Alithya Group Inc (ALYA) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Alithya's First Quarter 2021 Earnings Conference Call. (Operator Instructions)

Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that would -- that could cause actual results to differ materially from those anticipated.

I would like to remind everyone that this conference call is being recorded on Thursday, August 13, 2020.

I will now turn the conference over to Rachel Andrews, Vice President, Communications and Marketing. Please go ahead.

Good morning, everyone, and thank you for joining us for Alithya's First Quarter Fiscal 2021 Results Conference Call. The press release and MD&A, with complete financial statements and related notes, were issued earlier today and are posted on our website. The webcast presentation can also be found on our website in the Investors section.

Presenting this morning are Paul Raymond, Alithya's President and Chief Executive Officer; and Claude Thibault, Chief Financial Officer. Following their comments, we will open the call for questions.

Before we begin, I would like to specify that this conference call is intended for the financial community. Also, please be advised that this call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the Risks and Uncertainties section of our MD&A available on our website for more detail.

Let me remind you that all figures expressed on today's call are in Canadian dollars, unless otherwise stated. And be aware that we will refer to certain indicators that are non-IFRS measures. Please refer to our MD&A for more detail.

Now I would like to turn the call over to Paul.

Thank you, Rachel, and welcome to the Alithya team. Good morning, everyone. (foreign language) The past few months have been challenging for everyone, and I want to sincerely thank all of our employees for their hard work and commitment and our clients for their confidence in Alithya. Everyone rose up to the challenges, and I'm extremely proud of what we have achieved together.

Please turn to Slide 4. We are very pleased with our first quarter results, which were better than expected in the context of the pandemic. They clearly demonstrate the resiliency of our business model as well as the growing demand for our digital transformation services.

Our revenues were essentially flat at $70.7 million compared to last year when we exclude the impact from the divestiture of our U.K. operations. In essence, the contribution from our latest acquisitions offset the negative impacts from the pandemic. We are proud that the 3 acquisitions we completed last year generated high single-digit organic growth as a whole. This means our integrations have been successful and that our scale, as planned, has created more business opportunities.

If you remember, in recent quarters, a few of our large historical Canadian clients have been reducing their spending levels. Although our year-over-year revenues are still impacted by this trend and by the COVID-19 pandemic, these large clients are in aggregate stabilizing on a sequential basis, which is very encouraging.

More importantly, despite the negative impacts from the pandemic, our adjusted EBITDA improved 8% to $3.3 million in the first quarter and was higher by 62% on a sequential basis. This increase is a great reflection of the proactive and rapid measures taken by our teams to mitigate the effects of the current operating environment. Furthermore, we generated a record net cash flow from operations this quarter, which Claude will explain in a moment.

Turning to Slide 5 for some operational highlights. I'm happy to report that we introduced 2 new metrics this quarter: bookings and a book-to-bill ratio. This is to help the market better understand our business and its cycles. Bookings essentially refer to new contract wins, while book-to-bill ratio refers to bookings divided by revenues for the same period. In the quarter, our bookings totaled $80.5 million, while our book-to-bill ratio was 1.14 or 114% of revenues. This is ahead of our expectation and an excellent performance in the current environment.

I would like to remind everyone, however, that we believe a 12-month trailing book-to-bill ratio is a better indicator of future perspectives as notable variations can occur when looking at quarterly numbers alone. Having started reporting these new metrics as of April 1, we will now be able to provide annual measures by the end of this fiscal year.

Despite the COVID restrictions in place in all of our geographies, we added 10 new clients in the quarter, including 2 significant multiyear cloud ERP contracts with the city of Montréal and one of the largest integrated children's health system in the U.S. based out of Jacksonville, Florida.

In addition, our teams are going strong and continue to deliver projects. More specifically, we completed more than a dozen ERP, CRM and EPM system remote go-lives since April 1. Before COVID, it was difficult to imagine that such important client milestones could even be achieved with our professionals working 100% remotely.

Finally, Alithya continued to be recognized by its business partners. We achieved the prestigious 2020/2021 Inner Circle for Microsoft award for the 15th year in a row. We were also named a finalist to the Modernize Finance and Operations 2020 Microsoft Partner of the Year Award. Our goal is to be a trusted adviser to our customer, and this Microsoft recognition is a good indicator of what we are -- that we are living up to that vision.

