Q2 2024 Alithya Group Inc Earnings Call
Good morning, ladies and gentlemen, welcome to <unk> second quarter of fiscal 2023 results conference call.
I would like to turn the meeting over to Lithia management. Please go ahead.
Good morning, and thank you once again for joining us for ALLETE second quarter fiscal 2024 results conference call. The press release and MD&A with complete financial statements and related notes were issued this morning, and I'll now posted on our website the.
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 anticipated.
These statements include without limitation our estimate.
<unk> expectation and other statements regarding the future growth results of this duration performance and business prospects of ALLETE, yet that do not exclusively related to historical facts.
Or which refer to future events, including statements regarding our expectation of our clients demand for our services 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.
Risks and uncertainties section.
<unk> 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 that are non <unk> measures.
Please refer to the cautionary note in our presentation and to the non ISR and other financial measures section of our MD&A for more details.
Presenting this morning are Paul in the CMO, ALLETE, President and Chief Executive Officer and Chief.
<unk> financial officer.
I will now turn the call over to Paul.
Alright. Thank.
Thank you Benjamin and good morning, everyone and thank you for joining us for the review of our second quarter fiscal 2024 financial results.
Our lower revenues this past quarter, we are particularly optimistic in respect to progress in key areas that I would like to discuss.
I would first like to highlight three notable areas of achievement from our second quarter and then we can dig deeper into how they impact our results and influence our confidence for the future.
First off we are pleased with our continued progress in terms of gross margin as a percentage of revenues.
We continued our favorable progression both sequentially and year over year, largely due to greater project efficiencies improve utilization a reduction of subcontractors and continued focus on growing our higher margin segments.
During a historically slow summer quarter, and despite lower year over year revenues, we continued to make progress in reducing our SG&A spending.
Along with other ongoing initiatives that trajectory better positions us to increase our profitability faster once the world returns to a healthier economic context.
Thirdly, we continue to feed our strong pipeline of bookings for the future. Both in terms of newly proposed projects with existing clients and through the addition of 36 new clients in the quarter, which is a good achievement for a company our size.
I would note that this latest accomplishment reflects the lithia is growing reputation for not only offering robust solutions for leading technology partners, but also for our ability to provide professionals with the end to end expertise required to ensure successful outcomes for our clients.
So now, let's dig a little deeper into those highlights, including the factors driving them.
Gross margins are a source of pride in our Q2 results both as a percentage of revenues and in terms of making progress in our offering of higher margin products and services to our clients.
Excuse me despite persistent industry factors beyond our control that our CFO <unk> will further explain later, we are back above our minimum gross margin threshold of 30%.
Again in a declining top line quarter.
This is the result of ongoing initiatives in several areas.
One of those areas is a reduction of sub contractors in Q2 saw a ratio decreased by five percentage points, while simultaneously augmenting our utilization rates.
Additionally, we were able to maintain sequential stability in terms of the number of professionals, we employ in our higher margin smart shoring jurisdictions, and we remain focused on increasing our size and reach in that realm.
In terms of SG&A spending despite the inflationary pressure that we have been feeling for a couple of years now we were able to exercise strong control over spending and to flatten our expenses in fact sequentially. We experienced a decrease in spending of $2 $6 million in a year over year reduction of one 6%.
At times that process requires some difficult decision that's part of our push for greater efficiency and you will see this in the restructuring cost taken in Q2.
As a result, considering the slower conditions that we're seeing in certain areas of information technology services sector. We are doing well and we have taken great strides to operate with greater efficiency as things start to improve.
Those cost reduction and efficiency efforts are not completed as we will discuss further in the presentation.
Our Q2 revenue amounted to $118 $5 million down year over year, primarily due to a cyclical decrease in spending in the Canadian financial services sector.
Additionally, cautious spending decisions by some of our clients also had adverse effects on our U S training and digital adoption services.
However.
To counter some of those headwinds we continue to show up our offering of AI enabled solutions targeting greater efficiency.
Another client centric trend is causing a slower start to some projects as well.
Investments that are typically required as CIO of sign off.
Are now being circulate more broadly within organizations with increased scrutiny to ensure sustainable.
Roy and response alleviate is diligently working to present clients with the facts that they need to order.
