquisitions for $1 5 million.
The special noncash impairment charge of $2 $8 million stemming from our reduced real estate footprint.
An increase in share based compensation of $2 million.
And an unfavorable U S dollar impact of $0 9 million.
We also had.
Increases in certain discretionary elements, partially offset by ongoing reductions to our cost structures.
Overall as a result of increased revenues and gross margin, partially offset by increased SG&A expenses are.
Our fourth quarter, adjusted EBITDA amounted to $10 5 million, an increase of 73% or $4 $5 million.
Paris, two and adjusted EBITDA up $6 million during the same quarter last year.
We are introducing a new financial metric with our Q4 reporting.
In recent years, mainly due to our strategy of growth by acquisitions, Alicia has been reporting net losses on an accounting basis.
This accounting net loss is mainly created by amortization of intangibles by.
By acquisition integration and reorganization costs.
And by share based compensation most.
Most of which are noncash and nonrecurring expenses directly attributable to past individual acquisitions.
In addition, we have in this fourth quarter. Two notable specific P&L charges, which are also noncash and nonrecurring, namely the write down in right of use assets and the recording of an earn out consideration payable related to the data acquisition.
Only $13 million.
Adjusting our accounting net loss 40 above we are reporting in Q4 of fiscal 2023, and adjusted net earnings of positive $4 $1 million or <unk> <unk> per share.
Compared to an adjusted net earnings of $2 $2 million or <unk> <unk> per share for Q4 of last year.
The quarter over quarter increase in adjusted net earnings represents one $8 million or 81, 3%.
For the whole fiscal year, Alicia is reporting an adjusted net earnings per share of <unk> 16.
Up from 12 cents per share last year.
We will be going forward reporting this number which we believe provides a better appreciation of <unk> ongoing performance.
Looking at long term trends on slide nine we can see the impact of our acquisitions and more importantly of our sustained organic growth achieved over the past several quarters.
We can also see <unk> and even stronger progression in terms of gross margin dollars.
Our long term adjusted EBITDA trend also reflects our growth and gross margin improvements.
With sustained organic and acquisition growth, our continuing long term initiatives to generate higher gross margins and a steady focus on SG&A.
We believe that we remain on target to achieving our three year financial objectives.
Now turning to liquidity and financial position on page 11.
Net cash generated from operating activities was $4 4 million.
$8 $1 million improvement from $3 7 million used during the same period last year.
Also cash flow from operations before working capital variations amounted in Q4 to $8 million.
Out of $10 $5 million of adjusted EBITDA, which represents a notable cash flow conversion percentage.
With the risk of a corresponding overall debt reduction and considering our improved trailing 12 months EBITDA performance Q4 marks another quarter with declining leverage ratios.
Back to you Paul S seeks out so Q4 takeaways continued revenue growth margin is growing faster than revenues solid bookings and backlog improving revenue per employee strong DSO and cash flow.
We have a solid client base with over 80% repeat business and we are adding important strategic clients every quarter. We are very happy with our long term perspective, but also always keeping an eye on possible temporary slowdowns at the latest projects we are seeing in the banking sector.
We are entering the new fiscal year with many efficiency opportunities ourselves and we have strong cash generation profile that positions us well to be patients.
More importantly, we are maintaining our focus on efforts on gradually improving gross margin and SG&A performance, which should lead to an improved bottom line even in the current economic context, we are witnessing.
As you can see by our rapid deleveraging, we are very well positioned to execute on the last year of our strategic plan and to continue our disciplined approach to quality acquisitions, we will now take questions Laura.
Thank you ladies and gentlemen, we will now begin question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone. If you are using a speaker phone. Please lift the handset before passing any case.
First question comes from Gavin Fairweather Cormack Securities. Please go ahead.
Oh, Hey, good morning, Congrats on your progress maybe to start out on on the macro it sounds like kind of on balance the demand picture remains pretty positive and the backlog is certainly quite healthy.
Just given the evolving environment, maybe you can just touch on any kind of segments of the business, where you're starting to see a bit more sluggishness you touched on the financial sector I'm kind of curious how big is.
A vertical that is for you and any other areas that maybe you would call out.
Hey, good morning, Gavin Thanks for the question.
Thanks.
