Alithya Group Inc. (ALYAF) Q3 2024 Earnings Call Transcript

Alithya Group Inc. (OTC:ALYAF) Q3 2024 Earnings Call Transcript February 14, 2024 9:00 AM ET

Company Participants

Paul Raymond – President, CEO & Director

Claude Thibault – Chief Financial Officer

Conference Call Participants

Rob Goff – Echelon

Jerome Dubreuil – Desjardins Bank

Gavin Fairweather – Cormark

Vincent Colicchio – Barrington Research

John Shao – National Bank

Operator

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

Unidentified Company Representative

Good morning, and thank you once again for joining us for Alithya’s Third 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, plan, expectations and other statements regarding the future growth, results of operations, performance and business prospects of Alithya that do not exclusively relate to historical facts or which refer to future events, including statements regarding our expectation of our clients’ demand for our services, and our ability to take advantage of business opportunities and meet our goals set in our current and next 3-year strategic plan.

For more information, please refer to the cautionary notes in our presentation and to the forward-looking statements and Risks and Uncertainties sections 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 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

Good morning, everyone, and thank you for joining us this morning. I’m very pleased to share the detail of our team’s robust performance in the third quarter of fiscal 2024. With sequential revenue and margin growth as well as other notable achievements in our Q3, we have many positive trends to talk about today. So I’d like to begin this morning by highlighting 3 critical areas that summarize our third quarter achievements.

First, Alithya has set an internal record for gross margin as a percentage of revenues in Q3 as well as record adjusted EBITDA margins. Second, we made considerable progress in reducing our SG&A expenses while also generating notable positive cash flow in Q3.

Additionally, we continue to reduce our debt in alignment with ongoing targeted initiatives. Third, Q3 was another strong quarter for bookings and when excluding the 2 long-term contracts, we achieved a book-to-bill ratio of 1.2 and saw sequential revenue growth in all our geographies.

Now let’s take a closer look at these achievements. Last November, we highlighted gross margin as a source of pride in disclosing our Q2 results. In the third quarter, that upward trend continued with gross margins as a percentage of revenue reaching 31.3%, which is the highest mark to date in Alithya’s history as a publicly traded company. That result is the fruit targeted initiatives aimed at maximizing gross margins and higher value services, which includes more permanent employees in our mix and achieving better utilization rates.

Our smart shoring operations currently account for 6% of our assigned people, but we continue to bolster and position our operations to take on a more substantial role in the quarters ahead. Smart shore operations also serve us in building stronger project teams for our clients by enabling us to balance senior people with junior ones. This is a win-win situation because it also allows us to train our junior employees and to prepare them for career opportunities, which is a central element of our internal promise to our people.

Q3 also saw continued improvement in SG&A expenses as our disciplined approach continues to deliver positive results. In fact, year-over-year, our expenses decreased by 5.4% in the third quarter, complemented by positive cash flow and further debt reduction. With these new efficiencies, reducing our spending, we also seized the opportunity to increase our credit facility ensuring future flexibility for addressing both organic growth and potential M&A.

As mentioned in my introduction, our posted adjusted EBITDA margin in Q3 was also a record achievement for Alithya driven by both our gross margin performance and reduced SG&A expenses. On the bookings front, our performance was also strong, and our pipeline continues to be solid. Our book-to-bill ratio of 1.2 is also very encouraging when compared to the past 10 quarters. Over and above our Q3 bookings, we have signed multiple new contracts, including a $12 million deal at the start of Q4, we’re a large U.S. healthcare provider, which operates a network of hospitals, surgery centers and physician practices across the U.S. This is one of the largest Oracle contracts that Alithya has signed to date.

Also in Q4, in the healthcare and government sector, we won 2 additional large deals with major Quebec-based health agency. One is a Microsoft project and the other one is an Oracle initiative. Regarding the latter, the contract win showcases how our cross-border collaboration and acquisition strategy serves as a catalyst for growth. Our long history of successful Oracle finance and supply chain implementations in the U.S. private healthcare systems, coupled with extensive knowledge of the public healthcare system in Quebec allowed us to demonstrate our proven abilities for the client. We are particularly pleased with these new large wins because they demonstrate the effectiveness of our cross-border collaboration on the part of our Global Oracle Healthcare practice.