Claude will now review our first quarter results and our financial positioning. Claude?

Thank you, Paul, and good morning. Let's review some Q1 numbers.

Please turn to Slide 6. Excluding our small U.K. operations divestiture, revenues for the quarter were only slightly below the first quarter of last year at $70.7 million as the contribution from acquisitions, the continued transition from low-margin to higher-margin business as well as new contract wins offset most of the moderate impacts we suffered from the pandemic.

Gross margin amounted to $20.4 million or 28.9%, down slightly from $21.2 million or 29.3% last year. This variation mainly was due to the negative impacts from COVID-19, especially in Europe and in the U.S. It was partially offset by a positive revenue mix variation in Canada and some government wage subsidies in Canada and Europe. Of note, on a sequential basis, gross margin increased from 28.6% to 28.9% despite COVID-19.

As previously disclosed, certain Canadian subsidiaries obtained $1.5 million through the Canada Emergency Wage Subsidy program, of which $1 million was recorded in Q1, a major portion of which was recorded to cost of revenues.

As reported, SG&A expenses amounted to $19.4 million, up 2.6% from $18.9 million last year. However, if we look at SG&A expenses excluding share-based compensation, which is a noncash item, and excluding the adjustments considered in our adjusted EBITDA calculations, we had $17.1 million of SG&A in Q1, a significant decrease from $18.9 million in Q4 of fiscal 2020. This is also notably lower than Q1 of last year, which was at $18.1 million, and that number being before our 3 recent acquisitions of fiscal 2020. The decrease -- this decrease is mainly related to permanent and temporary decreases in expenses caused by COVID-19, including salaries, travel and business developments as well, again, as certain government subsidies.

Adjusted EBITDA amounted to $3.3 million or 4.6% of revenues versus $3 million or 4.2% for the same period last year. This increase was driven by the contribution from acquisitions, increased margins from higher value-added business as well as the above-mentioned reductions in SG&A. These factors were partially offset by the impact of COVID-19. On a sequential basis, adjusted EBITDA increased over 60% from $2 million in the fourth quarter of fiscal 2020 to $3.3 million.

Net loss during the quarter amounted to $4.5 million or $0.08 per share compared to a net loss of $1.5 million or $0.03 per share for the same period last year. As in previous quarters, the amount of our accounting loss is basically equal to the amount of our noncash amortization and depreciation expense.

Now turning to our liquidity and financial position on Page 9. Net cash flow generated from operating activities amounted to $8 million -- $8.1 million in the first quarter, a record for a single quarter and almost double the $4.2 million generated during the same quarter last year. This record cash flow was mainly driven by diligent working capital management in the context of the pandemic.

Given our better-than-expected results, combined with our prudent cash management, we ended the quarter in a solid financial position. At the end of June, we had $9.8 million of net bank borrowing, which is net of our $17.5 million in cash and restricted cash, which is significantly down by $17.1 million compared to a net bank debt of $26.9 million at the end of March 2020. This reflects the above prudent working capital management and positive cash flow from operations as well as the USD 6.3 million in PPP loans.

We will shortly make application for forgiveness of such PPP loans. We believe we have used the funds for qualifying expenses and otherwise comply with all relevant rules and regulations of the program. However, there still can be no assurance that the company will obtain forgiveness in whole or in part of the loans. We are also considering the new Canadian government wage subsidy rules, which have removed the obligation to reach a defined revenue reduction level for eligibility and will claim any amount which may become available.

As it stands today, considering our low net bank borrowing and the funding received from various government programs, we believe we are in a good financial position to navigate the current ongoing uncertainty and keep pursuing our business plan and objectives.

I will now turn it back to Paul.

Thank you, Claude. Please turn to Slide 10.

So to summarize, our first quarter results were better than expected in the context of the pandemic and demonstrate the resiliency of our business model as well as the need more than ever for our digital transformation services. Despite this success and given the ongoing pandemic, we continue to implement our business continuity plan, including managing our operating expenses prudently, taking advantage of government programs and efficiency opportunities as well as monitor new developments very closely.

