Alithya Group Inc. (NASDAQ:ALYA) Q1 2024 Earnings Call Transcript August 10, 2023

Alithya Group Inc. beats earnings expectations. Reported EPS is $0.01, expectations were $-0.01.

Operator: Good morning, ladies and gentlemen. Welcome to Alithya’s First Quarter and Fiscal 2024 Results Conference Call. I would now like to turn the meeting over to Alithya’s management. Please go ahead.

Benjamin Cerantola: Good morning, and thank you once again for joining us for Alithya’s First Quarter Fiscal 2024 Results Conference Call. The press release and MD&A with complete financial statements and related notes were issued this morning and are 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 anticipated. These statements include, without limitation, our estimates, plans, expectations and other statements regarding the future growth, results of operations, performance and business prospects of Alithya that do not exclusively relate to historical fact or which refer to future events, including statements regarding our expectations of our clients’ demand for our services and our ability to take advantage of business opportunities it meets our goal set in our 3-year strategic fall.

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. All figures discussed on today’s call are in Canadian dollars, unless otherwise stated. And we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary note in our presentation and to the non-IFRS and other financial measures section of our MD&A for more detail. Presenting this morning are Paul Raymond, Alithya’s President and Chief Executive Officer; and Claude Thibault, Chief Financial Officer. I will now turn the call over to Paul Raymond. Paul?

Paul Raymond: Thank you, Benjamin, and good morning, everyone. Thank you all for joining us to discuss Alithya’s first quarter 2024 financial results. On the wings of a robust close to our 2023 fiscal year, we began fiscal ’24 but a mixed note. Despite headwinds in certain sectors that have slowed our overall revenue growth rate in Q1, we continue to improve our business in most areas. I would like to begin by sharing some highlights with you from our first quarter of fiscal 2024, which ended on June 30, 2023. First off, despite headwinds in the global economic environment, particularly affecting our banking sector in Canada and our learning business in the U.S. Our bookings remained strong in the first quarter with record bookings in our U.S. operations.

We also added 32 new clients across our global operations, and we have a healthy number of new project starts from existing clients seeking to generate greater efficiencies. Secondly, we continue to improve our gross margins as a percentage of revenue year-over-year despite company-wide salary increases in Q1. Third, we have continued our momentum in generating healthy cash flows as we continue reducing our debt. Fourth, the quality of our global services backed by the collective intelligence and skill sets of our people continue to be recognized over the past few months with numerous nomination and prestigious awards bestowed upon Alithya. And last, but certainly not least, we continue to leverage new and emerging technologies, including generative artificial intelligence to enhance our products and services and maintain our position on the crest of a digital way.

Now let’s dig deeper into some of those highlights. As mentioned, we experienced a record quarter for bookings in our Oracle and Microsoft Enterprise cloud-based practices. Globally, Q1 bookings reached $111 million, which translates into a book-to-bill ratio of 0.85. That said, if revenues from the 2 long-term contracts were excluded, Alithya’s book-to-bill ratio would be around 1. On a trailing 12-month basis, bookings were $491 million, which translate a book-to-bill of 0.93 and 1.08 when excluding the 2 aforementioned long-term contracts. Bookings were also particularly strong in respect to the health care sector, where there is a very strong demand for our services, which experienced both quarter-over-quarter and year-over-year growth.

That is a notable achievement in the context of the current economic climate, and we will continue to pursue deeper market penetration in that area moving forward. Now in terms of gross margins, we continue to hover around our minimum threshold of 30%. In Q1, gross margin as a percentage of revenue reached 28.9% compared to 26.9% in Q1 of last year. Improving our gross margins have been a focus of our current strategic plan, and we’ve implemented multiple measures to continue that trend. As we pursue greater profitability, we know that the road to achieving that goal largely runs through the optimal utilization of our people and our focus on higher-value services. That process includes ongoing reductions of subcontractors as well as continuing efforts to grow our Smart shoring operations.