Now let’s look at revenue growth. Although lower compared to our historical standards, we experienced sequential revenue growth in all our geographies in the third quarter. In Canada, despite ongoing softness in the banking sector, we saw some stabilization in Q3 in respect to our billable projects. We also continue to fine-tune our approach to the public sector by selectively choosing the projects that we want to bid on rather than reducing our prices as a response to an increasingly competitive market. We are also seeing benefits from more fixed price projects in the government sector, which makes it easier for us to manage and allocate our workforce for optimal utilization and cost management.

Our partnership with AWS also continues to develop and mature in the cloud space, and we see the potential for significant revenue potential moving forward. In the United States, both our Microsoft and Oracle practices and project sizes continue to grow. Our profitability also continues to increase relative to our projects. The success of our Oracle and Microsoft business is bolstered by a significant increase at multi-pillar projects for both practices driven by concerted efforts to increase cross collaboration by combining 2 or more of our high-value offerings.

And as we head into the fourth quarter of fiscal ’24, our Oracle practice is preparing to engage in a plethora of projects on the books as the delivery of these new wins start ramping up. Also in the U.S., our Enterprise Solutions group completed 26 go-lives in the third quarter. In response to demand, the group continues to add technical resources, further leveraging our smart shore operations to train personnel capable of addressing our growing needs.

Finally, we’re seeing increasing interest in Microsoft Copilot training being offered to our clients in the United States and our industry is seeing overwhelming interest in artificial intelligence as a concept. As of now, however, that interest has not translated into substantial revenue generation, but current and potential clients are growing increasingly curious about its future potential. Technology is in a constant state of evolution, and Alithya strives to always remain on the crest of that wave. Currently, our AI-driven revenues are focused on sales of our IP solutions targeting automation and hyperautomation, including industry-specific solutions such as computer vision, fraud detection, process automation, legacy modernization and many others.

Our subscription and software revenues currently represent 12% of our total revenues. As clients express greater interest and willingness to harness the power of AI to increase their efficiency, we intend to increase that proportion accordingly. This brings me to another topic that I would briefly like to discuss this morning, which is our Alithya awareness campaign with C-suite leaders. Alithya has no interest in selling products and services that don’t address the business needs of our clients. This premise is a driving force behind the Alithya awareness campaign, which we deployed across our business lines to ensure our leaders are in direct alignment with those responsible for making important spending decisions in client organizations.

The objective is to ensure that we have an accurate understanding of our clients’ mid- and long-term strategies as well as their most critical priorities and challenges. In doing so, we significantly enhance our ability to identify potential opportunities for greater value creation down the road.

Alithya remains a human-centric business with clients who turn to us as a trusted adviser for strategic advice, enterprise transformation and business enablement. The key to it all is the skills of our people, and we are proud that globally, our client satisfaction score average over the past 4 fiscal years has been higher than 90%. Now before I turn things over to Claude Thibault, our Chief Financial Officer, I will close by emphasizing that our strategic alignment and selective course adjustments as we go on, continue to improve our overall positioning.

So as we enter the final quarter of our current 3-year strategic plan, we are confident that we are well positioned for the future while navigating through the current economic environment. Longer term, our next 3-year plan will take effect on April 1, 2024. It will be inspired by the maturity, agility and adaptability of the Alithya team.

For over 30 years now, we have been highly successful in helping our clients leverage technology that addresses their business challenges. The desire to continue doing so drives us more than ever today as technology evolves at an ever increasing speed.

I look forward to discussing details of that plan with you in the coming months. So thank you once again for your time and interest this morning. Claude, over to you.

Claude Thibault

Good morning. As Paul mentioned, Alithya reported in Q3 notable performance improvements on a number of fronts. Consolidated revenues came in at $120.5 million, again, a sequential increase in all geographies of $2 million in total, which also represents a smaller year-over-year reduction versus what we reported in our second quarter. If we dive a little deeper, we can see that revenues in Canada stabilized with a small sequential increase to $68 million in Q3. We continue to see softness in technology investments in the Canadian banking sector. But when we look at revenues for specific financial services clients, we can see some stabilization.