Having said this, we are seeing positive signs in our markets. Most projects that have been paused or delayed at the start of the pandemic have resumed. And as mentioned earlier, reduced spending by a few large Canadian clients appears to be stabilizing, and we are continuing to sign new clients and new deals. Although we remain cautiously optimistic, this is very encouraging in the current environment.

Our bookings and pipeline remain healthy, providing a good base to build on, but I would like to remind you again that we believe a better indicator of book-to-bill will be over a trailing 12-month period. A quick note for modeling purposes. Our second quarter is typically seasonally soft given the vacation period, and we believe this year will not be any different, adding to the overall COVID uncertainty.

Finally, we finished the quarter with a solid financial position, which will allow us to continue to focus on the execution of the growth portion of our strategic plan to increase our scale organically and through acquisitions. We have a strong foundation to support future growth despite the potential headwinds from the COVID-19 crisis. We are well positioned to continue to focus on delivering our long-term plan of becoming a North American leader in strategy and digital transformation.

So to conclude, I would like to reiterate my sincere gratitude to our professionals, our clients and our shareholders for their unwavering support and trust in these unprecedented times.

We will now be pleased to answer any questions you may have. Joanne?

(Operator Instructions) Your first question comes from the line of Maher Yaghi from Desjardins.

I wanted to ask you guys about your comment on the business starting to come back from the lows that you saw with the COVID situation. Can you discuss a little bit how widespread this improvement is happening in the U.S. and in Canada? And are there differences? And also, when it comes to your existing client base in Canada, with some of the bigger companies that you -- our clients -- your clients in Canada, have you seen some stabilization and improvement on that front?

Maher, thank you for the question. So on the first part, we can give you a lot of color on this because, as everybody else, we've been managing our business very closely, closer than ever since the beginning of the pandemic. I think like everybody, end of March and April, we were very concerned with what was happening. A lot of projects were being put on hold everywhere, and the authorities were trying to figure out what to do. We did see a gradual pickup in the quarter, which finished very strong. So that's why we're saying in the quarter, a lot of the stuff that we had seen slowing down has picked back up.

You can also see it from our bookings. A lot of customers, as we mentioned in the past, were delaying decisions at the beginning of the quarter. Those have picked up, and we saw that the bookings -- we were also pleasantly surprised at the acceleration of the bookings, which is a very good sign for what's to come.

As for your second question in Canada, again, we -- when we look a quarter -- over the same quarter last year, we see the same decreases. However, when we look sequentially at our numbers of the large Canadian customers as a whole, we are seeing stabilization and increases on a sequential basis. So yes, it is very encouraging.

Okay. Great. And maybe if we can talk a bit about the bookings that you had in the quarter. I would say, quite a good number when you compare with other companies in the sector who mainly had below 1 type of book-to-bill. Can you talk about the type of projects you booked in here? Are they from -- if you can maybe -- percentage-wise, what is renewal versus new customers in that booking number and the type of projects that are in there?

Yes. Thank you for the question. I can't give you the information this morning on the new versus old, but I'll qualify it. And we'll look at that for coming quarter as an additional measure, I think, would be very useful.

It's both. So we added 10 new customers in the quarter, which, again, I think is also very impressive, given the fact that we can't meet customers face-to-face anymore. So over the past quarter, our sales have been done virtually. So this is using the tools that we have, and a lot of this is from reputation and referrals.

A good example is Microsoft. We were talking about the remote go-lives we did. Microsoft did their annual Inspire conference, which is their huge conference they do every year. Alithya was actually used as an example, and the leader of Microsoft practice actually gave an interview during the Inspire conference on how to do remote go-lives. Those types of recognition and visibility generates new opportunities. So we had both, some existing and some new.

I think that the 2 significant ones that we closed in the quarter, which are very large cloud ERP implementations, one is for the city of Montréal, which is a major project and a major undertaking that we were selected to do that; as well as the one in the U.S., which we can't name, but a very large health care group. And I think it's important to mention those because those are a direct result of the cross-selling that we have done between our existing business and the new acquisitions. Without the new acquisitions, we would not have been able to close those 2 deals. And the new acquisitions on their own would not have been able to close those 2 deals because of their size. So I think those are great indications. And to me, the fact we can still do deals like that during the pandemic is a very good sign.

