Alithya Group Inc. (ALYA) Earnings Call Transcript & Summary

Good morning, and welcome to Alithya's Fourth Quarter and Fiscal 2024 Results Conference Call. I would now like to turn the meeting over to Alithya's management. Please go ahead.

Good morning, and thank you once again for joining us for Alithya's fourth quarter and 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, plans, expectations and other statements regarding the future growth, results of operation, performance and business prospects of Alithya that do not exclusively relate to historical facts, of which refer to future events, including statements regarding our expectation of our clients' demand for our services, our ability to take advantage of business opportunities to leverage our service offering, IP, AI and expertise to meet clients' needs and to meet our goals set in our 3-year strategic plan, as well as our ability to deploy our smart shoring capabilities. For more information, please refer to the cautionary note in our presentation and to the forward-looking statements in Risk and Uncertainties section 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 to the non-IFRS and other Financial Measures section of our MD&A for more details. Presenting this morning are Paul Raymond, Alithya's President and Chief Executive Officer; Bernard Dockrill, Chief Operating Officer; and Claude Thibault, Chief Financial Officer. I will now turn the call over to Paul Raymond. Paul?

Bonjour and good morning, everyone. Thank you for joining us today. This is an exciting time for Alithya as Q4 marks the end of the year characterized by the continued progress of higher-value services for our clients and greater operational efficiencies internally. As this quarter also marks the end of our fiscal year, we will focus on 3 main areas today. 1, our Q4 results; 2, a look at our 2024 fiscal year; and 3, an overview of our new 3-year plan, which took effect this past April 1. So let's begin with our Q4 results. Our fourth quarter results reaffirm our ability to improve our business despite challenging market conditions. Our clients recognize the growing value of our services. This can be seen in the ongoing progress of our margins. Our Q4 gross margins, our adjusted EBITDA margin and our net margins were all new highs for Alithya. Q4 was also a quarter of robust bookings. In fact, when excluding the 2 very long-term contracts, we achieved a book-to-bill ratio of 1.27. These are all very encouraging signs. I'm particularly proud of our team's results despite the challenging conditions in our industry. I will now turn things over to Bernard Dockrill, our Chief Operating Officer, to discuss some of the projects and initiatives behind those numbers, followed by Claude Thibault, our Chief Financial Officer. I will then come back at the end to comment on our new 3-year plan. Bernard?

