Converge Technology Solutions Corp. (CTS) Earnings Call Transcript & Summary

All right. I think we'll get rolling for the benefit of the people on the webcast, too, and good morning to everybody. And for those of you listening online, good afternoon to those of you in overseas. Welcome to our second edition of coffee and converge. Nice to see everyone here on a quiet morning, indeed. So we'll try and be efficient here with everyone today and I think you're all familiar with this slide. What we tell you about the past is true. Everything we say about the future is up to you to decide and maybe with that I'll immediately just turn it over to Greg to open the session this morning. Thank you again for being here.

All right. Good morning. Thank you, Lorne, and thank you, everyone, for being here today. For those that I haven't met, my name is Greg Berard, Global President and CEO, here at Converge. We appreciate you taking the time. This is our second time doing it. I know the feedback after the first time was very positive. And hopefully, today will be productive as well. With me today is John Teltsch in the back of the room, our CRO; and Mohammad Ahmmad, who runs our delivery organization for managed services. So I'm not going to talk long today. You guys heard from me a lot in the last session. I know you're here to learn what we're doing around managed services. But I did want to reiterate a couple of points, right, and it's up on this slide here. As many of you know, our strategy really is to continue to be the end-to-end solution provider for our clients, right? And how we're going to do that is by this slide right here. We have built up an amazing portfolio, right? We've built up the skills and capabilities by acquiring companies throughout North America and Europe, and we're going to continue to build new solutions, new capabilities and make the investments that we know our clients need, right? We're evaluating the IT marketplace all the time. We're looking at where they're spending their money, where their priorities are. Right? Whether it's around AI, whether it's around cyber and that shifts every year, right? So we're always looking at the market. We have thought leaders in each of these practices. So as we talk about our [ AIM strategy ], right, our ability [ Presentation]

We used that ad at our global sales conference in February of this year to really introduce all of our sellers about managed services and about professional services. The chart that Greg showed earlier, I'll actually talk about as well. But this was an ad that we're now using with a bunch of our clients. And it's something that our people didn't really understand what we are actually building around managed services. So what I'd like to do this morning really are 3 things. First, talk about the journey of building our managed services business. What have we built over the last 1.5 years, 2 years, how we built it, the guiding principles of the organization. What really drives the 500, 600 people, which you saw in that video> Then secondly, talk about the offerings. What are we selling? What are our clients buying? And then talk about our go-to-market, how are we bringing this to market? And then the management system around the go-to-market model. How we're measuring it. How we're bringing value to our clients. And how we're delivering world-class satisfaction for our clients. And the third topic is client satisfaction. That's the driving force that drives our professional services and our managed services business, client satisfaction. So I'll talk about client sat and also talk about 3 examples: use cases of our managed services business that we've delivered in the past couple of years. So first, if you take our company, you all know Converge probably better than I do. I've been here 1.5 years, I came from IBM, saw Converge grow with -- through the acquisition of 35 companies and has a tremendous amount of growth in the past 2 years specifically. Managed Services was grown out of the acquisition of really these 10 companies. Each of these companies had some type of managed services capabilities and offerings. But it wasn't until we bought ExactlyIT, the company that Mohammad came from, and he'll talk more about that here in a moment. But ExactlyIT gave us the foundation to build our managed services practice. We took all of the offerings that these other companies had, and we started bringing it together over the last 1.5 years. And what we've done is to build one operational model over the past 1.5 years. Specifically, we took 1,000 offerings, 1,000 set of capabilities that all these companies offered to the marketplace. We've now consolidated that into a single services catalog. 700 contracts have now been consolidated into one system, and that's what the chart on the right-hand side has done. We've now completed that work as of last month. We had 20 different tool sets that manage all of these different environments. We've now consolidated that into one operational model. We had 1,000 technical books, run books, client manuals, we had to consolidate into one standard operating process that's now been completed. Workforce balancing between Canada, United States and Mexico. That's an ongoing journey, finding the right place for the right people for the right work in the right location, and Mohammad will talk about that and the work we're doing in Puebla, Mexico. Lastly is about operations. Operations, automation. Everything we do, we put tools and technology behind. We obviously have humans running it, but automation is key to our success. At the same time, you see at the bottom of the chart, we started what we call a capability. It's very similar to what we're doing here today. We're taking our capabilities now out to our clients. And I'll talk about our clients here