It's an ongoing.
Conservative mind every day I read the newspapers like everybody keep asking our team what they are seeing where our bookings keeping getting solid.
I think we expect to see some slowdowns in banking just because of everything that we're seeing in the in the U S. I think the banking crisis in the U S is not over you saw with another another another increase in Canada yesterday. So to me, it's kind of inevitable that we will see some slowdown in banking.
<unk>.
At some point.
But again.
It's a small portion of our business today.
It's more in Canada than the U S. For US we don't have we don't have banking clients in the U S. Today, we have a few in Canada.
Yes.
Everybody that we talk to you and I talk to clients and senior executives there on a regular basis at these institutions and they're all committed to their long term plans I think they are all kind of trading out what theyre going to do short term.
And how to focus on more efficiency initiatives like.
RGA and robotic process automation and things like that.
So far so far so good.
But I would definitely keeping an eye on them.
Okay, Great to hear and then maybe just on your new kind of backlog calculation is that so that 16 months does that just kind of the aggregate value of the backlog compared to kind of your current production can you maybe just help us.
About how to think about that metric as some of that backlog kind of longer term as part of the RTD contracts, maybe a bit of context there.
So yes. So this is what I would qualify as hard backlog. These are signed contracts with confirm commitments. It does not include.
What I would call the NIM.
<unk> are a blanket contract, where we renew every year very large very large engagements. So this is really committed.
Hard backlog that we have contracts with committed revenue.
And I believe it's a bit we believe it is a bit understated is the first time, we do it. So we tried to be on the conservative side.
So as we integrate new acquisitions.
Get a better handle on it.
We think it's conservative for now.
Okay. That's great and then maybe some smart straw and can you just provide an update on your proportion of resources, which were kind of offshore exiting fiscal 'twenty three.
Kind of your hiring efforts year to date and maybe if you have a target you could share for for the next fiscal year on where you can move that to.
Yes, it's just over 6% today, our objective is to be at 10% by the end of the fiscal year.
Great and then maybe just.
Before I pass the line Claude you mentioned, the health and benefits and payroll taxes that reset in the first calendar quarter.
Which provides a headwind to sequential gross margins can you just.
Quantify that and talk to you we can get a sense of kind of the underlying margin trend.
Sorry, I missed the beginning of the question.
The reset of the health and benefit taxes, maybe for cloud can you quantify that so when we look at the sequential gross margin.
But the underlying trends.
Well.
By calculations are Q3 to Q4.
But the Lithia, which is calendar Q4 to Cowen to calendar Q1, so did the.
The reset that occurs on Jan one.
So we are easily talking a couple percentage points on gross margin.
So.
Anywhere one five to two 5% depending on.
Our mix of revenues and geographies, but it's in that ballpark yes.
And then it eases off we have new employees.
Being hired all the time so those are not affected so its a partial impact as you go into the year. It depends on the salary of the employees higher repeats employees hit the ceiling before.
And vice versa. So.
Yes.
There's probably nothing much relief occurring from Q4 to Q1.
What is this.
Yes.
It's mainly then into Q2 and Q3.
You can see.
Okay.
Thank you next question comes from Deepak.
BMO capital markets. Please go ahead.
Hi, Good morning, guys. Thanks for taking my.
Questions.
Just Paul you mentioned that you still feel comfortable about your strategic targets I think you in the past you had mentioned $600 million target for fiscal 'twenty. Four can you give us a sense of how much youre expecting that to.
It comes from organic M&A, and maybe just a bit of an update on the M&A environment.
Sure. Thanks.
Thanks for the question of the banks.
Historically, we've been 50 50, so that's kind of the ballpark, we look at it varies because some year, we've done more acquisitions right now we haven't done any in the past 12 months. So we usually target 50 50.
We've been very patient as you can see we are generating a lot of cash we're deleveraging fast.
There is some nice targets out there in the environment right now we find is getting extremely favorable to us because the <unk> and.
In the past there were a lot of private equity is very aggressive.
Our industry and acquiring some targets that we might have looked at in the past that we passed because the multiples were kind of crazy.
We're actually seeing that kind of reverse and come around so we're seeing a lot of funds deleveraging.
A little bit like what youre seeing in the commercial.