Okay. Great. And my last question is on margins, so gross margins or EBIT margins or however you prefer to look at them. So when you look at the projects you're signing right now compared to your existing backlog, how would you qualify them? And when you look at maybe the environment that you're operating in, what are the verticals you see potentially outgrowing the company's overall growth rate?

Thank you, Maher. So I'll start with the first one on the margin. We saw a lot of pressure at the beginning of the quarter. Again, this was generalized everywhere, where it wasn't just a question of pressure on the margins, but some customers were saying, well, we want your people to work part-time or we're going to bring this project to 4 days a week or -- everybody was looking at all kinds of different formulas to try to save on cost. That's back to normal. We saw the evolution in the quarter as people were seeing that some of their business was actually increasing. So I guess that's the comment that I can make on the challenging rates and so on.

Because we're more in the value-added services, like selling ERP implementations and so on and so forth, we're not really competing for rates in that type of business. We're really competing based on competencies and the quality of our deliveries. Delivering an ERP project remotely, you don't want to go with the lowest bidder. You want to go with people that have actually done it before and can do it successfully. So that piece, we're confident in.

The -- sorry, the second question was on -- what was your second question again, Maher?

The verticals that you feel you have a strength on right now that is driving those bookings.

Yes. So we were very fortunate a little bit by design, but I guess the pandemic has kind of demonstrated our model. All of the verticals where we have a strong presence in are part of essential services. We really have only one large customer, which we've talked about before, which is in France, in the airline industry, which, of course, you know what's happening with the airline industry, and it's going to take a while before it comes back. But the balance of our business has been doing fairly well and holding out in the context of the pandemic.

We're seeing growth in most of them. Financial services is a big sector for us. Health care and government is a big sector for us, which is growing. The manufacturing that we're in is actually in the food and medical business, which is growing. People are eating and shopping in groceries more than ever. So we're very well positioned in that sector, which is doing well as well. Energy and telecommunications, which again are doing fairly well. So we're really seeing positive signs in all of those sectors.

Maybe, Claude, do you want to add to that?

Yes. I mean on gross margins, obviously, in a declining top line environment, we need to make the decision whether we make some layoffs or not. And we're kind of very prudent doing that. As you know, we're in a world of scarce resources, and we really wanted to protect our teams and our expertise. So what happens is your top line goes down, but you basically keep a lot of costs for that very reason.

So the fact that we were able to maintain the margin we have despite this, and obviously there's a bit of subsidies thrown in there, but it did not make up for what I just said. So the good news is, is when we turn this around, we should be in a good position to continue having very good margins.

Your next question comes from the line of Paul Steep from Scotia Capital.

Paul, could you talk a little bit about the U.S. business and what you've seen maybe on the Microsoft side; and then in the Oracle side, the progress on realigning that part of the business? And I've got one quick follow-up.

Yes. Thanks, Paul, for the question. The U.S. business as a whole is doing well. The Oracle reductions we've seen in the past have stabilized. The concern with the U.S. is more of a geographical issue, not as much with our business, but what's happening in the U.S. as a whole. As you know, the COVID pandemic there has accelerated in the past weeks and months. There's a lot of political uncertainty. So we're tracking kind of at the macro level to make sure we keep our people safe and that we can still serve our customers. So I think there's a lot of noise at the macro level.

On the business side, at the beginning of the quarter, same issues in the U.S. that we saw everywhere else, where the customer is not too sure what to do, delaying decisions, stopping projects or delaying projects. As the quarter progressed, we saw that reverse. Some of the large contracts, like the one we just announced with the health care group, was signed in the quarter. It was delayed at the beginning of the quarter, and we did sign it in the quarter. So we're filling the backlog up pretty well.

Of course, the summer is always -- the Q2 for us, which is the summer months, is always a concern because of vacations and so on and so forth because it's seasonally lower. But the bookings are still coming in. So listen, we're cautiously optimistic. So far, we're happy with what we're seeing, Paul.