Move forward, However, Q2 saw southern projects start delays in line with that trend.
Additionally, as alleviates reputation grows we continue to close on bigger contracts, particularly in our leading U S verticals of healthcare and manufacturing and.
And as we sign larger deals more frequently they often required client approvals at the board levels, which takes more time.
In the U S. Our Microsoft business delivered growth on a year over year basis, while our Oracle business also experienced a strong quarter.
Both lines of business generate higher margins and we are excited about the future given the forecast for growth in some of the key sectors that we service and especially the U S health care sector.
In Canada, the financial services market remains tight but steady.
Despite an important reduction in volume experienced from a few of our big financial services sector clients. Our market shares are not decreasing and the projects and spending remain on track for the long term.
We also continue to make progress in the public sector, which accounts for a significant portion of our business in Canada.
That progress is largely due to our ability to adapt to emerging trends in that segment for instance, government agencies are increasingly breaking up their large scale projects into smaller segments delighting phases between multiple suppliers in order to manage risk.
Looking ahead, we are inspired by strong bookings of $110 million and our book to Bill ratio of one point or one eight when excluding the impacts of the two long term contracts signed at April 2021. Additionally, our cross selling strategy continues to bear fruit and we are looking forward to engaging in new projects with existing clients as they explored.
The benefits I believe he is broader offering of products and services.
Simultaneously, we have 36, new clients to explore those same possibilities, including a growing portfolio of proprietary products outside of our traditional Microsoft and Oracle offerings.
So once again.
Thank you for joining us this morning, and I will now turn the floor over to <unk>, our Chief Financial Officer.
Okay. Mr. <unk> good morning.
As Paul mentioned revenues for the quarter amounted to $118 $5 million, a decrease of eight 1% compared to revenues of $128 9 million for the second quarter of last year.
Of note Alicia had one less billable day in Q2 than in the same quarter last year, which in itself accounts for a reduction of just under 2%.
In Canada revenues decreased by nine 5% to $68 million due mainly to a reduction in 90 investments and the banking services sector.
However, we are seeing good progress in revenue increases in other areas of our Canadian business.
Looking at our U S business revenues decreased by 6% to $45 7 million.
This decrease was primarily due to weaker demand for our digital digital skilling and changed enablement services.
Some slower project starts as mentioned earlier by Paul.
Decreased U S revenues were partially offset by a favorable U S dollar exchange rate impact of $1 $3 million.
Between Q2 of this year and last year.
As for our International operations also reported a softer revenue quarter decreasing eight 3%.
Mainly due to reduced activities in Australia.
But partially offset by a favorable foreign exchange rate impact of $500000 year over year.
Well, let's look at our Q2 gross margin dollars, which overall decreased by $2 million or 8%.
To $34 $8 million.
However, as a percentage of revenues our second quarter consolidated gross margin increased to 29, 4%.
Up from 29, 3% for the same period last year.
On a sequential basis gross margin as a percentage of revenues also increased despite a sequential decrease in revenues.
Naturally puts pressure on gross margin performance.
The increase in gross margin percentage is derived from better individual project and general utilization management.
Increased revenues from higher margin offerings, and finally fewer subcontractors.
Let me take a moment to further comment on our Q2 gross margin percentage.
In the second quarter, Alicia recorded a $1 $1 million provision adjustments on tax credits receivable from previous periods.
Reflecting certain changes in estimates and assumptions.
With a notable portion relating to the activities of the previously acquired business.
While this provision impacts our Q2 numbers it is not related to the second quarter performance per se.
As such if we excluded gross margin as a percentage of revenues would have increased by 1% to 33% compared to the same quarter last year.
Brings us back above our minimum threshold of 30%.
And this during a quarter with declining revenues.
Again, it is very challenging to be increasing gross margin performance during a soft quarter soft revenue quarter.
<unk> as it relates to utilization rates M S.
As such all of the factors in the initiatives leading to this overall improvement in Q2.
Bode very well for when our revenues resume a more typical organic growth better.
Now, let's look at SG&A is which also represent a notable second quarter improvement.
Total gross SG&A expenses in the second quarter totaled $29 $9 million.
A decrease of $500000 or one 6% compared to $34 million in the same quarter last year.
And despite a negative U S currency impact of zero point $4 billion.
