Paul Raymond: 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 offerings. Some of that includes IP. The gross margins in that business are in the 50% range, 50. So it’s a very profitable business. And of course, it’s something that we’re working very hard at cross-selling at all of our accounts. And that comes back to my comment earlier that it’s not as much headcount driven. 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. That business is growing very well, and the one with best more in it. The other two higher-margin businesses are the ERP business.
Our Microsoft and Oracle businesses are also in the 40% range, high 30s, low 40s 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 as we look forward with the — why we feel €“ although on the revenue decline in the quarter, we’re not happy with it. But by the same token, the higher-margin stuff is doing extremely well. And that’s why you’re seeing the impacts on the gross margin, and it’s enabling us to reduce the subcontractors and invest more in these higher-margin offerings, which, again, is where we’re focused on. And we know that there’s these lower-margin things. We had to do them for our clients.
As a trusted adviser, the client is asking you for help. 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 I think we look at this quarter as an opportunity to do more of that. For us, there’s some positives in there.
Divya Goyal: I just wanted to confirm, so is it fair to assume that these higher 50%-plus margin contracts that you’re talking about, there are more consulting engagements on the AI and other technology forward offerings is what it is, but could they potentially be shorter term? And how should we be thinking about you converting them into longer-term sustained high margin contracts?
Paul Raymond: If you look at our numbers, 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 built IP that includes the latest they’re like the ChatGPT modules in there that their clients are using and that they pay a fee to use or we charge by the click or by the document or — so it’s not headcount related, it’s usage related, which, again, is we want to do a lot more of that. It usually starts the consulting engagement where we come in and help them figure out how to leverage the technology and then it usually turns into one of these projects where we can convert that into longer-term revenue.
Divya Goyal: Just one more question on this sector. Obviously, you’ve seen some slowdown in the financial services sector, and you talked briefly about some of the other sectors across the U.S. What are some of the sectors where you are truly seeing the growth? Because broadly, the macro across IT services has been weaker. Where do you see some green shoots as you move towards the end of Q3 [indiscernible] and in ’24?
Paul Raymond: We’re seeing a lot of growth in health care right now. The size of the projects that we’re seeing and the move to — and again, projects are driving efficiencies, 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 enablement thing. 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 banking, financial services is going to be 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 mortgage renewals to catch up to the new interest rates.
Divya Goyal: But just one last one on the SG&A savings. You did mention there is still room for SG&A improvement, if I may put it that way. Could you provide some more color as to — could we expect a 50 basis point improvement, 100 basis points? Or what’s your internal targets if you may be able to share those on a go-forward basis?
Paul Raymond: 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 as far as we need to go to deliver good performance. We’ve said before that our general target was 20% of revenues. Now revenues is a moving number. By reference, our target is also somewhat movable based on that. But we have a number of actions that we are ready to take and which will bring us more in the right direction on that front without going into specifics.
Operator: Your next question comes from Vincent Colicchio with Barrington Research.