And then the second one would just be to give us a sense of -- because obviously, you scored a couple of good-sized contract wins in the quarter. How we should think about the duration of the bookings? Obviously, historically, they would have been shorter, but it sounds like a sizable win or 2.

Sure. Thank you. It varies. So on our existing business, typically, it will be a shorter time frame. The 2 contracts in question that I mentioned, the large implementations, ERP implementations are usually over 2 or 3 years.

Your next question comes from the line of Amr Ezzat from Echelon Partners.

Paul, just a follow-up on the bookings. I mean you mentioned the ERP project, but can you give us more of a segmentation of how it looks like by product lines? Like do you have like a lot of EPM and CRM projects in there as well?

Amr, thanks for the question. As I was saying earlier, I can't give you more details today on the old versus our existing customers versus new customers. However, I'll make sure we get that level of detail for the next call. But it was kind of across the board. So we had, as I said, a lot of customers who were delaying decisions at the beginning of the quarter, kind of came back and accelerated towards the end of the quarter. So it's really across the board that we're seeing these new bookings.

Great. You mentioned in your prepared remarks that the 3 acquisitions grew high single digits. Are you guys disclosing the dollar amount contribution for the quarter?

From acquisitions?

Yes.

No, we're not. We're not because it's -- it would be a little bit too detailed. And the other thing is we're really integrating our acquisitions very diligently. And as Paul explained, we are pushing cross-selling as much as we can. And so when a joint project comes around, then we need to decide, do we put it in the acquisitions P&L or do we put it in our historical P&L. And so -- and it depends basically on specific circumstances. So it would be tricky to try to provide these numbers after the acquisitions.

Okay. So now we're still -- or a number of them were still fairly recent. So we're able to tell you what we did that we're seeing organic growth for these 3 acquisitions, both sequentially and year-over-year. Obviously, we did not have these numbers in our books last year, but we know them. And we know that we have organic growth in aggregate. So...

Maybe, Amr, the color I could give you, which comes back to the acquisitions, so in the booking, the large health care group in the U.S. is actually because of the combination of our EPM and our ERP practice. The ERP practice came from our latest Travercent acquisition. The EPM was our legacy Oracle business in the U.S. Both organizations could not have won that deal together. And the fact that we're able to combine those services is what pushed us over the top and got us that deal, and it was a competitive deal.

Fantastic. That's great color. So I guess, like in general, on the M&A, how is the pipeline evolving in light of COVID? And like some companies are expressing difficulty in like of conducting due diligence in that environment. I just wanted to get a sense of what you guys are seeing and how your pipeline is looking.

Sure. Thanks. So at the beginning of the pandemic, our focus was really on making sure, and throughout the organization, that everything was under control and we're taking the steps to protect the company and our people. So the focus was not on M&A at the beginning of the pandemic. I can guarantee you that. So we put a lot of the discussions on hold to focus on our business.

However, I can say that as the quarter evolved, a lot of these deals, which was a common -- or mutual agreement, by the way, everybody we've talked to was also putting their efforts on hold. So those discussions have restarted. Our funnel is very healthy. The pandemic had the benefit of identifying the good targets versus the ones we did not do as well. So it was actually a way of validating what people were telling us. There's still a lot of very nice companies out there, and our model is still very healthy. So now that we -- that you saw the numbers and the position that we're in, we think we're in a great position to keep that going.

Great. Great. Maybe one last housekeeping item. Just looking at your SG&A, appreciate the color in your prepared comments. As we're looking forward, how should we think about, I guess, a normalized SG&A over the next few quarters? Is there a significant, like, cost cutting we can expect? Or are you guys, like, feel that you're sort of lean now and can sort of drive on?

Well, there's always opportunities for improvements, Amr. The -- as Claude was mentioning, we have some recent acquisitions that are being integrated, and that's why you're seeing some year-over-year improvement. That's going to continue. As we integrate the businesses, we always find synergies and then ways to do better.

I don't know, Claude, if you want to add to that?