In the U.S., revenues increased sequentially from $45.7 million to $47.1 million. Despite this recovery, we continue to see weaker conditions in certain areas of the IT services sector, notably in digital skilling and change enablement services. Paul already discussed our great normalized book-to-bill ratio of 1.2 for the quarter, but I want to take a minute to make sure the difference between that number and the gross book-to-bill ratio is well understood. If you remember, the large acquisition of spring of 2021 and the large 10-year agreements signed with its 2 main shareholders, we reported $600 million of bookings at that time.

The issue is that we now have those recurring revenues in our quarterly actuals, but we are not reporting any new bookings anymore, which therefore, structurally understates our book-to-bill ratio on a gross basis. This is why we provide you with a normalized ratio, which excludes the long-term recurring revenues, in order to provide a better indication on how we are doing with regards to the revenues, which we do have to replace going forward. That being said, even our growth ratio in Q3 is above one which is very positive going forward.

Back to our results. With regards to gross margin, I noted that back in November, how challenging it is to increase it during lower revenue quarters. However, we achieved sequential improvement again despite another quarter in the current softer revenue cycle. Gross margin as a percentage of revenues increased to 31.3% in Q3, up from 30% in the same quarter last year. On a sequential basis, gross margin percentage increased notably in comparison to the 29.4% reported in the second quarter. This notable increase is mainly due to the ongoing execution of multiple internal initiatives from better individual project management and discipline to better utilization management with continued focus on our higher-margin offerings.

In Canada, our gross margin increase is mainly due to higher margin offerings and better utilization and a proportionately larger decrease in the use of subcontractors compared to permanent employees. As for the U.S., our gross margin increase is also the result of higher utilization rates and improved project performance. As we mentioned last quarter, this gross margin performance bodes very well for when we see our revenues return to a more typical historical organic growth pattern.

Now looking at SG&A expenses, we also experienced notable improvements for consecutive quarters, and we are happy to see our cost improvement efforts continue to bear fruit. Total gross SG&A expenses in the third quarter totaled $29.5 million, a decrease of $1.7 million or 5.4% compared to $31.2 million in the same quarter last year, which is a notable decrease when looking at numbers on an annualized basis. This decrease is mainly due to the reduction in employee compensation cost as we continue our ongoing review, Alithya’s cost structure, which was partially offset by certain seasonal timing and initiative-driven increases.

While discussing SG&A expenses, I would like to take a moment to come back to our decision to consolidate trading on the TSX and to delist from the NASDAQ Exchange. This decision was based on our opinion that the limited benefits derived from being dual-listed no longer justify the administrative costs and efforts of maintaining the NASDAQ listing. Between listing fees themselves, D&O insurance, compliance, the SOX audit, legal and other costs, we are talking about over time of almost $1 million annually, not counting the time spent by our employees internally. The consolidation of the trading volume on the TSX and the associated increase in liquidity should not be overlooked as an additional benefit for our shareholders.

Now back to Q3 performance. Overall, as a result of increased revenues and gross margin dollars on a sequential basis as well as good control over expenses, our third quarter adjusted EBITDA amounted to $9.5 million, representing an increase of $3 million or 46% compared to Q2. As Paul mentioned earlier, our Q3 adjusted EBITDA margin was 7.8%, representing a record high. Our improved financial performance also resulted in a number of interesting metrics and while our adjusted EBITDA in dollars is slightly lower than Q3 last year, as already mentioned, we should note the following. Our unadjusted EBITDA at $7.2 million is actually higher than last year, in addition to rebounding by $5.1 million from the second quarter.

Secondly, our adjusted net earnings at $3.9 million or $0.04 per share is also higher than Q3 last year and rebounding from a negative adjusted net loss in the second quarter. Also, it is the first time that we are reporting a positive operating income as defined in our financial statements. Indeed, operating income is defined after acquisition and reorganization costs and after depreciation and amortization which are noncash and nonrecurring amounts respectively, but which had historically been fairly high amounts for Alithya. Our performance improvements have now taken us back into positive territory on this other accounting measure.

We would also point out our accounting net loss of only $2.5 million which is improving significantly from negative $9.2 million in the second quarter. At this new level, we believe we may not require a big bump in revenues for continued declines in acquisition and reorganization cost or in depreciation and amortization or even interest to get to a positive accounting net profit, which remains a short-term objective and which we know would be a game changer for certain categories of potential investors even though this is just accounting and we have actually been cash flow positive for years.