Therefore, this represents a year over year quarterly reduction of almost $1 million.
The decrease comes mainly from remuneration and recruiting expenses.
Partially offset by increased business development and travel expenses.
And higher internal improvement project costs.
On a sequential basis SG&A has also decreased by $2 6 million from $32 5 million in the first quarter.
This $2 $6 million reduction reflects a nonrecurring impairment charge of one $4 million in Q1.
But even when excluding that amount there.
There was a sequential quarterly reduction of one $2 million.
Coming mainly from remuneration elements.
We are pleased to see our efforts on that front starting to show actual net reductions in dollars.
We look to maintaining the same continued discipline on SG&A spend going forward.
And we are actually working towards achieving additional savings in the current context.
Overall as a result of decreased revenues and gross margin dollars, including the $1 $1 million provision I mentioned.
Firstly offset by decreased SG&A expenses, our second quarter, adjusted EBITDA amounted to $6 nine sorry, $6 $5 million, representing a decrease of $2 $9 million compared to an adjusted EBITDA of $9 $4 million during the same quarter last year.
Now looking at our adjusted net loss, our Q2, adjusted net loss amounted to zero point $2 million.
Representing a reduction of $3 $6 million from a positive $3 $4 million of adjusted net earnings for the same period last year.
This is marginally negative number as a result of the reduction in adjusted EBITDA and the notional effect of income tax income taxes relating to adjustments as can be seen on page 22 of our Q2 MD&A.
Without which adjusted net earnings would be positive.
Of note as adjusted EBITDA is lower.
And as the amount deducted to calculate adjusted net earnings did not materially change from quarter to quarter.
It is to be expected that the adjusted net earnings amount decreases proportionately more than the adjusted EBITDA.
This is also true in the opposite direction and any future improvement in adjusted EBITDA will translate into a proportionately higher.
Adjusted net earnings amount everything else being equal.
Moreover, despite a reduced adjusted EBITDA and adjusted net earnings it should be noted that Felicia is still generating positive operational cash flow during the quarter.
Even after considering capex.
Lease liabilities payments and interest and even after considering our nonrecurring business acquisition integration and reorganization disbursed.
Despite our decline in revenues and gross margin dollars, we see well on page seven our rebuilt rebounding gross margin percentage.
Which again would be even higher than 29% when ignoring the previous period impacts.
Okay.
As for our long term adjusted EBITDA trend because of our disciplined SG&A performance and to scale, which we have now reached.
The decrease in adjusted EBITDA is relatively smaller.
Indeed, while our gross margin dollars or 6 million.
Dollars lowered in our high watermarks in Q4 of last year.
Our adjusted EBITDA is only $4 million lower.
The difference indeed coming from overall SG&A reductions.
Again disappoints to potentially enhance EBITDA performance going forward just as soon as revenues returned to sequential growth pattern.
Now turning to liquidity and financial position on page nine.
Net cash used in operating activities was $17 $3 million, representing an increase of $16 $7 million.
This amount resulted primarily from $20 $9 million in unfavorable changes in noncash working capital items.
Those changes in noncash working capital items consisted primarily of at $12 $2 million decrease in accounts payable and accrued liabilities.
A $6 $2 million increase in accounts receivable and a $3 $1 million increase in Unbilled revenues.
The accounts payable and accrued liabilities reduction comes from both a reduced number of employees and subcontractors.
And the reduced number of accrued days at the end of the quarter.
The increase in accounts receivable, mainly comes from beliefs on certain large customer balances most.
Most of which do not pose any credit risk and have notably receded as of today.
Finally, the increase in Unbilled.
Revenue mainly comes from our project type mix.
As well as a few specific billing particularity <unk> at the end of the second quarter.
As such wild is $29 million working capital usage as a high amount. It is largely a timing and mix issue and among others. We already know that the reduction in the number of days of the crude salaries will be reversing at the end of Q3.
Now back to you. Thank.
Thank you so before we go to questions, let's recap on the three notable areas of achievement of our second quarter. So one in a very challenging very challenging to be increasing gross margin performance during a soft revenue quarter and as such.
All of the factors initiatives, leading to this overall improvement bode well for when our revenues will resume a more typical organic growth path.