in a moment. We've had 35 road shows on-site with clients, our larger clients talking about our capabilities, the assessment advisory capabilities, the implementation capabilities and now the ability to manage their environment. We've done that 35 capabilities days. We've renewed over 100 contracts in the past 1.5 years, 70 are in negotiation now to be completed here in the next 90 days and the cross-selling, which Greg has talked about a lot, we continue to drive the cross-selling capability. And what has that given us, a set of guiding principles. How are we running the managed services business within Converge is driven by these 5 guiding principles. And it starts with leadership and accountability. It starts with leadership like Mohammad. World-class leadership that knows how to run managed services. It's a very different business than selling and reselling hardware and software, a different mindset, a different client perspective, but it starts with leadership and driving accountability across the entire organization. Secondly, simplicity. Everything we do for our clients has to be improved, has to be simplified. When they give us work, they want it simplified. Secondly, transparency. When something goes wrong, we have to be transparent with the client and get it fixed. And that leads to being empathetic, understand the client's pain points. What we may perceive as a minor issue, can be a massive issue for the client. So we have to show empathy. So all 500 people we have in this organization must display and live these guiding principles. So what has that resulted in? Today, we service over 700 clients in our managed services environment. We have a client satisfaction score of 98% and an NPS score of above 50 today. And I'll spend more time on client satisfaction here in a moment. We have 600 people in the managed service organization, we channel about 150,000 tickets a month on average, 10 to 15 minutes per ticket. We're managing over 500,000 devices and a 92% retention rate with our clients. So very focused on client retention, client satisfaction. We were just awarded, we're in the top 150 MSP from the channel network. And we have a 96% employee retention rate. And Mohammad will talk about that because in this industry, 96% is incredibly high. It's world-class and Mohammad will talk why do we have 96% client -- I mean employee retention. So that's the journey we've been on to deliver world-class managed services capabilities. But how are we doing it? What are we offering our clients? What are we selling to our clients? What are our capabilities? This is the chart that Greg has used. We all use this in front of our clients, in front of our people, in front of our partners. This is the 7 capabilities that our practices deliver today from a professional services perspective and now a managed services perspective. So when you look at these capabilities and now you transition it to managed services. What I've highlighted on this chart are the areas in which we have offerings and capabilities that we manage for our clients. So we stuck -- we will stick to this path of this practice strategy across the advise, implement and managed services with these 7 practices, with these 7 capabilities. We're not diverting from the strategy. We've informed and we've educated, we've enabled our sales force, but that's a journey. We're transforming from a resell company to a solution provider. That's going to take time. We started that a year ago. We're going to have our sales teams together again in this February, we're going to continue this transformation and the education of moving from a resell company to a full-end solution provider, providing these professional and managed services capabilities. And at the bottom, the managed services piece, this is what we do across the board. It's different than what you see at the top around the 7 practices, but around service desks, around security operations centers around the ITSM support. We do this for all IT within our clients. Now how do we go to market? There are 3 ways we bring these products to market. It starts at the bottom with customer care, what we call basic support. This is basically IT on demand. We have about 1,000 clients that use us today. We don't have SLAs. We don't have automation attached to it. They use this as help desk support, break fix, and this is a billable operation. And we have about 1,000 clients, which is different than the 600, 700 I talked about, which really start at the entry level up. The entry level and enterprise are all SLA-driven. Automation is delivered and at the essential, what we call essential managed services, this is the area in which we start monitoring 7/24 hours support for our clients, and we deliver -- bless you. We deliver the monitoring. So when a breakage happens, we start the alert, we start the escalation and then we start the recovery phase prior to any human getting involved because of all the automation that we deliver. The enterprise-level support, these are for our Fortune 500 clients or clients really $100 million and above, and this is again 7/24, 365 of services that are available. And this is end-to-end where we actually have people on site based on client demand. So this is how we deliver our managed services today, our go-to-market model. And you can see on the far right-hand side, obviously, revenue and margin increase as we move up the value chain of the value that our managed services teams provide. Now how do we manage this? How do we bring this to life? It's based on this chart, and Mohammad will spend a little time on this. But this is our engagement model with our clients. How do we engage them? The bottom is around operations. So operational engagement has daily and weekly engagement with our clients. If it's help desk, it is an outage. If