Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDA increased by 11.1% year-over-year, reaching over $10 million.
- 83% of Q1 revenues were generated by repeat clients, indicating strong client relationships.
- Gross margin as a percentage of revenues increased to 31.9% from 28.9% year-over-year.
- Net cash flow from operating activities improved by 120% year-over-year, reaching $16.7 million.
- US revenues increased by 3% year-over-year, driven by Oracle Cloud and Microsoft Dynamics ERP practices.
Negative Points
- Revenues in Canada decreased by 15.4% year-over-year, primarily due to slower IT investments in the banking sector.
- Bookings momentum was slightly weaker compared to recent quarters, indicating potential delays in project signings.
- SG&A expenses as a percentage of revenues increased to 26.2% from 24.7% year-over-year.
- The financial services outlook remains stable but not showing signs of rapid growth.
- The Quebec Health and Social Services Ministry contract is progressing slowly, with potential expansion several quarters out.
Q & A Highlights
Q: How would you characterize the financial services outlook? Is it one of stabilization or are there signs of growth?
A: It is pretty stable right now. We are not seeing a rapid increase or further decrease. Decisions are taking longer, with more interest in business case-driven or efficiency-driven projects, which take more time to close and negotiate.
Q: Can you provide more color on the Quebec Health and Social Services Ministry contract and its potential expansion?
A: The project is on plan and is a six-year project with a long tail in terms of support and maintenance. It is currently for one region only, but if it goes well, it could position us for other regions in the province. However, this expansion will take several quarters to materialize.
Q: How should we think about your gross profit margin potential if the demand environment improves?
A: Gross margin has remained a priority even in a slower market. We have several levers, including reducing subcontractors, increasing permanent employees, improving utilization rates, and expanding our smart-shoring strategy. These factors should help improve gross margins as we grow.
Q: Any changes to your working capital policy given the strong operating cash flow this quarter?
A: We continue to focus on conserving and managing cash effectively. There are no significant changes to our policy, but we maintain a disciplined approach to paying down debt and managing cash.
Q: Can you provide more color on the bookings momentum and signs of stabilization across Canada and the US?
A: We look at bookings on a rolling 12-month basis due to the size of some contracts. While Q1 was lighter, we had strong bookings in Q4. The demand environment remains stable, and we are comfortable with our current pipeline and the timing of deal closures.
Q: How sustainable are the cost containment efforts, especially with the increase in smart-shoring?
A: Cost containment is sustainable, driven by efficiency improvements and strategic focus on higher-margin business. We are leveraging lower-cost areas for work and increasing our use of IP and AI-leveraged services, which have higher margins.
Q: How would you characterize the buying or demand environment compared to three or six months ago?
A: The demand environment is similar to six months ago. Deals are taking longer to close, but we are comfortable with the current environment and continue to adapt to different economic cycles.
Q: Is the pipeline size growing, and could we see bookings reaccelerate if the environment improves?
A: We have a healthy pipeline and are comfortable with its size. If the environment improves, we could see bookings reaccelerate.
Q: Can you maintain the current pace of increasing the offshore mix even with stable top-line growth?
A: Yes, we believe we can maintain the momentum of increasing the offshore mix as we grow. This will come with growth and provide opportunities to further improve gross margins.
Q: What is the plan for leverage on the balance sheet absent additional M&A?
A: We will continue to deleverage and pay down debt. If we find the right acquisitions, we will have the cash to execute. Otherwise, share buybacks could be considered, given the current stock price.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