Of note, our accounting net loss of $2.5 million is the smallest in almost 3 years despite higher interest expenses currently. Lastly, considering our $9.5 million of adjusted EBITDA and our $7.4 million of cash generated from operating activities, before working capital variations, this translates into a great cash flow conversion of above 75%. And all these highlights, again, being achieved despite reporting lower year-over-year revenues in the third quarter.

Turning to liquidity and financial position on Page 12. Net cash generated by operating activities was $15.6 million, which combined with other cash flow elements resulted in a net debt reduction of $11.5 billion over the third quarter. At the end of Q3, we announced that we had increased our existing revolving credit facility to $140 million plus an uncommitted accordion of $50 million to April 2026 with options for one year extensions thereafter. Although this increased availability is not currently required, it provides the company with adequate access to capital, to continue accelerated growth both organically and through acquisitions.

Back to you, Paul.

Paul Raymond

Thank you, Claude. So let’s recap the 3 notable areas of achievement from our third quarter. First, Alithya set an internal record on gross margin as a percentage of revenues in Q3 as well as record adjusted EBITDA margin.

Second, we made significant progress in addressing our SG&A expenses while also generating notable positive cash flow in Q3 and continue to reduce our debt and alignment to our ongoing initiatives. And finally, third, Q3 was another strong quarter for bookings when excluding the long-term contracts with a book-to-bill ratio of 1.2.

Now we’ll be happy to take questions. Julie?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Rob Goff from Echelon.

Rob Goff

Congratulations as well on the Q4 contract wins. Could you discuss how we might see those Q4 contract wins translate into revenues? And also on the revenue side, can you talk to where in Canada, you’re now seeing sequential revenue growth? How might we look at that going forward?

Paul Raymond

Thanks for the question, Rob. So the large contracts that we signed in Q4 are like our normal ERP. They’re all large ERP projects. So usually, the ramp-up will take a few months or a quarter to get going. So contracts winning in Q4, you can expect the ramp up to start in Q1 of the next fiscal year. It usually takes a few months to ramp them up. But at that full scale, these are multiyear very large projects that usually have ongoing revenue after that.

So being in Canada, we see that as very positive. They’re in the government sector. So the government business will be growing faster than the financial services from what we’re seeing right now. We’ve seen a stabilization in the financial sector, but it’s still — they’re still challenged. So we are expecting the other areas are probably going to grow faster going forward.

Claude Thibault

Does that answer your question, Rob?

Rob Goff

It does. And if I may, one more on the revenue side of things, could you talk to your sales pipeline RFPs outstanding, and that in prior quarters, you talked to your participating in larger RFPs. I suspect that one of those was actually booked in Q4, but can you talk to your current pipeline?

Paul Raymond

Sure. Yes, the current pipeline is very healthy. Like I mentioned before, we’re signing bigger deals. And the one we — the $12 million one, for example, is one of our largest pure ERP contracts that we’ve signed. The other win we will announce it as soon as the contract signed, but again, significantly larger. So the experience we have with our track record of delivering ERP projects. I mentioned the go-lives every quarter and maybe it goes unnoticed, but 26 go-lives on ERP projects I mean, many companies don’t do that in a year.

We did that in a quarter. So if you can imagine a company going through an ERP implementation is quite a challenge on its own. So to be able to do that many in a quarter, is the — hats off to our team. They’re doing an incredible job. So because of that track record, we have access and our scale. We have access to much larger ERP projects than we did 3, 4, 5 years ago.

So we’re leveraging that into a new verticals, new geographies. The reason we won the 2 large healthcare ones in Quebec was because of our experience with hospitals in the U.S. So these things come together at some point, and that’s where we are today. So I think we’re very well positioned to leverage that going forward.

Operator

Your next question comes from Jerome Dubreuil from Desjardins Bank.

Jerome Dubreuil

Let’s start with the margin improvement side, indeed, higher utilization with lower revenue, it’s quite unusual, so good to see. Can you maybe describe some of the initiatives and call data terms maybe that have been implemented? Or is this just a general change of mindset?