Thank you, Paul. Our strong Q4 bookings were fueled by large wins in the health care and cybersecurity sectors. This includes a groundbreaking multimillion dollar contract for services to the health and social services industry in Quebec. Over the next 5 years, we will be implementing a cloud-based Oracle ERP system designed to revolutionize supply chain processes across the products. The project will be delivered in partnership with LGS, an IBM company who will serve as a system integrator. This is the type of project that stands with a testament to our strategic approach, and we continue to gain traction in the health care sector in North America by leveraging our extensive business transformation expertise. Overall, our sense is that the low growth in the Canadian market in recent quarters is about to reverse. Some large banking clients have recently adopted a renewed focus on installed projects, which suggests to us that the industry in general is beginning to recover and that we will see growth in the financial services sector in terms of IT spending by the end of the fiscal year. In Canada, the shift to cloud computing is progressing steadily. The increasing demand for legacy application modernization and client requests for assistance in leveraging our IP solutions, the application migration, intelligent document processing and quality assurance, among other services, presents us with opportunities to grow our revenues. Additionally, this growth allows us to leverage more of our smart shoring capabilities. In the U.S., revenues were up Q4 that accounted for 39% of Alithya's overall revenue stream. This is up from 37% a year ago. Those increased revenues were softened by an unfavorable foreign currency impact, which Claude will discuss a little later. Nevertheless, Q4 in the U.S. was a high watermark for fiscal 2024 in terms of revenue, gross margin and contribution to EBITDA. The U.S. market accounts for 47% of our overall operating income in Q4. This is up from 38% a year ago. Both our Microsoft and Oracle ERP practices continue to grow in the U.S., and Alithya is seen as a high-quality and trusted partner. In April, a major international wholesaler went live with an Alithya implemented Microsoft Dynamics 365 finance and supply chain management solution for their packaging and distribution operations for North America and Europe. This was the client's third deployment with Alithya and the project enabled the client to retire multiple legacy systems as part of the digital transformation journey. The successful completion of that project is a testament to the type of collaborative partnerships to drive the successful projects of our Microsoft practice, not only for ERP, but also for business intelligence, Azure and training solutions. Q4 also saw positive growth in momentum in our Oracle business, including another significant win with a large [indiscernible]-based network of 5 hospitals employing more than 18,000 people, comprising Oracle Cloud Enterprise Performance Management, enterprise resource planning, supply chain management and human capital management, our extensive experience in deploying similar systems positioned us ideally for this project. This $12 million contract represents Alithya's largest health care win in the U.S. today. It is also a logical step forward in our upward penetration of larger health care facilities across North America with more than 120 enterprise solution implementations in that sector in recent years. As major digital transformations continue to unfold in the U.S. market, our operations remain vigilant in pursuing these large opportunities. I would now like to take a minute to expand on the bigger picture in terms of our smart shoring strategy and progress. Currently, over 8% of our overall workforce is located outside of our main geographies in the U.S., Canada and France. With opportunities to create more value for our clients in Alithya, our intent is to continue ramping up our smart shoring capabilities going forward. Smart shore options are now a common pillar to many of our active engagements and pursuits, providing access to a large, cost-efficient talent pool in our established locations. This additional capability enables us to compete where we may not have competed previously and provide greater value to our clients. For example, with many organizations deeply involved in migrations to the cloud, AWS signed an agreement with Alithya in Q4 to retain our smart shore team for the provision of cloud migration services. Alithya has been actively involved in the AI landscape for several years. We are proactively investing in our clients' AI upscaling with offerings such as our Alithya Copilot Academy who become a trusted leader in this sector as well. The Alithya Copilot Academy is a comprehensive training program to benefit both beginners and advanced users. The weekly program led by Alithya experts include hands-on sessions and workshops that provide a deeper understanding of Microsoft copilot functionalities and best practices. We also continue to invest in AI-assisted IP. While many businesses been eager to put the cart for the horse, Alithya is well positioned to help its clients prepare, capture and structure their data using our proprietary rapid capture tool sets fact the most value. It's an exciting time for technology. And as organizations complete their preparations and approach the start of their AI journeys, Alithya will be there to accompany them. Smart shoring and AI provide a great segue into discussions about our new 3-year plan, which Paul will cover later, as they are both critical components of that plan. I will now pass it over to Claude to go over some financial metrics. Claude?