Yes. So obviously, in this first quarter, anything having to do with travel, business development, training, even recruiting, to a certain extent, even though we did not stop recruiting, we still for a while were, I guess, less active on that front. So those expenses, how they turn around remains to be seen and what's going to happen with COVID and restrictions of travel and so on and so forth. I don't think we're going to go back to how it was before ever. So it remains to be seen exactly what the rebound in SG&A in these categories will be. We had also some headcount reductions. We talked about that in our Q4 reporting.

So I guess on a structural basis, our reduction in SG&A will mainly come from increased scale. As we said often, our existing infrastructure can take us to $1 billion and maybe more with minimal increases in mid-level or junior levels in our corporate functions. So that's what I would say. But you can probably expect, if COVID -- if there's a return to normality, I mean, some categories would increase back. And that can be a few hundreds of thousands of dollars on a quarterly basis, easily. But right now, for second quarter, we haven't seen much change yet, as you can imagine. So...

Your next question comes from the line of Gavin Fairweather from Cormark.

Just to start out on the project kickoffs. And nice to see the good bookings number in the quarter. I guess just curious the extent to which you're seeing delays in project kickoffs kind of in general, but then also specific to the Travercent business just given what's going on in U.S. health care.

Sure. Thank you. So on the project kickoff, as I was saying earlier, we saw a lot of delays at the beginning of the quarter as people were trying to figure out how to do things in the new context. And as I was mentioning earlier, especially in the large projects like the ERP implementations, even considering doing those remotely in the past would have been seen as heresy. I think a lot of people realized they could do things a lot better remotely than face-to-face. We've done over a dozen go-lives in the quarter. And of course, they came later in the quarter.

And the results have been quite impressive. The quality of the project kickoffs and implementation have actually done very smoothly. We have been giving training on how to do it. We were highlighted at the Microsoft Inspire conference for how we do these things. We actually posted a lot of video training on our websites and for our customers on how to do these types of things because of the experience we had. So I'd say, all in all, we were able to turn that around and come up with a new way of doing things that is very appreciated out there in the current market conditions.

Okay. That's very helpful. And then just a clarification. If you had a project that was kind of paused late in, I guess, your Q4 or early in Q1, and then it kind of came back online, that's not factored into your book-to-bill ratio. That would be kind of on top, right, because it was already in the backlog?

I'm sorry, I'm not sure I understood the question, Gavin. The project that was paused?

If you had a project that was delayed kind of, let's say, earlier in this quarter, but it came back later in the quarter, that wouldn't be included in your bookings number or factored in the book-to-bill because it's already in backlog? Am I thinking about that correctly?

No. So the bookings are based on the signed contracts. Whether we sign a contract -- typically, when we sign a contract and when the project starts are 2 different dates because you sign the contract, then there's a kickoff and a ramp-up, so it varies depending on the type of projects, but they're 2 different things.

(Operator Instructions) Your next question comes from the line of Deepak Kaushal from Stifel GMP.

Claude, you guys have given really good color on the quarter and the dynamics from the beginning to the end of the quarter. I'm kind of curious, what are your customers sharing with you about their outlook for the fall? And how far are they kind of planning ahead right now? And likewise, what's kind of your outlook for the fall? And how far are you guys planning ahead or even look ahead?

Thanks for the question, Deepak. We don't provide outlook on our numbers, but I can give you color on what we're hearing out there. I think it might be helpful.

That's perfect.

Again, I go back to March when I think the whole planet was kind of wondering what was going to happen. We went from that to, I'd say, May, June, where people realized that the world was not stopping. Despite all the challenges, businesses were still operating. They still needed their back office to operate. I think a lot of companies realize that the more cloud-based they are, the better so that their people can work from home. There was a lot of panicked organizations at the beginning of the quarter trying to figure out how to work from home. That was not an issue for us. We actually sent everybody home before it was required to do so because everything within Alithya is cloud-based. We've already implemented all the systems. So from an infrastructure perspective, we're in a great position.

We saw gradually the different sectors coming back. So for example, financial services, they realized that people still need to do their banking and then shopping; the food industry, if you look at the large grocers and the food production; manufacturers, which is our customer base, couldn't keep up with demand. So again, they had to adapt. And so depending on the different sectors that we're looking at, I think everybody is realizing that it is a new world. It's a new way of doing business, but they still have to do business.