As we look at regional performance, I would first like to point out that salary increases for all our employees across our global operations kicked in on the first day of our first quarter. And this happens every year, which is important to consider our results as it demonstrates our capacity to increase pricing of higher-value services. Accordingly, our improved performance in Q1 of fiscal 2024 was largely driven by our Global Enterprise Solutions business. The manufacturing sector is another important industry for Alithya. Efficiency and productivity have remained top priorities for manufacturers and their investments in new technology are driven by the promise of improved profit margins. That trend in the manufacturing sector, supported by Gartner Research has fueled bookings and new projects were in Microsoft practice, particularly in alignment with Microsoft’s advancement of technology solutions used specifically towards the manufacturing sector.

Combined, our Oracle and Microsoft Enterprise practices contributed generously to positive EBITDA in the first quarter of 2024. And while we are also experiencing headwinds in our learning services business, we are confident that this resilient market would inevitably rebound. In the meantime, we are enhancing our offerings in that space as our teams integrate the latest generative AI tools into solutions that we will soon bring to market. In respect to our own internal training and development programs in May, Alithya received a prestigious Mercuriades Award in the training and workforce development category for our Alithya Leadership Academy, an initiative in partnership with McGill University’s faculty of management to ensure continuity of leadership in a robust succession plan.

Our people are our most valuable assets, and they are also the experts most coveted by our clients. The Alithya Leadership Academy is a source of pride and we’re pleased that it has been recognized by our peers. I would also like to take this moment to collectively thank members of our teams whose work was recognized in 8 categories of the combined 2023 Microsoft Partner of the Year and Impact Awards. Now for our revenues. Year-over-year, our Q1 revenues increased 3.8% to $131.6 million, with 82% generated by existing clients that we had in Q1 of last year. However, while our Enterprise services revenue increased in the U.S., a decrease in our learning services and in the banking sector in Canada. As a result, our Canadian revenues are slightly down year-over-year.

On a positive note, we use this situation to significantly reduce subcontractor usage. This can be seen in our continued gross margin progression. We also experienced growth in Europe this past quarter while continuing to invest in our Morocco and Eastern Europe operations to expand our nearshore delivery capabilities in Europe. These results and our healthy balance sheet allow us to remain focused on delivering the key components of our strategic plan, which ends on March 31, 2024, and positions us well to move on potential accretive acquisitions. As expected by our clients, we diligently keep our finger on the pulse of emerging technologies, including exploring possibilities for leveraging the power of artificial intelligence. As we enter those conversations with clients who are looking to streamline their processes, our rapid suite software is already being deployed in our health care and insurance sectors.

Our rapid suite solutions scan, extract and transform unstructured data obtained from the multiple — multitude of sources from handwritten notes to digital files and then uses traditional AI to automatically normalize data from many disparate locations and systems. With the help of GPT-4, rapid suite can now capture content that is not fully based on pre-existing keywords and rules created by a human expert. RapidSUITE now has the capability to learn by itself and to adapt in real time. GPT-4 acts as a sort of subject matter expert in accompanying rapid suite as it ingests millions of documents and medical terminology to make educated decisions. RapidSUITE is thus a powerful tool of their clients who turn to media for solutions offering cost savings, competitive advantages, minimal errors, increased agility and better decision-making.

And that is just one example of our innovation at work. I would now like to turn the meeting over to Claude Thibault, Alithya’s Chief Financial Officer, who will expand on the financial highlights of the quarter. Claude?

Claude Thibault: Good morning. As Paul mentioned, revenues for the first quarter increased 3.8% compared to the first quarter of last year. Our Datum acquisition now referred to as Data Solutions, completed on July 1, 2022, contributed revenues of $5.9 million during the first quarter. In Canada, revenues decreased organically by 2% to $77 million due mainly to temporary reductions of business activity in the banking sector. In the U.S., revenues increased 11.2% to $49.2 million, driven by increased revenues from Data Solutions, and a favorable U.S. dollar exchange rate variation. As for our International operations, they reported a strong quarter in terms of organic growth, increasing 36.1%, also driven by International revenues from Data Solutions and favorable exchange rate impact.