Two we continue to make progress in reducing our SG&A spending and we look to continue to improve this measure going forward and finally, our continued strong bookings in our growing sales funnels are also very encouraging. So we will now take questions Joel.
<unk> do you have a question. Please press star followed by the one on your Touchtone phone you will hear three Tom pump acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process.
Press Star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any please your first question comes from Jay at home <unk> with Deutsche Bank. Please go ahead.
Hey, volatile at the moment, thanks for taking my questions first one is on the.
On the utilization rate and margins.
Is it fair to say that in the past you would always keep a relatively high level of head count to be ready for a bounce back in now you might be a bit more nimble.
On that front and maybe more adjusting to the situation. You are seeing is it fair to say that then is what major changes were done to achieve this.
Yes. Thanks for the question, yes, yes. So we are in the services industry and our model I mean, most of our costs are tied to head count right. So.
We have the ability to adjust up or down based on demand and market the market conditions.
During Covid as you all know we had incredible growth.
Reducing less strategic stuff the first place that we cut as the subcontractors that we've reduced our subcontractors significantly in the quarter.
Those usually have a much lower margin.
Alright, which is why we like having full time employees that we can invest in.
And the other one is utilization so.
Of course, we take a much closer look at that and then tighter and tighter.
Markets when there is the work.
Is delayed or people are working on less projects, we want to make sure that utilization.
Is that its maximum so instead of keeping a very large pool of available people do you have more flexibility in terms of how you use those so so yes utilization and margins are two things that we can that we can tweak.
In our type of business.
Okay. Thanks second question for me.
Maybe not not easy to answer because maybe you're budgeting period isn't fully over with their clients but.
What would you consider as a normal state expanding for a part of your financial services vertical is it maybe a year ago when.
That was higher spending or is now the normal spending are we kind of a bit of an air pocket because of the what was done in the past, though during COVID-19.
Yes so.
Spending increased significantly during Goldman everywhere every industry and as you can imagine that as we've seen that put a lot of pressure on salaries and hiring.
People are moving all over the place in turnover was high everywhere and everybody was scrambling for people.
I think the banking industry was the first.
Of our industries to be hit by the current situation and its simple right. It's that simple math is the rapid change in interest rates.
Have pushed a lot of banks to.
Two.
To cut costs and we see this everywhere not just in Canada, but but everywhere you're seeing the lay offs of the banks are doing which we haven't seen in a few years significant layoffs.
While they are trying to adjust to the.
Physician, there end up having mortgages with lower rates than what they're paying for it so as that cycle fixes itself. So within the next year or so we think it's going to.
It's going to level out.
And based on the conversations we're having with our clients in the financial services sector. They all expect to be.
Resuming higher spending in about a year.
They are really going with the bare bones right now if it's strategic if it's important if it cut costs.
And everything else has kind of been put on hold so we've seen some significant an ethical reductions in our financial services clients in Canada, where we have more exposure to that.
The other thing, though that we're seeing and talking to them is they all want to do more with AI in the coming year.
So we do have a lot of conversations with these clients about getting ready for projects in the new calendar year to do with data and AI and automation.
So that's very encouraging is that's where we're investing the most right now in terms of new offerings.
That's a good question, yes, that's great.
Alright. Thanks.
Your next question comes from Vincent Colicchio with Barrington Research. Please go ahead.
Yes, good morning, Paul.
Okay.
Follow up on the last.
Comment.
Are you currently working with.
A number of AI pilots with clients.
We actually have projects not just pilots, but we actually have pilots if you'll remember the we did an acquisition just over a year ago, while data solutions, which which is all.
100% of what data did with data and AI driven solutions. So we actually have IP that we rollout at some of our clients to automate.
Some of their back office processes.
Modernizing legacy systems, so that part of the business is doing extremely well and we have other areas. We're also doing pilots not in terms of the piloting what we do but.
Sometimes it's the first time, a client actually does a significant AI initiative and of course the biggest challenge. There is the data. So we actually have data services, where we can help the clients.
Clean up the data or figure out what it is that they want to do before they launch into these these automation projects. So yes, we are very active in that area.
Thanks for that and are you.
Are you seeing increased demand.
For offshore services.
So are you looking to accelerate that side of your business.
Yes, that's an area that has good cash where I don't feel we're moving fast enough on that one.