Real estate market right now, we're seeing some interesting opportunities.
And people want to move fast on so I think we're in a great position, we demonstrated that so would show the showed the chart that weekend.
Doing very accretive acquisitions and deleverage very fast were very disciplined.
I kind of like the environment out there right now for us to find some some interesting targets.
We know we have the balance sheets to be patient.
I like where we are right now.
Okay Fantastic that's helpful. And then just on the margin targets I think your target was 9% to 13% EBITDA margin still.
Still have a ways to go there, but it sounds like you have some.
Some improvements in gross margin and your targets to get to 10%.
Thank you Chuck Siegel from 6% to 10%.
Versus contract employees alright.
Yes. So we're at we're close to 8% right now. So we think we are within striking distance to getting there deepak okay.
Okay.
Whereas the other improvement coming from is there any coming from SG&A.
Or is it all on the permanent versus.
Great.
Yeah.
Yes, the three main things the SG&A portion.
There's a lot of one time stuff in this past quarter that kind of.
Creates a little bit of disturbance, but we see we see some significant upside there. We've said our target is to get to 20% and lower of SG&A. So you have a few points a couple of points right there.
We think that we have.
A big Big upside on gross margins by moving more of our work to smart shoring. We're at 6% right now the objective is get to 10 by the end of the fiscal year.
And also in the change of the the business mix <unk> seen we are doing more and more of the higher value stock as we reduce again the sub contractors focused on our people and high value projects.
Those things combined we think that that we think we can get there I mean, if you look at the cash generation that we have right now even if revenues were flat.
Let's say the whole industry melted down for everybody revenues were flat, we would still be generating $30 million of cash, which means we would be deleveraging really fast and at some point.
If I look at the stock of our company, we're probably the best deal out there. So I think we have all the tools to get to where we want to be on the strat plan, we're still looking at it.
M&A inorganic growth, we still have some of that we see some very interesting improvement opportunities from an efficiency perspective, given our scale that we have today so well.
We like the position we're in right now.
Okay, that's fantastic and if I may ask one last question.
Pretty strong growth in Europe , maybe unpack that a bit.
Organic what's inorganic and what are the segments in Europe you're.
You are seeing and the opportunities there going forward.
Maybe closer to just be what's organic versus M&A in Europe .
In Europe , yet always very small the acquisition part datum.
Revenue base was largely.
In.
Sure.
In the U S. So they had a few customers in the UK and a few customers in Australia, it's really minimal.
But the bulk of the increase is really our French operation really turning the corner and doing well.
It's probably a four to one or something like that too if you split up the.
Increase.
Okay, and how do you see opportunities to expand in Europe . This is all a lot of this aviation industry or are you looking at more vertical or geography beyond France.
How should we think of that.
I think we are.
We have a good foothold in Europe , I think there are opportunities to expand that significantly.
Would look to expand Europe .
It started with an expansion of our smart shoring operations at the same time, so we see significant opportunities for growth in Europe and in North America at.
Each time, we grow that we have the opportunity to grow our smart shoring capability at the same time. So we're looking to the sweet spot would be acquisitions that neutral right that complete our offering a high margin.
Add to both our on site that smart shoring capabilities.
And there are some of those in Europe , as well theyre going through the exact same economic cycle, we're seeing in North America. So we're seeing some nice opportunities there as well.
Okay. Okay. That's helpful. Thanks for taking my questions ill leave it at that.
Thank you.
Thank you. Your next question comes from Giovanni.
At Deutsche Bank. Please go ahead.
Hey, Bob Thanks for taking my questions.
Yes, thanks for the color on backlog, you know, where we're asking on this.
And these macro.
With this macro uncertainty at this time, so good to hear that backlog is rather firm.
Just taking another point how is how easy is it for clients to defer.
The orders that are in the backlog at this time.
Okay.
Thanks for the question, it's not as much in the orders and the backlog that are easy to.
The deferred is most of those are already in the books our projects undergoing and things that are already on the goal with the new the new bookings we had one client that we signed recently.
Committed to a multi million dollar ERP project is signed but they want to start in September .
It's that type of thing so the newer the newer contracts that we're signing we're seeing some of them.
Thank you to book right now, it's signed but I wanted to start with a couple of months.