Now let’s look at our Q1 gross margin, which overall increased by 11.8% or by $4 million to $38.1 million, up from $34.1 million last year. Again, as a percentage of revenues, our first quarter consolidated gross margin increased to 28.9% from 26.9% for the same period last year. The increase in gross margin percentage in Canada is derived from higher average revenue per employee, increased revenues from higher margin offerings and finally, fewer sub contractors. In the U.S., gross margin as a percentage of revenues increased as a result of a positive margin impact from our Data Solutions U.S. business, higher average revenue per employee and improved project performance in other areas of the business. On a sequential basis, gross margin as a percentage — percentage of revenue, sorry, decreased only moderately compared to the 29.9% posted for the fourth quarter.

Despite the company-wide salary increases that came into effect at the beginning of this fiscal year on April 1, 2023. Therefore, this would suggest notable improvements at various other levels, including segment and geography mix, labor mix and project performance which, despite the small apparent sequential decrease, points to ongoing and continued progression towards higher gross margins. Now looking at SG&As, which represent one of our first quarter significant improvements. Total gross SG&A expenses in the first quarter totaled $32.5 million an increase of $3.6 million or 12.3% compared to $28.9 million in the same quarter last year. However, it must be noted that this increase is due to 4 elements: first, a $1.4 million impairment of property and equipment and right-of-use assets pursuant to vacated real estate; second, a $1 million increase in noncash share-based compensation, mainly related to the Datum acquisition; third, approximately $800,000 of expenses from Data Solutions, which we did not own in Q1 of last year; and finally, an unfavorable U.S. dollar impact of $700,000.

The above 4 elements totaling approximately $4 million indicate that on a comparable basis, total SG&As actually decreased year-over-year in absolute dollars. This, despite the same overall salary increases that occurred on April 1, which equally impacted our SG&A. Coincidentally, on a sequential basis, gross SG&A expenses decreased by $3.5 million. Also, on a net comparable basis, after adjusting for the same elements as above, we see a similar sequential SG&A decrease. And that, again, despite the annual April 1 salary increases. We are pleased to see our efforts on that front starting to show, and we are looking to maintain the same continued discipline on SG&A spend going forward. Overall, as a result of increased revenues and gross margin dollars, partially offset by increased SG&A expenses on a gross basis, our first quarter adjusted EBITDA amounted to $9.1 million an increase of 46.1% or $2.9 million compared to an adjusted EBITDA of $6.2 million during the same quarter last year.

As the previous quarter, we introduced a new financial metric to our reporting, namely adjusted net earnings. In recent years, mainly due to our strategy of growth through acquisitions and despite the fact that Alithya is generating positive cash flows from operations, we have been reporting net losses on an accounting basis. These accounting net losses have been mainly created by amortization of intangibles by acquisition and integration costs and by share-based compensation, most of which are noncash and nonrecurring expenses directly attributable to past individual acquisitions. Adjusting our accounting net loss, we are reporting in Q1 of fiscal 2024, adjusted net earnings of positive $1.7 million compared to adjusted net earnings of $2.7 million for Q1 of last year.

However, I would like to take a moment to provide some additional insight on this measure. If we look at the subtotal line on Page 8, we can see that before taking into consideration a notional tax effect on adjustments, we would instead be looking at an increase of adjusted net earnings of close to 20%. Indeed, considering the different tax pools, which Alithya currently has, the company will not be significantly taxable for a few years to come. Therefore, this alternate calculation is also relevant to point out. Also, as in previous quarters, our accounting net loss of $7.2 million, as be viewed in relation to our $8.5 million of noncash depreciation and amortization which is on top of our Q1 nonrecurring and noncash impairment charge from leases of $1.4 million as mentioned before.

Together, this explains why we generated strong cash flow from operations despite this accounting net loss. We are also reporting $1.1 million of nonrecurring business acquisitions, integration and reorganization costs in Q1, which will keep decreasing sequentially until we acquire new businesses. Despite our year-over-year progression in revenues and gross margin dollars, we see on Page 9 that after many quarters of continued growth on both fronts, our Q1 is facing similar challenges as many of our competitors having recently reported. Our long-term adjusted EBITDA trend, despite a strong year-over-year growth also reflects a sequential reduction in Q1. However, because of our good SG&A performance, and the scale which we have now reached, the decrease in adjusted EBITDA is relatively smaller.