Thank you, Bernard. Good morning. As mentioned, our fourth quarter fiscal 2024 was highlighted by continued performance improvements on many levels. Consolidated revenues came in at CAD 120.5 million, a year-over-year decrease by the small sequential improvement versus the third quarter. Despite the current general market conditions in the technology services industry, approximately 84% of Alithya's Q4 sales came from existing clients, which we had in Q4 of last year. This demonstrates strong client relationships, trust and satisfaction Alithya services regardless of market trends. If we dive a little deeper, we can see that revenues in the U.S. increased sequentially by 7% to CAD 50.4 million due to organic growth, although partially offset by a negative U.S. dollar variation. On a year-over-year basis, Q4 revenues in the U.S. also increased by 2.4%. On a sequential basis, our international revenues increased as well by 2%. Now in Canada, we still faced some challenges as shown by our revenue numbers, both sequentially and year-over-year. Revenues decreased 5% sequentially to CAD 64.6 million or 20.4% year-over-year. Those numbers reflect the fact that our clients in the Canadian financial sector are generally in a lower IT investment cycle, although we are seeing stabilization in terms of spending levels. In regard to gross margin, as a percentage of revenues, however, we are reporting a fourth consecutive quarter of improvement. I noted in previous quarterly calls how challenging it is to increase gross margin during lower revenue cycles. However, we achieved sequential progression again despite another quarter in a softer revenue context, and despite Q4 always posing a special challenge because of the annual reset of payroll benefits. Specifically, gross margin as a percentage of revenues increased to 32.1%, a record high and up from 29.9% in the same quarter last year. On a sequential basis, gross margin percentage also increased in comparison to the 31.3% reported in the third quarter. Our gross margin percentage increased in all geographies year-over-year and sequentially, mainly due to higher value services, higher utilization, improved project performance and geography mix. And this, again, despite the employer benefit reset of January 1. Now looking at SG&A expenses, we have also witnessed significant improvements for consecutive quarters, and we are happy to see our cost control efforts continuing to bear fruit. Total gross SG&A expenses in the fourth quarter amounted to CAD 29.6 million, a decrease of 17.7% year-over-year, which is a notable decrease when looking at numbers on an annualized basis, even when considering the nonrecurring impairment charge of last year. SG&A expenses as a percentage of revenues came in at 24.6% in Q4 compared to 26.4% for the same period last year, namely a reduction of CAD 6.4 million, driven mainly by reduced salary expenses, decrease in share-based compensation and a reduction in impairment. Overall, thanks to the above performance on cost management, our fourth quarter adjusted EBITDA amounted to CAD 10.5 million, which is slightly higher than the same period last year when our revenues were notably higher at an all-time high. This shows very clearly how much progress we've made in terms of operational performance and how much our profitability could be as soon as we return to our higher historical revenue levels. We would also like to point out that at 8.7% of adjusted EBITDA margin, we are within a couple of hundred thousand dollars of the 3-year goal we had set of reaching a minimum EBITDA margin of 9% by the end of fiscal 2024. Considering Alithya's overhead profile and again considering the current low revenue environment, we are quite confident that this performance is setting a strong base and great momentum for the next phase of our strategic plan. Also, our record high adjusted net earnings at CAD 6.1 million or CAD 0.06 per share, increased by 49% year-over-year and 40% sequentially. I would also point out our accounting net income of positive CAD 2.3 million. which has improved significantly from negative CAD 20 million in the same period of last year, even though Q4 last year have been impacted by certain nonrecurring elements. Of note, we are reporting positive accounting net earnings for the first time since becoming public in 2018, a positive trend, which we have been calling out for a while. We got some help in the quarter from a nonrecurring element, but we did move closer to reaching that milestone regardless. The market will surely appreciate seeing a positive accounting net earnings amount, but as a reminder, we have actually been always cash flow positive despite recording accounting losses just because of high depreciation and amortization charges. Finally, considering our CAD 10.5 million of adjusted EBITDA and our CAD 9.7 million of cash generated from operating activities before working capital variations, this translates into strong cash flow conversion of 92%. Of note, this is despite the fact that we had over CAD 2 million of severance in Q4, which is excluded from adjusted EBITDA, while obviously impacting cash flow and which we expect to be decreasing going forward. With regards to our fiscal 2024 12-month results, we wish to point out a few metrics achieved despite the cyclical decline in revenues already discussed. Indeed, we achieved an overall improvement in our adjusted EBITDA margin, which came from a 140-point improvement in gross margin and a CAD 5 million reduction in SG&A expenses. In closing, let's discuss our liquidity and financial position. Net cash generated by operating activities was CAD 9.7 million, representing an increase of CAD 5.3 million or 120% year-over-year. As of March 31, 2024, when combined with other cash flow elements, this resulted in total long-term debt reduction of CAD 9.8 million to CAD 117.4 million and our net debt-to-EBITDA multiple falling back below 3 times. I will now pass it back to Paul to discuss our new 3-year plan. Paul?