Paul Raymond

Are you talking about revenue specifically, Jerome? or gross margin?

Jerome Dubreuil

Yes.

Paul Raymond

So we talked about it last quarter. I’ve been talking about it as part of our strategic plan. If you remember, you go back 2 years. We said one of the things that we believe we could really change, was by doing higher value type projects, which inherently generate higher gross margins. So it’s a combination of several things. One is the type of projects that we go after. Two is the mix of having more permanent people, experts and less subcontractors and three, leveraging our smart shore operations.

So when we do these larger projects, like the one that we just announced, we have much better control over where we do the work, how we do the work, who we do the work with. So we can use our people more. We can leverage our lower cost centers. We can — we have better control over utilization. So these are all things that have a huge impact on gross margin going forward. So even though our revenue has been going down, most of the stuff that has stopped or that we got rid of or that you see softer revenue coming from is in the lower margin areas.

Because large organization, the first place they cut when they reduced spending is all of the temp stuff, right? The time and material, temporary, subcontractors, stuff that’s easy to stop, whereas projects once they get going, very difficult to stop because typically, they have a very high impact on business. There are business outcomes that are tied to the project and the projects are multiyear initiatives and you don’t stop an ERP project in the middle. So we’re seeing that now. So where we see the softness in the lower-margin business, it’s actually helping us from a margin perspective.

Claude Thibault

Maybe Paul, I would add, Jerome.

Looking at Alithya from 2017 where when we went public after fiscal 2017, up to fiscal 2023. So before this current year where we are seeing the impacts of the slowdown. Our organic CAGR, so our organic growth has been 12% on average. And on top of that, you add our acquisitions, growth from acquisitions, which has been obviously much higher. So we really took the opportunity with slower revenue growth that we’ve seen in recent quarters, we really took that opportunity to look at our, how we manage projects, implement best practices, in terms of fracking projects.

We’ve organized meetings, internal meetings to do a better job at that, really focusing on individual project performance. So this is not very sexy when you think about it, but it really makes a difference in a slower growth phase, which we believe will end sooner or later, but it’s really been an opportunity to take the time to look how we do these things, and you can see the impact as well in addition to everything Paul mentioned.

Jerome Dubreuil

Not sexy usually comes with profitable, so good to hear. In terms of — maybe we kind of all expect a re-acceleration in terms of the top line. It’s the case with contracts you’ve been talking about the same for global peers. Do you think that you need to hire ahead of the demand increase or if maybe the labor market is a bit looser right now and allows you for more just-in-time hiring that which you have done in the past?

Claude Thibault

We tried to.

Paul Raymond

It’s an interesting question. So there are 2 ways of looking at it. The hiring is really tied to the type of business that we do. So when we’re more focused on projects and higher value offerings, we have a lot more lead time and a lot more structure around, who we hire and why, and the higher for the long term as opposed to a lot of the short-term lower-margin business, where a client wants somebody to help them out next week, right, which becomes a very reactive type hiring. So our model has been a lot more on hiring for what’s coming. You have to time it well. You don’t want to hire too far ahead of time, but we hire for what’s coming, what’s in the pipeline, hire more intelligently.

And we also have our own academies where we hire graduates right from school and train them. That’s a 3-month process to train them for projects. So we have a pretty good balance on that front in terms of what we need and how we prepare for it.

Jerome Dubreuil

Great. And then last one on the margins, still. Given the nature of the work you’re doing — we kind of remember the past margin guidance you had. Is it fair to say that there are still relatively low-hanging fruit that you are seeing in terms of efficiency improvement?

Paul Raymond

Well, I think the biggest low-hanging fruit that I’ve talked about in the past is leveraging more of our smart shoring operations, which we’re growing slowly but surely. We see huge potential there. And again, it’s a pure cost structure play. We have a very highly qualified people in our centers in global delivery that we’re growing intelligently, yes, we see significant opportunity there for improved gross margin, everything else being equal.

Operator

Your next question comes from Gavin Fairweather from Cormark.

Gavin Fairweather

Just following on, on the trended gross margins. Curious if there’s more upside to utilization or more subcontractors that you can take out? Is there further upside on that front? Or are we pretty optimized here in the quarter?