Of note, this points to enhance EBITDA performance going forward just as soon as revenues return to a sequential growth pattern. Now turning to liquidity and financial position on Page 11. Net cash generated from operating activities were $7.6 million, a significant improvement from negative $9.8 million used during the same period last year after working capital variations. Also, cash flow from operations before working capital variations amounted to $6.8 million in Q1 out of $9.1 million of adjusted EBITDA which represents a notable cash flow conversion percentage, as I mentioned before. With the corresponding overall debt reduction and considering our improved trailing 12-month EBITDA performance, Q1 marks another quarter with declining leverage ratios.

Back to you, Paul.

Paul Raymond: Thank you, Claude. So as we move into our second quarter of fiscal 2024, we will continue to drive gross margin improvements, SG&A reductions and cash generation as we focus on greater profitability in the face of the current headwinds in the banking sector and our Learning division. On September 13, Alithya will publish its second ESG report on the same day as our virtual annual shareholder meeting, and we look forward to discussing Alithya’s progress in pursuit of its commitments. Our second ESG report will disclose our greenhouse gas emissions for the first time, and we will discuss how our ESG initiatives have benchmark against metrics identified by the Sustainability Accounting Standards Board or SASB, an organization working to bridge the gap between companies and investors through the disclosure of relevant sustainability information.

To access the annual shareholder meeting circular, please visit the Investors section on the Alithya website. We will now take questions. Isabelle?

Q&A Session

Operator: [Operator Instructions]. Your first question comes from Jerome Dubreuil with Desjardins.

Jerome Dubreuil: First one is on the margin target. Thanks for the color in terms of the nonrecurring items. However, it seems that these items will not — either not affect EBITDA — adjusted EBITDA in coming quarters or will remain — so are you still committed to the 9% to 13% margin range at the end of the year?

Paul Raymond: Jerome, yes. That’s still our target.

Jerome Dubreuil: Great. And another question on margins. I think it’s fair to say during the uncertainty of COVID, you elected to keep basically everyone expecting an acceleration in the future. If we’re seeing a slowdown in terms of financial services, do you expect that will be the strategy as well?

Paul Raymond: Yes. Thanks for the great question, Jerome. So we’ve actually already reduced our headcount significantly as we adjust for these slowdowns. As I was saying earlier, if you look at where things are being cut in banking, it’s not strategic projects. A lot of those projects are staffed by subcontractors. So it’s very simple to adjust for that. And you can see that in our gross margins going up and the revenue per employee going up. So yes, we have the flexibility now because of that to adjust pretty rapidly when those types of things happen.

Jerome Dubreuil: That’s good to hear. And the last question is, have you started doing work on the Freedom Mobile integration for Québecor?

Paul Raymond: Yes, it started.

Operator: Your next question comes from Divya Goyal with Scotiabank.

Divya Goyal: I just wanted to get some color on — given the business got impacted because of the financial — Canadian financial institutions and the Ed tech sector in U.S., what’s the additional level of diversification that you plan to bring in or are bringing in your new bookings to reduce this kind of an impact on a go-forward basis?

Paul Raymond: Yes. Divya, thanks for the question. So actually, when we say financial services in Canada, it’s very specific to banking. In Canada, we don’t have a lot of banking clients in the U.S. We’re very present in financial services, but not a lot in banking. So in Canada, the impact, almost all of it comes from banking. As you know, banks are kind of upside down on the interest rates right now. We’ve met with all of these clients, and they’re all telling us it’s a temporary situation as the banks adjust and renew their mortgage portfolios and so on and so forth. So we’re seeing it really across banking in Canada. We know it’s temporary. It will probably be back in the couple of quarters based on the meetings we’ve had with the banks.

That’s the one portion of our business in Canada. The other portions that are going strong, government, health care, telecom as the previous question was just saying, we’re starting integration for QMI and Freedom Mobile. So we expect that to grow. So there are many other areas, but it’s just that the slowdown in banking was significant. But again, we believe it’s temporary. In the U.S. we have 4 large business sectors, we have the ERP business that’s divided between Microsoft and Oracle that’s doing extremely well. Had a record quarter of bookings and revenue as well year-over-year, both quarter-over-quarter and year-over-year. And we have the Data Solutions business that Claude was talking about, that is growing and not just in the U.S., but it has a positive impact internationally in our business and the training or the learning solution.