And we are we are making changes there to accelerate that.
The difference in costs.
We have the business we have the large contracts.
It's our job to move faster on that and as you'll see pressure in the industry today with companies trying to get more competitive that's to me that's an easy easy area, where we can improve our margins and become more competitive at the same time. So yes, that's definitely an area, we're going to be you're going to be hearing more about in the coming in coming quarters.
Okay and one last question.
Where is your subcontractor ratio at today, and where do you expect to be by year end.
It's.
We havent disclosed the number.
It's in.
The lowest that it's been in two years and over two years events and our plan is to keep reducing it so.
Thank you for answering my questions.
Right.
Your next question comes from Gavin Fairweather with Carmax Securities. Please go ahead.
Hi, This is Graham Smith on for Gavin Fairweather.
So just my first one is back on the financials I was just hoping if you guys could maybe quantify the impact on this quarter.
And then maybe sort of.
As well you talked about.
Some of the Canadian revenue streams.
Nichols are kind of picking up as well as of course, you could call out which ones may be those are.
That'd be great. Thanks.
Mostly mostly banking a gram.
We have.
Handful of clients that represent.
Most of the decrease.
In Canada.
Throughout the business the Microsoft business is growing the Oracle business is growing we have 36 new clients.
The size of the projects that we're bidding on keep increasing because of the reputation that we're building and the scale of the company now and of course that the larger the projects that the longer it takes to close them.
Does the approval levels within the organizations, but.
We have.
We have $20 million projects that we're bidding on now that two years ago, we weren't even invited to those projects. So so theres a lot of positive stuff that we're seeing so that's why we're kind of confident for the future and why it's so important for us to keep focusing on getting our costs down and our margins improved because as the revenue starts picking up.
It's going to have a greater impact on the bottom line and so our focus is really on that right now.
That's great. Thanks, and then just maybe one more for me.
So you talked about sort of the increased utilization.
Do you see sort of any further efficiency benefits you can get in that utilization of the carbon and also just on fixed price projects.
Yes, so on the fixed price projects, we are doing extremely well.
I think the.
The improvement that we can do on the fixed price projects is really the mix of people. So for example, having a bigger portion of those projects being delivered by one of our smart shore centers is going to have a greater impact on the margins for the fixed price projects, but from a delivery perspective, we're doing extremely well.
Yes.
That was the first part what was the second part of your question Grant.
I don't know that that was mostly yet I was just on utilization in the fixed price and utilization, yes, there's always there's always room and utilization of the question. There is balancing demand with having people ready to meet the the startup. So when we have some delays in project starts you just want to make sure you're not adjusting to regret it the week lay.
<unk>.
So that's that's a.
As much as they are as they are.
As it is it is a science in terms of figuring out the mix there, but there's always room for improvement there.
And I would repeat.
Sorry, I would repeat that or improvement that we're seeing occurred in a down revenue quarter.
So in the service and the service business model. It is very difficult to be adjusting utilization on the way down.
It's very challenging.
The other way around is also.
Very encouraging so when revenues are going up then youre scrambling to find resources, you put everybody to work on projects.
In a sense it's.
It's much easier so the the.
The fact that we were able to do.
The liver such good performance on this specific point in Q2 bodes pretty well for the future.
That's very helpful. Thanks, guys and I'll pass the line.
Thanks Pam.
Your next question comes from Brian Kiss Linger with Alliance Global Partners. Please go ahead.
Hi, good morning, guys great.
When we first spoke you laid out your primary goal for improving gross margin. So congrats on above 30% and achieving what you said you do.
What would you say is in a reasonable long term goal contemplating fixed price execution utilization sobs pricing what should investors think about.
The goal is long term for gross margin.
If you look at the kind of the best in class in our industry. There is a high <unk> 40% range.
I think thats, where we need to evolve to be able to be able to do that Bryan we need to move that.
A significant portion of our delivery as we grow.
Through our smart Smart shorting model.
And if you think of our long, but long term target on that mix, we should be at around 40%.
40% of all of our projects Shouldnt be.
<unk> delivered through our global network of Smart shoring locations. So that's one one area. The other area is and we're seeing it now.
I think over the coming years.
The significant improvement, we're going to be seeing in terms of how we deliver services leveraging AI.