Thank you, Claude. Our new 3-year plan took effect on April 1, and we will be holding an Investor Day in September to present a detailed plan to all of our stakeholders. But in summary, our plan aims to achieve a scale and scope, which will allow us to leverage our geographic presence, our expertise, our integrated offerings and our leadership positions to target higher-value IT segments. Key to that process is our ability to continue building relationships of trust with our clients, our people, our investors and our partners. We currently have valuable client relationships which include both large industry and government organizations in our target markets. By amplifying the value we provide, we will create greater awareness and interest of Alithya's extensive slate of innovative solutions and services. Demand for both business and technology consulting is being driven by organizations need to accelerate their digital transformation. This organizational efficiency and optimization projects now rule today, clients are shifting their emphasis towards cost control, efficiencies and automation. Alithya is perfectly positioned to answer those needs. Most business leaders believe in the potential of AI and generative AI, but many are still without clarity on how to use it, either on a larger scale or on how to mitigate the associated risks. We see this challenge as a source of future growth for our business as clients reach out for assistance in understanding and harnessing its potential with respect to their products, their services and their operations. Our new 3-year plan also lays out strategies for Alithya to achieve between 5% and 10% of annualized organic growth while increasing our EBITDA to a range of 11% to 13%. It also includes objectives to acquire complementary businesses totaling CAD 150 million in revenues over the next 3 years. We have a healthy funnel of high-value complementary acquisition targets, and we will continue to focus on the United States, Canada and Western Europe. Moving forward, our intent is to also deliver an increasing percentage of our business using AI-based tools and our smart shoring centers. We believe the scaling up of our smart shoring operations will provide us with a greater pool of qualified experts and margin services in the areas where we did not currently compete. Finally, our new 3-year plan also lays out steps towards achieving net 0 emission certification. In conclusion, as I have said in the past, there will be more technology in our lives 10 years from now. Technology is once again poised to change the way we work and live, and Alithya is excited to be in a trusted position to help all of our stakeholders harness the tremendous promises of these new technologies. We will now be happy to take questions. Operator?

[Operator Instructions] Your first question comes from Gavin Fairweather from Cormark Securities.

This is Graham on for Gavin. I just wanted to ask about the cadence of the smart shore hires. I know last quarter you said it was about 5% to 6% of the workforce and now I think you mentioned it was over 8%. I know there's been some restructuring like some headcount reduction, but maybe if you could just give a bit more color on sort of that jump in the percentage of smart shore full-time employees, that would be great.

This is Bernard Dockrill. As Julie mentioned, Paul Raymond who's actually touring our smart shore centers right now is unable to take the call today. So Claude and I will be fielding your questions, and just timely Graham with smart shore question, yes. So, I did say roughly now our total workforce, about 8%, a little over 8% is now in our smart shore centers and our noncore centers out of the U.S., Canada and France, and we see that continuing to grow. It definitely is a priority for us. As Claude mentioned in the last call, when we're seeing a lack of the higher-end growth, it is more difficult to ramp-up in those centers as we're not hiring as many, but we are happy with the progress we're making, and we've got continued initiatives to continue this progress in future quarters.

And then just on the bank projects that are sort of starting to come online, could you maybe give us a bit more color? Is that like something that's going to happen in the second half of -- or I guess, the first half of fiscal '25 or is that going to sort of take a few more months as they start to take these [normal] products back online?

We have been seeing a lot more activity on some of the projects that were installed in previous quarters. So, they haven't yet turned into bookings or revenue, but we do anticipate from the activity we're seeing that we will see some of these things come to fruition in the second half of this fiscal year.

And then just 1 more from me. So gross margins were obviously very strong this quarter despite the seasonality with the payroll and benefits. Is that primarily on strong project execution? Would you attribute that more to that jump in the smart shoring, a percentage of smart shoring? Maybe just some more color on that would be great.

Yes. There's a number of factors that are impacting our gross margins. Definitely, our delivery excellence and our delivery -- project delivery is improving, so margins are going there. The smart shoring has a positive impact in creating tailwinds there as well as our utilization. We've been able to continually step-up our utilization. And finally, the last thing is automation. We're seeing more automation in our projects, which allows us to replace labor completely, which has a great impact on our gross margins.

Your next question comes from Jerome Dubreuil from Desjardins.

First question is on the margin guidance over the longer term. The question -- a lot of people are likely to have this. What are the assumptions behind the long-term guidance on margins in the past. It's been a challenge to achieve this, but now we're really seeing good momentum. So are there assumptions in terms of organic growth resuming soon? And second part is, do you see further low-hanging fruit for you to meet that objective.