The learning solutions is the business that’s being slowed down because when you get close to — our recession fears that are out there, that wasn’t the first places where clients slow down their spending is on training. So we know it’s temporary. And we’re actually not only reducing headcount in those areas, but we’re investing. So for example, in our learning business, one of the things that will have a significant impact — positive impact, we believe in what we do is the new Microsoft copilot suite of solutions that are going to include the ChatGPT technology and I don’t know, should be released in the next few months. We’ve had beta tests with the solution, and we think it’s going to be a big driver of efficiencies and upside for us in that business.

So but the rest — no, the rest is doing well.

Divya Goyal: That’s helpful. Just one question, another one on this — the expansion of the offshore operations that you discussed. So would we expect to see some additional CapEx coming in the next few quarters as you expand that operations? And what kind of margin benefits do you expect to come out as you expand those operations, given you already have been pulling the subcontractor reduction levers.

Paul Raymond: Yes, thanks. So on the CapEx, it’s very minimal. If you look at what we spend on CapEx in any given year, it’s mostly laptops for our people. As we expand — so for example, we have leased larger spaces in India for our people as we expand there. But again, there — based on the current real estate market, we signed very short-term leases. As Claude was saying, we’re actually getting rid of real estate. We’ve taken some write-downs in the quarter just because we’re adding leases early because there are a big financial advantage in doing it, and we have to pay a termination penalty. So we’ve done that. But we’re going to be saving millions of dollars over the course of the process. So it’s very minimal in terms of CapEx expenses.

Divya Goyal: Just on the margin benefits as well, do we expect material margin expansion…

Paul Raymond: Yes. So a quick point of reference, and Claude has used this in the past, whenever we increase our offshore headcount as a percentage of total headcount by 5%. It improves the overall gross margin of the company by 2%. So we are driving — our target was to get to 10% by the end of this fiscal year. We started the year at 5%, so we’re pushing very hard on that. We think at full scale, we could easily get to the 40%, 50% range as most of our large competitors are doing today. We think that’s a feasible long-term goal, and we’re pushing very hard in that direction. It’s also impacting our acquisition strategy, like the Data Solutions acquisition we did the last one. Most of their delivery came from their offshore and nearshore operations. So as we look at targets going forward, we do look for some that have that smart shoring capability because it’s an accelerator for us as well.

Operator: Your next question comes from Gavin Fairweather with Cormark.

Gavin Fairweather: I wanted to start out on the bookings. Maybe you can just discuss kind of how your win rates are tracking, how many opportunities you’re seeing hitting the market? And how kind of competitors are acting on these competitive opportunities?

Paul Raymond: Thanks, Gavin. So overall, we’re very happy with our bookings. So like I said, in the U.S., we’ve had record bookings, especially in our enterprise solution, which — as you know, it’s some of our higher-margin business. So it’s very — we’re very, very positive. Our funnel — our sales funnel was also at a record high. So from a growth and opportunities, they’re out there, some are a little bit slower in closing, but the opportunities are there, which is very encouraging. We’re seeing some significant opportunity in government and healthcare and manufacturing. So that’s not slowing down. If anything, with all of the move like the inflation reduction act in the U.S. is a big push to bring back manufacturing to North America.

So that’s a big driver on the manufacturing side. Healthcare, the shortage of qualified people in the healthcare industry is not just a Canadian issue. It’s a global issue. So again, most of the healthcare institutions, hospitals are looking to automate and get greater efficiencies to make up for the lack of the shortage of qualified people. So again, that’s a big driver in that industry. And again, we’re very well positioned there. So there’s a lot of good stuff happening. And like I was saying earlier, the only blemish that we’re seeing right now, we think it’s temporary. It’s in the banking side in Canada and then trading in the U.S. So we’re kind of doubling down on everything else right now.