It's going to have a big impact on that so that one I'm still I'm still not sure what that tell you in terms of impact it's going to have all I know is that as we do more and more projects right now the.
The efficiency gains we're seeing on some of these projects are pretty impressive. So I think the the old adage of looking at our businesses based on head count.
Revenue per head count is going to change dramatically over the next few years.
And maybe if I may I would add.
I would add that right now 31% in changes in average.
So as we speak we already have certain business segments certain business units and certain projects that have gross margins significantly higher than that.
Sometimes in the 40% range even higher.
And those segments happened to be our fastest growing segments.
That's where we can make a difference that's where we have a fairly unique expertise.
And Thats, where we see the most the strongest demand. So just by by difference we have segments, which have a much lower gross margin historically.
So just by the changing revenue mix going forward that we're expecting that alone should be improving gross market.
Everything else being equal.
Yes that was helpful. And then I reviewed the MD&A the company generated 15 million or so in adjusted EBITDA during the first half.
Operating cash flow wise.
Significant due to $21 million of working capital outflow you highlighted the factors can you share your expectations for cash flow and or working capital for the remainder of the year.
So we don't provide guidance as you know we don't provide a look.
Sure.
Hopefully the qualitative comments, we made on our Q2 performance will give you.
A directional right.
Some directional.
Ideas, where we think we're going on every metric in terms of the cash flow.
It's really as I said, it's mainly timing and specific occurrences that can.
That can drive the amount it so happened at the end of September that the planets aligned against us to get to such a high amount of about $21 million. The good news is that that's very much of a worst case I mean, it will not go further down than that that's for sure and just like last year.
Remember last year, we reversed all of these.
Negatives that we also had in Q2 and we have several quarters of positive cash flow. So we're kind of expecting.
Similar trends as I said, the big one of the big chunk is that crude salaries, where again, we are a service model the company.
Our largest expense by very far as salaries and just depending on the number of days of.
A accrued salaries.
Based on the date of the last payroll of the quarter makes a huge difference and we know we know when our last payroll will be in December and we know the number of these will be increasing back so that.
Without revealing any state secret, we know what that big chunk of that will be reversing just naturally.
And on the other flankers as I explained also.
Go ahead.
No I just said thank you so much I thought you were done with your answer I apologize.
No.
On the other factors too we are expecting improvements, but certainly not a deterioration so.
Worst case for the upcoming quarters would be flat, but were actually expecting as I explained to to recover most of that amount.
Okay. Thank you.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one your next question comes from <unk> <unk> with Scotiabank. Please go ahead.
Good morning, everyone.
Okay.
Paul and Claude Hello, there.
If you could provide a little bit more color on some of the high margin offerings. Thank you.
On the gross margin kind of question David growth I understand the subcontractor, we should decline as something you talked about but what.
What were the specific high margin offerings that you sort of highlighted in the call here.
Sure there are several there yeah. Thanks for the question our highest our highest margin business. Today is everything that has to do with AI and data. So we have a lot of projects around AI.
And data driven.
Offering some of that includes IP.
The gross margins in that business are in the 50% range by zero. So it's very profitable business and of course, it's something that we're working very hard at cross selling at all of our all of our accounts.
And that game as it comes back to my comment earlier that it's not as much head count driven.
So the margins are.
It's tough to compare with the traditional consulting business just because of the usage of these tools that make everybody more efficient and are focused on automation. So that business is growing very well and we.
One with desk more in it.
At the other two higher margin businesses are the ERP business, So our Microsoft and Oracle businesses.
We're also in the 40% range high <unk> low <unk>, depending on the projects so.
Those businesses to close point, you put them all together they represent a good chunk of our business and probably the fastest growing part of our business. So so as we look forward with with the why we feel although the revenue the revenue decline in the quarter.
Not happy with it but by the same token.
The higher margin stuff is doing extremely well and thats why youre seeing the impacts on the gross margin and it's enabling us to reduce the subcontractors.
Invest more in these higher margin.
<unk>, which again.
Is where we're focused on and we know that there's these lower margin things we have to do them for our clients. It was.
As a trusted advisor to the client is asking you for help you have to you have to be there and you have to answer but if we had our choice we'd be focusing a lot more time on the higher margin stuff. So so I think we look at this quarter as an opportunity to do more of that.