I think it's going to be more on newer book gains of large projects that you're going to see those types of things.
But it all.
I think <unk> is one project, but still.
Yes interesting thanks.
And then.
Have a cleanup item here.
We're there.
Costs related to the rebranding in the in the quarter and is it material at all.
It was not material.
It was all done internally by our own people.
Okay. Thank you.
Then.
Just to clarify your point on the pressure in banking.
You point out pressure is mostly in the U S. But then you are mostly exposed to Canada I just wanted to clarify how exposed you think you are to this trend.
That's what I was saying.
Cautiously optimistic because right now we have little exposure in the U S. But as you all saw the.
Quarterly reporting from the Canadian banks.
All taking massive write downs.
And they're all being very cautious.
I need to be cautious as well I'm. Following this so I think there are there is some.
Some collateral damage in Canada for what we're seeing in the U S interest rates are still rising in Canada.
At some point I think there's going to be some impact on the <unk>.
On the.
The real estate industry in Canada, which fit and that's going to have an impact on the banks.
We're keeping a really close eye on it I think everybody is being very cautious right now.
Canadian banking banking site.
Great. Thanks for the clarification and thanks for answering the questions.
Thank you.
Thank you next question comes from Vincent Colicchio Barrington Research. Please go ahead.
Yes, good morning, Paul.
A few for me so.
With higher margin areas and Canada Hello.
Yes, yes, we hear you Vince yeah, so with higher margin areas in Canada.
<unk> growth in the quarter could you give us some color there.
Good question.
So we have growth kind of across the board in the last quarter in Canada.
The I would say that the highest growth was probably in our government business.
From a from a gross margin perspective isn't the highest but from a net margin perspective is actually very good. So that was that was a strong area of growth. Another strong area of growth was our multi year.
Very large multiyear contract that we sign a year and a half ago and that's still growing.
Both both be those clients are going through some significant integration Q admire recently announced the acquisition.
The freedom mobile so theres going to be some significant integrated integration projects coming from that is starting.
<unk> is still going through the integration.
The insurance companies the merger there.
So thats also generating some interesting projects.
It's really it's.
So really a combination of many things and Vincent stuff to single out one thing.
And regarding data and <unk>.
Are you cross selling synergies are meeting your expectations.
On the data side, absolutely on the vital list side, that's a bit slower.
Just because that's one of the and I mentioned this in the past one of the areas where clients are reducing spend is on training right. Now. So we did a lot of that however, we have to there are two parts of the business.
That acquisition, one is the E learning and the other one is where we're going to be integrating.
We're hearing a lot about generative AI right now one of the big the big tools that Microsoft is going to be launching is called co pilot.
That's an area that we see significant growth for us with all of our clients and the rollout and leveraging of the <unk> and the Microsoft environment that Jane user generative AI for everything from the word the Powerpoint.
Coding that anything to do with the dynamics in office suite. So we see a lot of potential upside of that.
And Claude one for you.
You did mentioned the organic growth in the quarter cures.
Curious if you have that in constant currency.
Yes.
Round, a couple percentage points of positive impact from currency in Q4.
Q4 or Q4.
Okay. Thank you.
Nice quarter guys.
Thank you very much.
Thank you. Your next question comes from John Show at National Bank. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions. So I understand the macro environment looks and a lot of enterprise today as we're talking about cost reduction and efficiency improvement I'm, just curious alithia could actually monetize some of those opportunities given they're such a rush.
Okay. Thanks for the question John Yes, like I was saying earlier, we do a lot of that in the robotics process automation portion so.
You kind of have a convergence right now that we see as very positive and that there is a shortage of qualified labor.
And there is a need for efficiencies. So a lot of these automation projects, which in the past we're at a very high priority.
Now, becoming a very high priority, so thats something that we see as very positive for us everything to do with hyper automation and the other piece of course is outsourcing more stock price all outsourcing projects.
Reducing reducing.
Transforming some capex into Opex.
All of these things that we're that we can offer our clients that we see as well.
We see as very positive for us.
Okay. Thank you Paul I think you also mentioned that labor. So my question is actually on the labor market and whether it has any impact on your higher activity. So far it seems like it's been a while.
Talk about this topic.
Hi.
