Claude Thibault: Yes, yeah. A great question. So 83% of our business is repeat. So existing customers. So you can take that as a sign that we’re doing higher value projects for those customers, as the time goes on. The new customers as well, the new clients are all projects that are based at 37 in the quarter, that are based on our newer higher value offerings. So again, it helps with the gross margin as well. We have — we report now the subscription base recurring revenue that we have and of course, managed services side of things is something that’s growing, and it’s going to be growing significantly more as we go. So if you look at the acquisitions we’ve done in the past, they’ve all been very specialized high end companies that were very good at one type of project with the addition of Vitalyst that has a very strong managed services offering and the addition of data that has a very strong IP based modernization offering.
These are things that we combined with all of our existing operations to make sure that we cross sell those things so that now when we sell an Oracle project, an Oracle implementation project, well, we can also sell the managed services that goes with it, or if we sell a Microsoft project, we can also sell the managed services, the training, the ongoing support, and instead of it being a one, two or three-year project, well, it becomes a 10-year relationship with the client. So yes, you can expect that to grow over time as well.
Deepak Kaushal: Okay. Okay. And so when we think about, when Amr asked you about the gross margin potential, and you mentioned, the 35% range, where is that coming from mostly going for, is that from the smart-shoring, is that from higher IP, higher managed services, how do you see that mix playing out in terms of drivers for that expansion?
Claude Thibault: Yeah, so the first one Deep is the type of business that we do. So if you look at our businesses, we have some areas where the gross margins are over 40%, some areas that are over 50%. So as we roll out those offerings across all of our client base, so that’s one of the drivers. So the type offerings it says the number one driver, the second one is really the mix of how we deliver that. So as I said, just in the past quarter alone we reduced the subcontractor headcount by about 6%. So having more permanent employees, that also helps. And the other one is the mix of the locations. So when we bring in our smart-shoring, as you can imagine that the cost of doing the work, whether it’s Morocco, Eastern Europe or India are a lot lower.
Some of that is to help us be more competitive. So, some of that saving goes to the clients and the other savings, the other part actually goes to increasing our gross margin. So, it’s kind of all those three, four items combined that help us drive and you saw it when we did the R3D, I mean, we went from 30% down to 25% in a few quarters just because of the change in mix of the people like subcontractors. We said it would take us two years to get back to where we were, it took us 18 months to get back to 30. So to me, I think and that’s not — to me that’s the new floor, we need we need to do — we need to improve on that. And our objective is to go up much higher than that 30%.
Deepak Kaushal: Fantastic. No, I appreciate that color. It’s very, very helpful. And if I can slide in the last one, just a quick update on the M&A environment. I mean, to me, you guys have always been able to find a way to get acquisitions done, however, wherever your capital position is, but from a seller’s perspective, are you seeing any changes in the last quarter or so given the changes in the macro, the uncertainty, or is it still kind of as usual?
Paul Raymond: It’s interesting. In some areas, we’re seeing a big change and other areas, no change at all. We — as you know, we’ve always been very disciplined in our M&A and I want to avoid a fire sale. We don’t want to buy something because it’s cheap. We want to buy something because it’s good and it has great value and that’s something that we believe we can leverage across the — across our platform. So we’re actively looking, we’re always looking for interesting targets. And, you see our debt position right now, we’re in good shape. And if we can’t find the rare pearl in the short-term while we are generating cash and building up the war chest. So it’s kind of a win-win. Whatever happens we’re in a good position. And when the right opportunity comes along, we’ll be able to pull the trigger. So we are actively looking.
Deepak Kaushal: So is it fair to interpret that if I may, fire sales are going up, but strategic sales are steady and you’re going to stay disciplined, is that the right way to interpret?
Paul Raymond: Yeah, I’d say that’s a good way to interpret it Deepak.
Deepak Kaushal: Okay. Okay, thank you for all the color. I appreciate you taking my questions.
Paul Raymond: No problem. Thank you for the question.
Operator: Your next question comes from Brian Kinstlinger from Alliance Global. Please go ahead.
Brian Kinstlinger: Hi, thanks for taking my questions. Great to see the recovery in the gross margin. Can you share what percentage of your revenue was delivered by subcontractors in the December quarter compared to the December 2021 quarter? And what are reasonable near term and long term goals for delivery mix as it relates to subs versus direct?
Paul Raymond: Yeah, thanks for the question, Brian. So we don’t publish the overall numbers. But we did the subcontractors, we did say they decreased by 6% overall in the past quarter. And our objective is always to have more permanent employees than subcontractors. I think there’s always going to be subs in our world. But if I can get to 70:30, 75:25 mix of permanent to subs, I’d be very happy.
Brian Kinstlinger: And how far do you expect by the end of the year you’ll be close to that goal, or will it take longer than that?
Paul Raymond: Yeah, we don’t give guidance on that one. But it’s our objective.
Brian Kinstlinger: Yeah. And then lastly, maybe I missed it, but can you highlight from an organic perspective, where demand is strongest versus weakest in terms of verticals? Thank you.
Claude Thibault: Okay, good question. Because we — our funnel is pretty strong across the board. I think there’s been a bit of decrease in manufacturing in general, not just for us, but just the industry in general. We’re seeing demand in manufacturing going down a little bit. But it’s pretty stark funnels and are pretty strong across the board.
Brian Kinstlinger: And is there one, X1 that’s weak is your one or two where you see the most opportunity in terms of pipeline?
Paul Raymond: No, it’s pretty much — again now other than manufacturing, and maybe training, which is uncertain times, some companies are slowing down their training spend, which is a very small portion of our business. Other than that, now we’re seeing strong demand for efficiency type projects across the board.
Brian Kinstlinger: Okay, thank you.
Paul Raymond: Thank you.
Operator: And your next question comes from Gavin Fairweather from Cormark. Please go ahead.
Gavin Fairweather: Oh, hey, good morning. Congrats on all your progress. I wanted to start out on which has certainly been a topic on the call, I think you talked about 5% of your of your labor base being in kind of lower cost geos. Obviously, there are practical hurdles to kind of driving that higher. So I guess, how do you think about how quickly you can kind of add resources in some of these offshore locations and do you have any medium term targets or goals that you could share in terms of that mix for your business over time?
