Gavin Fairweather: And then just maybe one more for me. So you talked about the increased utilization. Do you see any further efficiency benefits that you can get in that utilization department and also just on fixed-price projects?
Paul Raymond: On the fixed-price projects, we’re doing extremely well. I think 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. There’s always room in utilization. The question there is balancing demand with having people ready to meet the start-up. So when we have some delays in project starts, you just want to make sure you’re not adjusting to regret it the week later. So that’s an art as much as a science in terms of figuring out the mix there, but there’s always room for improvement there.
I would repeat that our improvement that we’re seeing occurred in a down revenue quarter. So in the service business model, it’s very difficult to be adjusting utilization on the way down. It’s very challenging. And the other way around is also very encouraging. So when revenues are going up, then you’re scrambling to find resources, you put everybody to work on projects. And in a sense, it’s much easier. The fact that we were able to deliver such good performance on this specific point in Q2 bodes pretty well for the future.
Operator: Your next question comes from Brian Kinstlinger with Alliance Global Partners.
Brian Kinstlinger: 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, subs pricing? What should investors think about the goal is long term for gross margin?
Paul Raymond: Brian, if you look at the best-in-class in our industry, they’re the high 30s, 40% range, I think that’s where we need to evolve to. To be able to do that, Brian, we need to move a significant portion of our delivery as we grow to our smart shoring bottle. And if you think of our long-term target on that mix, we should be at around 40%. 40% of all of our projects should be delivered through our global network of smart shoring locations. So that’s 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 our services, leveraging AI is going to have a big impact on that. That one, I’m still not sure what to 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 efficiency gains we’re seeing on some of these projects are pretty impressive. So I think the old adage of looking at our business is based on headcount and revenue per head count is going to change dramatically over the next few years. Maybe, if I may, I would add that right now, 31% in change is an 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 happen to be our fastest-growing segments. That’s where we can make a difference. That’s where we have a fairly unique expertise, and that’s where we see the strongest demand.
Just 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.
Brian Kinstlinger: And then I reviewed the MD&A, the Company generated $15 million or so in adjusted EBITDA during the first half. Operating cash flow was 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?
Paul Raymond: We don’t provide guidance. As you know, we don’t provide outlook. Hopefully, the qualitative comments we made on our Q2 performance, will give you some directional ideas where we think we’re going on every metric. In terms of the cash flow, as I said, it’s mainly timing and specific occurrences 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. It will not go further down than that. That’s for sure. And just like last year, if you remember last year, we reversed all of these negatives that we also had in Q2, and we had several quarters of positive cash flow.
So we’re expecting similar trends. As I said, one of the big chunk is accrued salaries where, again, we’re a service model company, our largest expense by very far is salaries. And just depending on the number of days of 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 days will be increasing back. Without revealing any state secret, we know that a big chunk of that will be reversing just naturally. And on the other factors, too, we’re expecting improvements, but certainly we had a deterioration. So worst case for the upcoming quarters would be flat, but we’re actually expecting, as I explained, to recover most of that amount.
Operator: [Operator Instructions] Your next question comes from Divya Goyal with Scotiabank.
Divya Goyal: If you could provide a little bit more color on some of the high-margin offerings that you discussed in the gross margin percentage growth. I understand the subcontractor ratio decline is something you talked about but what were the specific high-margin offerings that you highlighted in the call here?