As we look forward -- we don't give guidance on the future. But we do see the ability to have more of the smart shoring, as we discussed earlier, when we get more growth, it's easier to ramp-up quicker in the smart shore. And we're seeing our clients much more open to doing more offshore, as they're looking to get more for their dollar as well as our utilization. We have made great improvements on our utilization and that gets harder and harder, more improvements you make, but there is still some room there. We think that we can continue to get better there. And as I mentioned before, our delivery excellence, we put a lot of programs in place over the last year, and we've seen great rewards from that in doing that. So I continue to expect that we'll see some there. But on the growth side, the market is a challenging market right now as you're seeing with interest rates, but we're already seeing some activity that makes us feel that the second half of the year, we may return to the growth levels that we were back previously.

Second question from me, just a clarification. Is the health care deal with the government of Quebec included in the quarter's bookings?

Yes. The 2 deals I mentioned in my remarks there, the health care deal in Quebec as well as the large health care deal that we had in the U.S, both of those deals were in our Q4 bookings and provided a good uplift to those bookings in the quarter.

That's good to hear. And finally from me, are you happy with the current mix of managed services? I mean a lot of companies in the space have been using a higher mix of managed services in order to get better utilization. Is this something you're looking at to kind of transition your model towards or you're happy with the current mix?

Definitely, managed services provide a lot of advantages to our work, not just in the margins on the managed services work, but also the long-term nature of managed service contracts. So a lot of the implementation work we do allow our ERP implementation work we do. We're being more proactive on including managed service options in those agreements, which create a tail to those agreements. So definitely, we'd like to see more managed services, does provide advantages to our services mix that also reduce risks in future quarters as well. So, it is part of our strategy to increase that.

Your next question comes from Rob Goff from Echelon.

Congratulations on the margin performance, is very impressive. And perhaps going back to the ERP win in Quebec, can you discuss your -- how you are working with Oracle and IBM and the broader scope of that contract? And with that contract, would your share of that contract be relatively consistent with the win announced in the U.S. in terms of scale?

If you can clarify your question as far as the relative scale to the U.S. The contract in Canada is slightly larger than the one that we had in the U.S. from our portion, and it is a consortium where we are one player in that delivery team. LGS is the system integrator. And of course, Oracle is the software provider. I think that answered the question.

Sure. Is this a partnership that could be pursuing similar contracts in other provinces or…

Yes. Well, Oracle is one of our primary partners. So we do a lot of work with Oracle through our Oracle ERP, specifically in health care and also in the EPM space. So that's a partnership that's been around for a long time. And even with LGS here in Quebec and other areas, we have partnered in the past. And as we look at every deal, we look at every deal independently and what is the best solution for our client. And if that involves partnering, we'll look at the partner and ecosystem and pick the best partner for the individual opportunity that we have. But definitely, with where we are right now with LGS, this is a very positive partnership that we have going.

And Claude, in terms of Canada, you're talking about the increased activity with the banks and how that's a second half consideration. Do you see Canada is returning to year-on-year growth in the second half?

As you know, we don't provide guidance. But the activity we're seeing and even what we started here in the first quarter, we've got some big bookings in Canada, in Quebec and outside of Quebec. So, I do see from activity, our pipeline is strong. One of the things we're seeing is larger deals in our pipeline or strategic deals. Of course, those deals take longer to follow us. There's more people involved in the client side and the decision-making that will reflect, but it provides us with a very positive forecast as we look forward.

Your next question comes from John Shao from National Bank.

On smart shore, could you maybe remind us what needs to be done here to potentially close down the gap relative to your peers who has a much higher mix? And how should we think about the pace of acceleration on that front?