Paul Raymond

There’s still opportunities there, Gavin. We still have some subcontractors on some projects. And there’s always room for improvement in utilization. So yes, still the opportunity there.

Gavin Fairweather

And then in your prepared remarks, you touched on the pricing environment a little bit. I was hoping to just get a little bit of color in terms of what you’re seeing from a competitive perspective on pricing for work out there in the pipeline?

Paul Raymond

I was hoping to get that question. So what we’re seeing, we have a significant presence in financial sector. And it’s hurt us in the last couple of quarters because of the slowdown. And you’re all seeing the layoffs that banks are doing and so on and so forth. So we — what we’ve noticed is typically in recessionary times, the government spend more. And you can — again, if you read the papers, you see all these significant investments going into govern modernization or infrastructure, new roads and trains and all these. So what happens is people who typically don’t bid on government business, all of a sudden because everything else is drying up or saying, well, let’s ship and bid on government projects.

So the price pressure we’re seeing is coming more in the — from nontraditional players that we’re seeing showing up in areas they don’t typically compete in. And of course, when these players come in to try to get in, they undercut or underpriced or try to win the business by cost cutting.

Unfortunately, when they don’t realize, and we’ve seen this before, by the way. This is not a first. Unfortunately, when you sign a long-term contract especially in the government area that are very, very structured, very strict in how you price and how you increase rates and whatever, you can’t have a 3-year loan loss leader. It doesn’t make any sense. So for us, it’s really being very picky in choosing the projects that we bid on, which we’ve done in the past, and I think we’re very good at to pick those projects where value is more important than just the price.

And by that, I mean, is depending on the type of projects we bid on, the evaluation criteria is around value and capability to deliver are more important than just the price because when you do these large ERP projects, I mean, getting the lowest bidder, it doesn’t mean you’re going to have a successful project. So we’re very choosy. We win what we go after more often than not. So I think we’re well positioned to fight that, and we’re seeing it in our gross margins. We’ve been able to maintain and improve our margin despite that phenomenon, which we think is going to be temporary.

Gavin Fairweather

Good to hear. It does. I think you normally reset your salaries for the internal workforce on April 1. You could just discuss kind of the macro environment, whether it’s taking a little bit of pressure off of your labor cost.

Paul Raymond

It’s taking a little bit of pressure off. But we’ve always been competitive on April 1, every year. We’ve done it, and the same thing this year. We look at the market. We have a lot of market data for all of our geographies, and we try to be competitive. The idea is you want to hang on to the people. We’re doing well. We’re always looking at resizing the team or shuffling based on where the demand is. So to me, those are 2 separate issues. One is you have to take care of the people that you have and make sure that they want to be here, they’re well compensated and then you have to adjust in the areas where demand is lower. So I think we do a very good job at that.

Gavin Fairweather

Great. And then just lastly for me, maybe for Claude. Would you view the working cap as still being a little bit elevated exiting calendar ’23, I think there was a [indiscernible] for last quarter, and we got about maybe 8 or 9 back this quarter.

Claude Thibault

Yes. The short answer is yes. We can still have improvements. If you look at our historical cycles, I’m expecting that to be stable going forward at worse. It’s going to go up and down quarter-to-quarter, but the general trend is where we are now, if not slight improvements still to come. But it’s really depends on timing. As I often say, we were basically a $2 million per day business now at the scale we’re at, so $2 million going out to $2 million coming in. A little bit more coming in than going out, obviously. But $2 million, if we just slip a couple of days on both fronts in the wrong direction, it adds up to millions of dollars. So we did a great job in Q3. We’re going to keep at it. So yes, I’m certainly working towards more improvements there.

Operator

Your next question comes from Vincent Colicchio from Barrington Research.

Vincent Colicchio

Where are you — could you remind me where you are currently on your offshore footprint? And what are you doing precisely to grow the exposure and also, are you considering an acquisition to accelerate the presence?

Paul Raymond

So today, offshore, we’re in India, Eastern Europe and Morocco. It’s about 6% of our total delivery workforce. The last time, we accelerated growth in our offshore capability well through an acquisition. We’re always looking at that, Vince. It’s something of interest to us. But it would have to come with some North American or European based customers, right?