it's a project, we're on site or we're virtually working with a client on a daily, weekly basis, and we measure that. I'll talk about client sat again here in a moment. Second is tactical. It's project-based, it's architectural based. It's based on the clients' plans and how we engage with our client. But that again is tactical that, again, we measure it. And then finally, the strategic engagement is around the C-suite, the decision maker, the line of business leader. Those engagements are normally on a quarterly or annual basis. So we measure each one of these as we engage with the client, driving the 98% client satisfaction number you saw earlier. So client sat. We take a lot of pride in this chart. We measure client sat 3 different ways: ticket satisfaction, client satisfaction on projects and then the NPS, which is the annual survey process. If you're familiar with the Medallia process, that is the process that we're filing around NPS, annual surveys. And today, our NPS score is above 50. We've only been at this 1 year. So 50 on the Medallia scorecard or the NPS scorecard is fabulous. The challenge that Mohammad and I have is to keep it above 50, which is a very hard task to do, but we have 212 clients out of our 700 that have given us a satisfaction rating already. A 30% return here around the annual NPS satisfaction score. Every ticket, 150,000 tickets we attempt to measure every one of them because for us, feedback is a gift, good or bad, getting that feedback is really important as we continue to improve the operational model around this. And our satisfaction indicators gives us the capabilities to get down to the product and category of whatever the client has installed. So our automation has made it incredibly impressive for us to get real feedback. Based on the client size, how much money they're spending with us. So small, medium and large is what's shown on the far right-hand side of this. So this is a major indicator of our success and the stickiness of our managed services capabilities. And what makes it come to life is this chart. Our client success managers, every one of our larger clients has a CSM assigned. That person's role is to be proactive and listen to the clients' needs. This is the secret sauce that differentiates us to drive really these 5 deliverables, client sat and become the trusted adviser for our clients to make sure that we have loyalty and retention and to deliver value and deliver value is on the current project and then looking for other ways to help the client be more productive, more efficient in their operational needs. And then obviously, improving each and every step. So the CSM model that we've invested in is again assigned to every one of our 700 clients. Some of them are one-to-one. Some of them are one-to-many, depending on the size of the client. But this is what drives the client satisfaction score you saw on the previous page. This is what we believe to be the difference maker when we talk about becoming the trusted adviser for our clients. When you talk about professional services, and managed services. Now let me switch a couple of examples. This is a very large retail services company. If you read the tag line, it's uniforms, mats, mops, cleaning, you can probably figure out who the client is, 40,000 employees, and we started with this company several years ago with the basics of service desk and network -- services network support. It's now grown to one of our largest clients across the globe. And we continue to -- and we're actually working on projects now around analytics, AI and the DI services. But this is one of our clients that we continue to evolve with our CSM model, with client sat, with our services capabilities, professional services as well, they're looking at us to provide more and more services. Next one is an industrial technology provider in the U.S. It was a spin-off of a U.S. oil company about 3 years ago. They wanted to stand up. It was a divestiture. They stood this company up. They asked us to become their IT provider from a global perspective. And this is all the offerings we now deliver for this company. And then lastly, Canadian retail company, you probably know the name of the company. This was a very unique environment. It was an SAP on IBM Power, data center. They were moving out of their data center, moving to the cloud. They picked Google as their cloud. They had a bunch of x86 legacy systems. They wanted to rationalize all that on the Google Cloud. We have a -- we had a partnership, we now acquired the rights from IBM around the IBM Power for Google Cloud, IP4G for sure. We now have data centers in Europe, Canada and the United States to provide this service to go after the hundreds of thousands of IBM Power machines that are out there that people want to get to a cloud either AWS, Google, but this solution was specifically designed for the Power Cloud, the IBM Power Cloud solution. So this one -- and I think you've heard us invest -- talk about it on some of our investor calls, when we bought the IBM business, I think in June of last year, we've now brought that in-house. We've built out the 2 data centers here in Canada. We have one in Frankfurt and one in Amsterdam will be live February of next year. So we'll now have the capability of providing IBM Google Power Cloud offerings across the globe. And it started one of the retail companies, you guys know this. It started here in Canada most recently. So this is really the managed services story. And we'll take some questions here in a moment with Avji, Greg and Mohammad, but this is a journey we've been on. We made tremendous progress in the past really 12, 14 months of bringing all these companies together. Now Mohammad is going to come up and talk about how we bring it to life in our operational center. Mohammad?