Gavin Fairweather: And once projects are in the backlog? Are they trying to kind of kick off as expected? Or are they tending to push a little bit?

Paul Raymond: Most of them are. We have a few — I’d say it’s anecdotal. We have a few clients where we’ve actually signed the project, and they want to start a bit later, but it’s anecdotal for now.

Gavin Fairweather: Got it. And then just next, can you discuss the interplay between kind of employee raises and list prices — it sounds like the raise has kind of kicked in early in the quarter. Maybe just talk about your ability to kind of pass through and the timing of that.

Paul Raymond: Yes. No, I think that’s — Claude raised it, and I think it’s a very important number for people to realize. So when you think about it, so April 1 of every year, we do a global salary increase based on the geographical parameters. So we do a raise in the U.S., in Canada, in Europe and everywhere. And as you can imagine, in our industry, the shortage of qualified people, those raises are — I mean, they’re significant every year, April 1. So when we look at gross margins in Q1 and if we can grow our margins in Q1 every year, it means that our pricing power enables us to go — to work in those increases into our offerings. So when it’s growing, it’s going to be more than offset those salary increases, which is very positive for us. It’s a good sign.

Claude Thibault: And maybe I would add, if there is a silver lining to the current market conditions is that those increases will likely be lower in the coming years. This year, 2023 was kind of out of the ordinary, and so was 2022, but we are seeing probably some more reasonable expectations there going forward.

Gavin Fairweather: Got it. And then just lastly for me. Can you touch on the M&A environment and valuations we’re seeing the leverage falling here progressively this quarter. Maybe just discuss what you’re seeing in the market?

Paul Raymond: Yes. So it’s a great question, Gavin. So we’re very active in the — in looking and talking and the evaluating targets. The multiples aren’t coming down that much. We were expecting them to come down, but they aren’t coming down that much. And if I look at where we’re trading at right now, we’re probably the best deal in the market. So we keep that into consideration. In the meantime, we’re just — like Claude said, we’re paying down debt so that we have the flexibility to pull the trigger. There’s a lot of interesting stuff out there. So we’ll see. We’ll see. But yes, we’re still looking. We just want to make sure that we strike the 3 things that we look for the right acquisitions at the right price and people want to stick around. So all 3 have to work for us to pull the trigger.

Operator: Your next question comes from Vincent Colicchio with Barrington Research.

Vincent Colicchio: I’m curious, does your revenue goal for the year remain in place? And how much should involve acquisitions?

Paul Raymond: So when we do our 3-year plan, Vince, we try to look for a 50-50 in terms of M&A versus organic growth. It’s varied. I mean, last year, we did 3 acquisitions. This — in the last 12 months, we’ve done 0. So it would have to be a larger one to make up the difference this fiscal year. But again, we’re not going to do an acquisition just for the sake of doing acquisitions. We want to make sure it’s the right one. But at the beginning of the year, our intent was 50-50.

Vincent Colicchio: Are you seeing an acceleration in demand for offshore work given the economic pressures? And if so, also curious if you’re accelerating your offshore growth this year versus what you were thinking last quarter?

Paul Raymond: It’s — I don’t know if it’s as much as accelerating, Vince, as renewed interest. I think it’s always been there. I think since the pandemic, people are more open to it. And the current pressures or recessionary fears are making in that people are much more open to that discussion. So we see that as a positive. And for sure, there was a scale issue before, but we’re there now. So it’s definitely something that we’re trying to accelerate.

Vincent Colicchio: And the last one for me. Could you give us some more color on what are the higher-margin offerings that are seeing the most traction in Canada?

Paul Raymond: Our — the largest traction that we have right now are the enterprise solutions, so the ERP, the cloud ERP and our Data Solutions. Those are the big drivers right now, and both in the private sector and the public sector. So we’re actually seeing demand on the government side as well for those solutions.

Operator: Your next question comes from John Shao with National Bank Financial.

Meng Shao: So Paul, you mentioned some of the AI offerings, including CoPilot, I know it’s still early from that regard, but how should we think about the revenue opportunities? Are they kind of like incremental opportunities? Or are they just going to be included in your existing contracts?