So for us Theres some positives in there.
Does that answer your question Olivia.
It did so I just wanted to confirm so is it fair to assume that these high of 50% plus margin contracts that you are talking about them more consulting engagements on the AI and other.
Technology forward offerings is what it is.
Could they potentially be shorter term and how should we thinking about you're converting them into longer term.
Sustained high margin contract.
Yeah. So if you if you look at our numbers about about 10%.
Of our business today is the long term recurring IP driven type.
Revenue and most of that is tied to the higher margin.
Offerings and services that we have so that's where we build IP.
That includes the latest AI chat GPT modules in there that our clients are using and that they pay a fee to use our we charged by by the click or by the documents are so it's not head count related its usage related which again as we want.
Do a lot more of that.
It usually starts usually starts consulting engagement right, where we come in and help them figure out how to leverage that technology and then it usually turns into one of these projects, where we can convert that into longer term revenue.
That makes sense.
Just one more question on this sector.
We've seen some slowdown in the financial services sector and you can talk briefly about some of the other sectors Godzilla what are some of the sectors.
Really seeing the growth broadly the macro.
Across items and services has been weaker where do you see some green shoots.
As you.
The move towards where three yes.
24.
Yes, we're seeing a lot of growth in healthcare right now the size of the projects that we're seeing in the the move to and again as it sits.
Projects that drive efficiencies right. So we're seeing a lot of growth in health care right now that's actually one of our fastest growing sectors right now.
The AI piece I'll come back on that again, it's not a sector thing, it's really a technology.
Enable then thing we're seeing across the board in all of our industries, we're seeing a lot of demand for those services today.
And manufacturing so not in the retail sense, but our process manufacturing business. We're also seeing a very high demand right now in that area.
I think I think banking banking financial services is going to be kind of slow for the next year or so and then it's going to come back.
Based on what we're being told by our clients and the time it takes for the the mortgage renewals to catch up to the new interest rates.
Yeah, no that's that.
That totally makes sense just one last one on the SG&A savings. So you did mention that it's Joe.
Room for error.
SG&A sort of improvement if I may put it that way could you provide some more color.
Could we expect.
A 50 basis point improvement 100 basis points. So what's your internal targets. If you may be able to share those on a go forward basis.
So we're not going to disclose specifics and obviously, we keep a close eye on our ongoing revenue performance.
But we are ready to go you know what as far as we need to go to.
To deliver good performance.
We've said before that are sort of.
General target was 20% of revenues.
Now revenues as a moving number so.
Bye.
Bye you referenced the our target is also.
Somewhat movable buying your stock back, but we have.
We have a number of actions that we are ready to.
To take and.
Which will.
Bring us more in the right direction on that front without going into specifics.
That's helpful. Thank you so much.
Thank you Dave Your next question.
Your next question comes from Vincent Colicchio with Barrington Research. Please go ahead.
Yes, Paul any change in your capital allocation focus.
Environment.
Because I'm curious.
Will you be proactive on acquisitions.
And some of these higher margin areas currently.
Yes, we're always looking at events again.
We're seeing a lot of a lot of activity in targets.
The three key things I always say, we want the right target at the right price that's actually for sale. So.
We're staying very disciplined on that and our eyes are wide open and we're looking so when the right one comes by.
Will be it will be ready.
Has there been any improvement in multiples.
And for the quality assets we.
Haven't seen any decrease quality assets, if anything I think are drawing more attention.
And of course, there's a lot of stuff out there.
That's for sale that we don't necessarily want to.
The touch buttons for quality assets, there is still a very high demand.
Thank you.
Alright.
There are no further questions at this time. Please proceed.
Okay. Thank you Joe. Thanks, Thank you everybody for joining us today and I know the holiday season is almost upon us so enjoy the holidays and despite everything that's going on I Hope you have a lot of pizza joy in the annex.
The next few months and thanks for joining us today Bye bye.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
Okay.
Yes.
Yes.
Thanks.
[music].
Uh huh.
Okay.
Yeah.
Hum.
Yes.
Okay.
Yes.
Okay.
Okay.
Yes.
Okay.
Yeah.
Okay.
Okay.
Oh.
Hum.
No.
Sure.