And yes, smart shorings, there's a few things there that we're looking at. There's, first of all, our client delivery, which is the primary focus of our smart shore and then also internally on some of our internal operations and moving more of that to our smart shore center. So we have threads, if you will, that we're pursuing to grow those centers. As I mentioned before, is when you look at new contracts that we're signing with our clients, there's more and more smart shore delivery built into those contracts. In some of our past contracts, it's tough to move because we've contracted sometimes on where we deliver the work from. So we're limited there. But as we grow and we renew these contracts, we are accelerating that. And as I mentioned before, our clients are very interested in it. I think in most industries right now, they're looking for further savings for their operational efficiencies. And smart shoring is one of the levers that we can pull. Of course, it's not the only lever. We're looking more at the automation front as well to drive further efficiencies for both us and our clients. But as we do grow and we sign these new contracts, I do expect that our smart shoring percentage will continue to go in the right direction.

Okay. And in terms of the demand environment, it sounds like demand is about to return. On that note, how should we think about your staff utilization or capacity to potentially take on more projects?

There's only so much you can do with utilization. At some point, it's having the right skills available for the new projects coming on. So we are very actively analyzing our pipeline and ensuring that what we have is available as a bench capacity aligns to the work we're seeing demand from our clients. So that's kind of the key activity to make sure we can do that, but also going to the market, bringing on new talent as we bring on these new deals. The deal that we signed here in Quebec requires us to hire as well. We didn't have all that capacity sitting idle. So as we do that, we bring them on. And of course, that has a little bit of an impact to your utilization as you -- when you bring on the team, you have training ramp-up where folks may not be available. So some of that has a bit of a headwind on that. But I do see, as we grow, there will be a little bit improvement in the utilization as it stabilizes.

Your next question comes from Vincent Colicchio from Barrington Research.

Yes. Bernard, are you seeing engagements ramp in-alignment with your expectation, and in particular, I'm interested in the 2 large health care deals you signed last quarter.

As far as our ramp up on that?

Yes. Is it ramping according to plan.

Yes. So these are, again, large initiatives, they're multiyear initiatives, so that's not all ramping up at one time. So, it will take a quarter or 2 before they ramp-up probably to peak capacity. And the large deal in Quebec, of course, it's a 5-year implementation and as a managed services tail on it as well for several years. So the revenue is spread over that period of time. But the deal in the U.S., we are ramping that up, and it will ramp up over the next 2 quarters or so.

And then overall, are you seeing a slowing in ramping to an extent?

Slowing of new projects or…

Yes, new projects.

Yes, a little bit of the dynamics that are going on. One of the things we see in our pipeline is, especially in the ERP space, we're bidding on more multicolor contracts, contracts that include ERP, SCM, HCM, EPM, of course those are larger and more complex deals. There's a lot more buyers involved in the decision-making, the lines of business, the IT. So they take a little longer to close, but they're larger as well. So, it's a good outcome for us. And again, the 2 big wins that we had in Q4, specifically in our Oracle practice, that did take a lot of energy of the team there to close those deals. So right now, we're refilling, and we covered, if you will, new deals in that space as we did that. We didn't close successfully some big deals, which impact our pipeline.

And then the digital training business has been a laggard. Is that now on our firmer footing.

Yes. We look at our digital adoption practice and you may have seen the press release on our full Pilot Academy. That's that group combined with our Microsoft team delivering that. So, we are seeing a bit of an uptick there as we look at the AI space. There's a lot of adoption around AI. The market is looking for help on how does it fit in. So this is a copilot academy is something we put together to not only train our internal people, but our clients and prospects on AI. We do see a lot of demand in our digital adoption team with AI training.

[Operator Instructions] Your next question comes from Divya Goyal from Scotiabank.

I wanted to get some more color on the Datum acquisition. That was a pretty sizable recovery on the earn-out recorded in the numbers this morning when we were reviewing them. Trying to understand a little…

I apologize, Divya. You broke up at the end. Can you repeat the last half of the question?