And so the demand for our digital transformation services is still there. It's still going to be there. It's not going to slow down. People need their technology more than ever. And I think some of the larger organizations, which in the past were looking at technology more as a cost of doing business, are now looking at how do we leverage technology to be better and do things faster and more efficiently. So I think you've seen a change in the mindset of a lot of CEOs and leaders out there that technology is not just a bad thing and expense on the P&L and the balance sheet. It's how do we leverage that and do it smarter, which is basically where we're lined up.

If I look at the fall, I'd say your guess is as good as mine. Everybody is very concerned with what's happening in the U.S., just because the U.S. drives a lot of what's happening in Canada and many other places on the planet. I'd say we're very happy with our business model. We're happy with how our business has been resilient in the past quarter and how it's doing within all of that uncertainty that we're seeing out there.

So we're -- I'd say we're cautiously optimistic. But with everything, again, the geographical and political issues in the U.S., I'd say your guess is as good as mine as what's going to happen in the fall, if there's going to be a second wave or when is the vaccine going to show up. I think we're going to be in this mode for quite some time. I think traveling -- airline travel, we're still a year away from any kind of normalcy, and that's if we get a vaccine by then. So we're -- we really adapted to operate the way we're operating now.

And it's also impacting how we look at acquisitions. So we look for acquisitions that are in the same essential services as we are, that have a complementary offering, have a very high recurrency of revenue and predictability. So it has changed some of the -- it's added, I'd say, some of the betting conditions that we added on our list of what to look for and what to look at. But I'd say it's introduced a lot of discipline in the industry. And we've been able to do that very well and adapt very well.

You also have to remember that in the U.S., even before the pandemic, all of our team worked remotely. So the difference was we traveled to a customer site for a kickoff of a project. We traveled to a customer site for the implementation, so you can do the handholding and address issues as we go. So I'd say the biggest challenge was adapting to that, doing that remotely. And also, on the business development side, which, again, people are not going to be traveling at the conferences and all kinds of other places in the near future, so adapting our sales model to be able to sell remotely has gone very well. So again, that's something that we're going to be leveraging in the coming quarters because we do believe this thing is going to last for a while.

I don't know if that answers your question, Deepak.

Yes. No, that's very, very helpful color. Yes, no, no, that's very helpful color. I appreciate that. You mentioned in the outlook large organizations trying to leverage technology. Do you have a sense yet in this new normal? Before we get a vaccine and it's widely spread and there's mass immunity, do you have a sense of -- is the new normal bigger or smaller than the old normal? Like if we can think of it on a same-store sales type of basis, do you have a sense of where this all might shake out? Are we 10% higher than what you thought going into COVID or pre-COVID? Or are we 10% lower than that?

I'd say this is just a personal opinion, Deepak. I think this new normal is around for a while. I think there's always going to be the need for people to go into offices and be there personally and to do team building and build company culture, but I don't see organizations going back to the levels of before. I think this is going to have a huge impact on the retail -- commercial retail in the medium to longer term on how we shop, how we travel, how we work. I think it will have a lasting impact on the digital environment of how we use tools, how we leverage the digital world and how we work and how we live.

Again, I've been around the industry for quite some time. I know that sometimes we see these things in their fabs, and they go by and they change every 4 years. But I do think the idea of you have to be on site all the time, I need to see you all the time to be able to figure out if you're working or not, I think that's out the window.

Okay. Great color. And then if I may, Claude, not to leave you out. Good cash flow this quarter. How much of the working capital changes are permanent? And what can you tell us about some of the nonrecurring costs here? The premise relocation costs and the ERP system integrations, things like that, how much of those should we be expecting over the next couple of quarters? And that's it.

Yes. So by the way, it was Paul talking before. And apparently, we have a very similar voice, but it was Paul...

No, no, no. I thanked Paul, and I didn't want to leave you out. So Claude, now I'm asking you some questions.