Thank you, John. Good morning. Mohammad Ahmmad. I felt like everybody know everybody here, and maybe I'm the only new guy. So I would like to introduce myself a little bit. So I joined Converge in July 2021 through the acquisition of ExactlyIT. Before Converge, actually I was doing managed services almost for 16 years, started back in Europe in Slovakia with a company called T-Systems, which is one of the biggest, I would say, managed services company in Europe nowadays. Then I moved to Mexico. Supposed to be for 3 months in 2009. I'm still there, by the way. And I was -- actually, I continued building a new location there in for T-Systems Mexico to become like a near shore for Europe, then I built another delivery hub for a German company called Freudenberg IT and still stay in Mexico. And I was actually in the Global CEO of that company until we built ExactlyIT. ExactlyIT when was built was a concept of we would like to build the modern managed services. At that time, we called it modern managed services, not the next generation. And I would like to spend maybe a little bit explaining what really we mean by the next-generation managed services. This is where we are today and where we continue building our managed services. 15 years ago, it was very simple. Customers were just looking for saving money. That was the only reason you would go for a managed services company. So you would take everything which is repetitive, non-mission-critical, give it to provider with one intention, save me money. It was easy for us at that time, because most of the tasks were really kind of non-mission-critical. Now the last 4, 5 years, the situation is -- has changed dramatically. So it's -- yes, saving money is still the most important factor in all of it. The customers are looking for much more from the managed services provider. They are looking this is a partner who need to bring me value. I will give you a very maybe easy example what we are facing today. If you take either cloud or let's say, security, if you are a midsized company or even enterprise and you would like to set up 24/7. This is 5 people, just to have one person per shift. Then in order to cover all your securities, this is like 7 different technologies. This is an EDR, SIM solutions, and you name it. You cannot just cover it by one person. Even if you have the smartest guy in the earth, it is too much technology for one person. So you end up -- you need to have a team of 10, 15 people just to do one area. So this is where customers start looking at a managed service provider, someone who will fix this for him where he can use a shared model. So saving money, closing the gap of skills. And another one, which is also becoming more and more important is the regulation. I mean, think about it a midsized company or even enterprise in order to keep up with all industry regulations and having his internal IT team keeping with all of that, it's becoming kind of a mission impossible task because they are looking for the managed services provider to be helping them with some of these regulations. And this is exactly where we look at our managed services, it's not anymore about non-mission-critical. Actually, no. It's about mission critical. It's about value, what you can show to the customer. So what does it mean for us as Converge Managed Services in order to be in that level of operation or delivery. By the way, we still have the customers who is coming for what I call traditional IT outsourcing. There is customers still who's just come and he would like to save money. And we still love to take them. But we usually need to take them through the journey of the next managed services. So we have -- the disadvantage is in the old model, which we still support it by the way, still part of our services is about IT outsourcing. You need to follow customer processes. It's tough to make real efficiency if you are doing it that way, kind of staff augmentation and so on and the new model where we are transforming our customers or where the majority of our customers already there. There are certain tasks we had to do from the delivery side of managed services in order for us to be able to deliver this one. And I will just go through this one quickly, and maybe the first one to start with. It has to be packageable, it has to be repeatable, it has to be scalable and how we are doing it today. When we are meeting with the customers and if you ask the customer what you are looking for, customer, he just want you to follow his process because mostly it does not know something different. That's where we have a separated organization within managed services, which do product management. What we mean by that one? If I'm meeting with the customer, it's my responsibility as a provider to understand his need, but at the same time, I don't want to do it the way he wants it because in that way, I cannot build any standard. So we built our products in a time that they can cover the majority of the customer need and the same time, me as a managed services delivery, I can do my activity in a standard way, and I'm able to give the customer what he wants. So everything in our case started with a product management that I can translate customer need in a standard product, which I can deliver. When we mean product [ SKU-based ], it's kind of a pyramid skills in each product. So each product when I generate it, I have to know how much of Level 1, Level 2 and Level 3 are going to do with that. It has to be auditable and so on. So once I get the customer need, I get it into a product list, which I can support in a standard way becomes a second phase building what the customer needs. This screenshot, by the way, is not a screenshot from presentation. This is coming from our internal tool. The idea here is very simple. I want to import the customer as fast as I can because the time the customer is on-boarded, I can start charging for him in my recurring revenue. Second thing is my first experience with the customer. So it has to be perfect. And this is my time where I can make my discovery with the customer and build all the knowledge, doing all my knowledge base, discovering the assets and so on and we automated this today. So it means that day a customer signed already the contract with the product, what I offer him and we started the project, our project management, let's say, tool will open a task automatically per each group, per