I think theres a lot of noise around many things right now out there.
Still for qualified technology people, it's still a high demand environment I don't think people realize that now we have the advantage now that we can leverage our smart shoring, so thats, taking a bit of the pressure off. So we can hire people remotely now that theres still some of the gas the other.
Piece, that's also helping us right now.
As I was saying, we are reducing the subcontractors and moving that more to permanent employees and the other thing that we're doing which comes back to how we're improving gross margins as we are being very selective on.
Profitable growth so we're being very selective on the projects that we bid on which puts less pressure on the hiring and the.
Yes.
The people side and brings us more benefit in terms of the type of projects, we do and the value. They generate so we're trying to combine all of those things too.
The situation more manageable.
That's great color. Thank you so much.
Thanks, Jonathan.
Thank you next question comes from DVS.
At Scotia Bank. Please go ahead.
Good morning, guys.
Can you just give some color on that.
All of the industries, where you think Lithia is currently.
Not sort of a thing on job from that from that side. So this is an industry, where you're looking to grow and expand and you did provide quite a lot of color in some of the previous questions. If you could elaborate on that.
Yes. Thanks.
So yes as you said.
Right now that we see we're already there we see tremendous opportunity for growth.
Healthcare and health insurance right.
And in the U S a little bit different, but we see significant opportunity for growth in the health care industry, both on the <unk>.
The provider side and the the payer side.
It's a it's a industry that's going through a tremendous transformation right now.
Very well positioned as you know or the top player in healthcare at Oracle on that side.
Alright.
Microsoft side with some of these hospitals and with the data acquisition that we did we're very involved in the payer side of the modernization side and this is an area, where we actually use artificial intelligence.
Allegiance to accelerate the modernization.
Yes.
That transformation and where we provide has a subscription based service. So again, we see as a big upside for that and as you saw from the growth in our subscription based revenue.
So a very high margin repeatable.
Our solution that we like so healthcare is definitely health care, both payer and provider is an area that we see tremendous growth for us going forward.
Yes.
Despite a sign or sound counter counter intuitive, but I think theres going to be some growth opportunities in banking as well I think the RBA offering that we have.
But I think I'm extremely popular in the next 12 to 24 months in the banking industry. So we.
We're staying very close to that one the telecom industry is also not finished with.
What is consolidate vendors seems significant.
Projects happening there so I think thats an area that we can do a lot more and finally manufacturing our Microsoft business just.
Just had a stellar few months of bookings so we think the the whole price.
Assess manufacturing side of the house is also.
The other area, we can even though we're number one in Microsoft in that area in North America. We think we can do we can do better there as well.
Yeah, No. That's that's definitely good color and definitely good.
Goldman Sachs.
You briefly mentioned about the cubical or via mobile acquisition, then like another potential projects that could come out of that.
Potentially baked into your bookings numbers right now and could you quantify them at all or would that come later.
They start to indicate.
So some are in already nivea, but some were still we want to make sure that before we put them into the backlog that it follows our definition of hard backlog right. So I think we're conservative right now, but it's not going to differ materially.
No.
Helpful. One last one here on the integration so far the data and the wireless to have those acquisitions or any of the other all the other previous acquisitions have all now been integrated or are you still in the process of completing the integration.
So so we track integrations at multiple different levels.
The administrative staff and the benefits.
E mail infrastructure that the tools the financials. So the sales operators. So theres a lot of different levels of integration. So all of the operational stuff. So how we go to how do we go to clients integrated and the management team to email has access to the tools. That's done there's always some stuff to do.
Especially around our financial systems because.
You want to make sure that the employees, who are coming onboard are penalized and the change in the transition and as you know depending on which time of the year you transition into their systems their resets with the IRS and the Canadian.
Okay.
<unk> paycheck pretty bad so we try to avoid that so typically we do those on January one.
April for us when we have a system at the end of the fiscal year. So we usually do those once a year based on the calendar.
The integrations are going going according to plan.
That's perfect. Thanks, a lot for taking my questions I'll pass the line.
Thanks, David.
Thank you there are no further questions I will now turn the call back over to Paul Raymond for closing remarks.
Thank you Laura Thank you everybody for joining us today are Mr. Boku and looking forward to talking to you soon.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you pay.
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