And I would add, by the way, on rent, which is our second largest expense in itself, you can expect our needs to be decreasing over the coming quarters and years for the reasons Paul was explaining. However, the subleasing market right now, as you can imagine, is pretty soft. But certainly, when we look at acquisitions, it's fairly safe to say that the need for space will be very limited. So those synergies are becoming very easy because we have space in our existing facilities because of COVID.

The working capital variation, I mean, that may be one silver lining of having decreasing revenues. Obviously, that's good for working capital. You have your receivables going down typically, and that brings cash in. We went over and above that. However, I don't want to take a little bit of credit. Our DSOs, so our receivables and days of sales have been stable, if not slightly down despite COVID. So we could have expected clients to slow down on payments. That has not happened, neither in Canada nor in the U.S. However, as our revenues stabilize and hopefully start increasing again, you may have some reversal of those positive working capital variation. So it's pretty tough to forecast in itself. We are -- we pretend to be a growth company. We've always said that, which means that each quarter, if you remove these timing differences, as we get bigger, you can expect we will need to be investing in our working capital on a sustained basis.

With regards to ERP, those expenses are decreasing, obviously. We're nearing the end of our -- in fact, we have for a while. Now we're more investing when we need to integrate our acquisitions onto our Oracle platform. That's where the bulk of the spending on ERP will be. So that, you can expect, will be continuing. It's gone down in the Q4, as you saw. So that trend will continue even though you never stop investing in your ERP system. And the good news is that's what we do for a living. So our clients are stuck with the same thing. You always need to bring in the new modules and updates and personalization of certain functions and training and bug fixing. So it will never stop, but you can expect that amount to go down.

And the other one you were referring to, what was it? What was the...

I think it was premise relocation, premise relocation?

Oh, yes. So that's mainly behind us, indeed. We will have a little bit coming but really not much. In the second quarter, we are bringing our Matricis folks and our Askida folks. We're bringing them to our main offices, but it's small dollars. So that will be going down as well.

Your next question comes from the line of Suthan Sukumar from Eight Capital.

Just given the growth of recent acquisitions, I just kind of wanted to get an update on any progress on software-driven IP revenues.

It's still fairly low. Obviously, we resell Oracle and Microsoft licenses. But as far as proprietary IP, that's a small amount still. We're really looking after IP that we can sell services around. That's our business model. But if you look to our financial statements, I think we still have the notes -- or no, we removed it actually. It's pretty limited, Suthan. No, your question is a very good one, Suthan. It's something that we have said that we want to grow and look into. Today, it's very limited. The last acquisition we did with Askida, they have a significant portion of IP. But when you look in the greater scheme of things, given the size of Alithya, it's still small as compared to the rest of our revenues today.

Okay. Great. And then just I wanted to circle back on a comment you made a couple of questions ago, just on the changes in priorities in M&A given the current environment. I was just wondering if you could kind of just circle back on those comments and just provide a little bit more color, if possible.

Sure. So we have a very disciplined approach to our M&A in terms of what we look for: a cultural fit, management sticking around, the complementary nature of the services and the industry that they're in. So we have a checklist that we go through, and we qualify all these companies before we even go to the next step. We added to that list based on the COVID. So for example, the sectors was something that we looked at in the past, but I think the visibility of the sector, whether it's in essential services or not, is now at the top of the list because as we've seen from COVID, if this thing lasts for the next 2 years, much better to have a target that are in similar sectors to us and that are COVID-resistant. Let me put it that way. So that's an example.

So we've added a few new criteria that we look at as we scan these companies. And given that the pandemic, we're now into month 6 of it, it's really easy to tell how that has impacted the targets that we're looking at. So it's very interesting. So we added a few new criteria, and I'm not going to go into detail because I think it's part of our secret recipe. But there's still some interesting targets out there despite all these things.

There are no further questions at this time. I will turn the call back over to the presenters.

Thank you, Joanne. So again, very happy with the quarter. Thank you, everybody, for being on the call today.

Just wanted to remind everybody that our Annual General Meeting of Shareholders will be held as a virtual meeting this year on Wednesday, September 16, 2020. And to access the meeting documents, you can visit our Investors section on the Alithya website.

So thank you, again, for being on the call today. And we look forward to speaking with you on the next quarterly call. Thank you. Have a nice day, and stay safe.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.