Yes. I wanted to get a little more in the numbers that were released this morning, or they were not scheduled and could we expect further recovery based on that deal…

I still can't hear you, Divya, but I believe your questions around the Datum acquisition and the earn-out and the progress we've made there and what we look at there. So yes, that was the onetime adjustment there was with regards to the earn-out there based on our results in the last year. As we look to the forecast and part of that Datum acquisition was the RapidSUITE of products. And there's a couple of things in the RapidSUITE that right now have a lot of traction in the market. You've heard Paul talk a lot before about the RapidCAPTURETM, which is a utility, which is AI-enabled for capturing paper and other unstructured data and bringing that into systems. There's a lot of demand for that. Some of the existing clients actually have ramped up their usage of that product. So we see positive trends there. We also, with the [RapidBOX] tool that we have from that acquisition, which helps with legacy application modernization. You heard in my remarks, I spoke a little bit about some pickup on what we're seeing in both the Canadian and the U.S. market around the move to the cloud, and that tool is core to what we're seeing there. So we're seeing some opportunities this year that bundled with some of our other capabilities as well. So taking what we got from the Datum acquisition, bundling it with our AWS and our Microsoft practices, there is a lot of activity right now. So, I do think that next year could show different outcomes than what you saw in the last year.

I just wanted to add. I think you asked about future adjustments and what we did in Q4 reflects our most recent forecast for Datum, the earn-out period ends next year. So this reflects our most recent forecast. So we are not expecting right now to have further adjustments to the earn-out. If that was the question, I also could not hear you very well.

My apologies, it's probably the network here. Yes, I was actually trying to understand the earn-outs that are scheduled for Datum or there further earn-out schedule? It sounds like you're not expecting recoveries, but are there further earn-outs schedule with Datum.

Yes. So we have a -- as I said, the earn-out period ends next year, June 30. So we are currently expecting to make a payment on the earn-out based on the good performance of that acquisition, as Bernard explained very well.

And I know you don't provide the net earnings guidance, but obviously, this time, the net earnings look pretty healthy. Could you provide some directional cadence on how should we expect to see net earnings in the quarters ahead?

Maybe Bernard, I can answer this one. So if you look at our financial statements, you can see that what has been keeping us from reaching positive accounting net earnings has been mainly amortization and depreciation and also integration, acquisition and reorganization cost in the most recent year, we've made reductions in head count, and we've had some severance charges fairly significant. And also interest charges is something we need to look at. So all these buckets are expected to decrease going forward. As we go forward, amortization depreciation goes down. We're paying down debt, as I explained. So interest is going down. The interest rate has also gone down a bit, as you saw recently. And finally, we've reached a comfortable level for now in terms of reductions to SG&A, so that too, severance payments should be going down. So if you look at our information for Q4, you can see the amount that the nonrecurring amount that helped us becoming positive, which obviously will not be there going forward, but we're still aiming to become net earnings positive over the coming quarters.

And last question that I wanted to get a little bit more color on Bernard and Claude, either or Paul for that matter, the M&A that you have put in your strategic plan and expect that to be close to CAD 150 million, are there certain skill sets or proficiencies that you're looking to acquire or is that an expansion across geographies? If you could provide some color on that. And that will be all from me.

Maybe I'll start, Claude, and I'll let you add on at the end. So definitely, M&A, we do give ourselves a target over the next 3 years. And as you know, it's a lot of accretive acquisitions. So we're looking for the right targets and that will dictate kind of how we're performing at that. But really, as we look at the market where we are today in Canada, the U.S. and Western Europe, that is a big part of the IT spend globally. So our focus is going to remain where we are today in those markets with a focus on the U.S. being the largest of those markets, really, it's a space we want to -- we see the opportunity for growth. When it comes to our service offering, it's really to extend where we are today. So we have a good play in ERP today, but there's other ERP packages out there that we'd love to have those capabilities so we can be a little broader there, especially in certain industries, which kind of lead to some of the other packages that we don't support today. And then the service offering, we're looking at the whole strategy of a trusted adviser for our clients. So when we do an ERP implementation or other things, we want to be able to support them in their other areas. So there's some gaps in our service offerings around those spaces, whether it's dat and AI, love to strengthen our cloud capabilities in certain areas. So we're looking for those services along in those geographies. Hopefully that answers. Claude, I'm not sure if you want to add something to that?

No, that's very well put.

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

Well, thank you once again for your time this morning and your interest, and have a great day. Thank you.

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