So we’re looking — our target markets are really North America and Western Europe. And of course, yes, in the U.K. similarities. We already have clients there. But from a delivery standpoint, any opportunity that we have to accelerate the growth of those centers, we were looking at and working on them today. Both acquisition and organically, by the way. So we have a lot of other initiatives internally ongoing to accelerate that.

Claude Thibault

And maybe I would add also, Vince, as we’ve reported, it’s been a couple of quarters of softer revenues to increase our usage of near shoring resources is much easier to do when you’re up on the upswing in terms of revenues. Because in those situations, you’re looking for resources anywhere and you need them fast. So that’s probably where you’re going to start seeing acceleration — significant acceleration to our offshore and nearshore usage as opposed to what we’ve achieved [indiscernible].

Vincent Colicchio

And Paul, I think you referred to generative AI is not — you’re not seeing meaningful revenue as of yet in that side of the business. Are you experiencing growing? Could you kind of sort of qualitatively discuss how much you’re seeing a growing collaboration with clients on that front?

Paul Raymond

A lot of talking happening, Vince. So all of our clients want to hear about it. I talked earlier about our executive awareness campaign that we’re doing. We’re meeting with a lot of senior execs. Everybody wants to talk about it. Everybody is looking for some kind of pilot project to do. But in between talking about it, getting decisions to actually get projects going, we’re seeing a big lag. We still have — we have some AI projects ongoing, but I’m not seeing the growth that the height would justify. So it’s going to come, but I think it’s going to be very gradual.

Vincent Colicchio

And then lastly, any help on the sort of sequential revenue growth you may see in the Q4.

Paul Raymond

Good question, but we tried out the comment on the forward-looking stuff events. I mean we’ve seen quarter-over-quarter that the financial services kind of flattened out, so that’s good. And we’re seeing some sequential growth. The bookings are solid. So if bookings are any indication, I’d say that would be the best way to look at it.

Operator

[Operator Instructions] your next question comes from John Shao from National Bank.

John Shao

So Paul, could you maybe talk about your staff utilization for this quarter and how we should think about it in the next quarter and 1 or 2?

Paul Raymond

Thanks, John. Yes. So utilization is, of course, something that we track. It’s kind of — it’s not 100%. It’s not the only KPI we track. It’s one of them because, of course, we have a lot of fixed-price projects where utilization is looked at differently. So that’s one thing. I think you — the one thing to consider is Q3 for us includes December, the December holidays and the way the calendar — the way Christmas and New Year’s fell this year, I think we had a lot more of vacation in December. We had some clients also shut down for longer periods in December. So that, again, would hit our utilization. January, there are less vacations in January this year. It’s again because of how the calendar is set up. So I would assume that’s going to be a bit better February has an extra day this year, but then again, March, the Easter holidays are in March this year or in April last year. So you have to take all those things into consideration, because they will impact utilization. But we’re positive. We like where we’re at right now.

John Shao

And could you talk about. Yes, go ahead.

Claude Thibault

No. It was just to repeat the same concept as we’ve said many times today. We achieved such a good performance on utilization in quarters where we are in a slower revenue cycle, which is very hard to do. So when we go back to the upswing, obviously, we’re looking for resources everywhere. So it’s — we’re optimistic that we can do better on that measure just mathematically speaking.

John Shao

That’s making a lot of sense. Could you maybe talk about the M&A environment and your pipeline? How should we think about the valuation versus last year?

Paul Raymond

So if you look at our historical M&A track record, we haven’t done an acquisition in 1.5 years right now. So everything that we’re doing now is around integrating and getting efficiencies out of past acquisitions. We’re actively looking. We’ve got an interesting funnel of acquisitions. However, the prices on quality assets, and I mentioned this in the past, are not coming down. I mean there’s some stuff out there that kind of have fire sales.

But the quality assets that we’re interested in, prices are not coming down. So we’re being very selective and very disciplined looking at these and where they would impact and how they would help. But no changes on the multiples from what we’re seeing.

Operator

And there are no further questions at this time. I will turn the call back over to Paul Raymond for closing remarks.

Paul Raymond

Thank you Julie, and thank you everybody for joining us this morning. Happy Valentine’s Day. Enjoy the rest of the week.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.