Paul Raymond: Thanks, John, for the question. It’s — there’s a lot of stuff that’s still up in the air with CoPilot. So the promises are very interesting. The date is still up in the air. From what we’ve seen so far, we think it’s something that’s going to help us accelerate the sale of some of our solutions. So I’ll give you an example. One of the things that we have in traction, we won a Microsoft Award for it is what we do on the learning side in the — its learning, but it’s also assisting clients in better using Microsoft solutions, right? So when you implement Microsoft business apps at our client, our team actually provides ongoing support, change management, adoption assistance. So an example of how CoPilot integrates into that is that today, when there’s a problem, somebody will click on the screen for help.

With CoPilot integrated into our solution, if somebody is using the app and has an issue with it, they don’t have to click on anything. The app actually sees that the person is having a challenge and says, it looks like you’re having a problem with XYZ, would you like some editorial on it. Would you like some sum? Would you like to talk to somebody, would you like to see a video? So it reduces the cost of using that service. It automates a large portion of that service, so it makes it available to more people and makes it a lot more efficient. So we’re looking — we’re in the process right now of trying to integrate those things into our solutions like learning and the assisted support for the rollout of the tools. We — so that — we see that as a very positive.

It should drive additional revenue for us. By the same time, and it’s going to drive efficiencies because we’re going to need less people to provide the same service to more people, right? So that’s a positive and a good example of where we sit on that. We’ve already started integrating — I was talking earlier about RapidSUITE. So RapidSUITE came from our Data Solutions business and actually, it can go into a large — anybody who produces documentation and there’s still a lot of documentation being produced today by large insurers, banks, utilities, governments, both outbound and inbound. And with the solution that we had, we could automate that process, but you needed somebody to program rules, look at exceptions to manage the process, which was driven by AI or Machine Learning now with ChatGPT, you’re eliminating that portion.

So again, same solution, more efficient. We can roll it out to a larger number of people with less people and drive more efficiencies for our clients as well. So we see those as very positive as being things that we can include into our solutions across the Board to make them more efficient higher margin, larger market penetration and so on. So that’s how we see it coming into our business.

Meng Shao: Okay. That’s great to know. And for the 32 new clients you signed this quarter, could you give us some colors regarding your size business sectors and geography breakdown?

Paul Raymond: Yes. So they’re pretty much everywhere globally. I’d say more a significant number in the U.S. And again, it turns around our enterprise solutions. So these are typically multimillion dollar, multiyear projects to implement the ERP solution suite or another large project, where we’re modernizing a legacy platform, moving into the cloud and so on and so forth. So it’s more on the larger side in terms of new projects. If you look historically, we’ve kind of been in that range every quarter in the high 20s, low 30s for the past 2 years. So we’re adding new clients, new large clients at a really good clip.

Meng Shao: Okay. I just have a last question regarding the model. Maybe help us understand your working capital changes next quarter and how it’s going to impact operating cash flow in Q2?

Paul Raymond: Do you want to take it?

Claude Thibault: Yes. It’s always a little tricky to forecast. Typically, it goes up and down. Certain quarters are going up, certain quarters are going down. We were on the streak here. The past few quarters have been all positive. It really depends on the timing of the end of the quarter or our billing cycle and the receivable side and then the salary accruals of the payables and accrual side. So long-winded answer, I’m not going to give you a number on what we’re expecting. I would probably say that sooner or later, the — we’re bound to have a quarter where the net variation would be negative, but I’m not expecting anything significant one way or another. We reached a certain stability last year. We had acquisitions brought into the mix.

If you remember, if you look at last year’s numbers, we had a quarter with significant decreases and then we had a quarter with significant increases. I’m not really expecting that going forward. So it’s a bit of a crapshoot whether it’s a couple of million in one direction or another. And also driven, I forgot the third factor is obviously revenue variations. So when growth is important, that typically has ways on working capital variations and vice versa.

Operator: [Operator Instructions]. There are no further questions at this time. I will now turn the call over to Paul Raymond.

Paul Raymond: Thank you, Isabelle, and thank you, everyone, for joining us today. Have a nice weekend.