each person who is going to be responsible for it. So in instead of spending 2 months in customer on-boarding, you are down to 3 weeks and at the same time, you can start getting your revenue much easier. After the customer is built and you have it, the question is becoming about the delivery. And we have this mindset and our delivery today have fully to be subscription based. What we mean by this one, yes, customers still sign for, let's say, 3 years contract. There's still certain amount what he cannot -- or threshold he cannot go below it. But a lot of our customers are consuming to the cloud solutions. I need to give certain flexibility for the customers where he can increase some of his systems, decrease his systems to a certain level, obviously, because I need to keep a certain model. So after the customer is in and they need to start delivering. I think McKinsey just released a report this year saying that IT people spend 9.1 hours per week in research. I think for managed services, that number even is much higher. So one of our main challenge is, okay, how I can really reduce the time our engineers are just losing by searching data for the customer? So we create what we call the 360 view. This is the employee view, by the way, the customers have something similar. But here, there's main 2 things. One, I can import employees in our organization in a very fast way, in the same [ review ] for the customers, we can see ticket numbers, all the documentations, SLA, customer satisfaction, every single data, which enter our company from the discovery -- first discovery call up to date is sitting in one place. So either if you are a new employee joining Converge, and you are going to support these customers. This is reducing already the time I need in order to import a new one. But also, even if you are an existing employee, you are supporting sometimes like smaller customers, you can be up to 5, 7, 8 customers under your responsibility. You cannot remember everything. So this is which would reduce our resolution time dramatically in our day-to-day operation. By the way, it's a similar view the customer have as well. Customers can log on there and see where -- how they are doing in terms of SLAs and so on and so on. Operational excellence. I think I can speak about this like 5 weeks. It just because simply operational excellence and operational efficiency is the core of any type of delivery, whether it's IT or something different. But I decided to [ boost ] these 3 areas because this is where our organization is different today. Starting with a basic ITSM solution. Most of what exists today in the market like this tools are made for customers, not for someone like us who is managed services, who's having 700 customers in his box he needs to support. So a couple of years ago, we took existing ITSM tool from the market, and we developed it to our need as managed services. So what's happening today from the solutioning tell that the commission is happening in one tool. Think about it. All the life cycle of the customer is in one tool. And this data and utilization of this data is just giving us powerful information on our day-to-day operation. Think about it, engineer receiving incident. He can see all the history of that customer for that asset in one tool. Second one about the governance and John touched base a little bit on this one. So one thing that John didn't mention, this is the same governance model for all our customers, regardless of the size. And this is really very important, if I'm looking to have a consistent experience with our customer means I want our customers really to feel the experience with Converge regardless which level is it. We have to have one model working for everybody. It's a different in term of between a small customer and big customer is whether I'm doing a weekly meetings or I'm doing it in a monthly way. But the content, what we are delivering to the customers in these meetings, the majority of it, it's already automated in the ITSM tool. So when I have the CSM, the customer manager going to meet with the customer, most of these data are already available for him out of the tools, which is, again, saving how much time I'm spending with the customers in the preparation for him, but at the same time, giving kind of a consistent data. The last one I would like to touch base about quality, which we take very serious in the organization. I have a team for the quality management reporting directly to me, who is responsible for that one. What this team is responsible for today? First of all, yes, you have the classic [indiscernible] processes, what everyone follow from incident management, change management and so on. But what we do different, it's mainly around the problem management here, which means every critical and high incident get the problem tickets followed by [ RASI ]. And that team is responsible to ensure that the implementation is happening in the organization. But there are also the team who is responsible for certain reports what we are running with our customers for the satisfaction and getting back this feedback and process it in kind of automated way. Efficiency. I think all the finance people love this topic. So whenever we talk about efficiency as the first topic -- or first thing that comes to the mind of the people automation and everyone think about technical automation. The good news this is actually the easy part of deploying efficiency in your organization because there's many tools in the market, which can automate some of the technical task. What you cannot get it by tools, you can develop in-house, and this is our case. But in the Managed Services, there is a bigger portion of really efficiency happening in the process automation as well. So if I'm starting, let's say, with the automation process, talking about the technical one, besides that we have the auto discovery, which is helping us dramatically today, especially in the creation of what we call CMDB database where every asset have clear data in our systems. We do have what we call a playbook, and we are talking about automatic playbook, means if I'm having a network device for customer X, when I'm generating the incident for that network device, that incident will already contain a playbook for that device for that customer? Why I'm putting this in efficiency? Today, if I am -- if that product is supposed to be 30% Level 1, 30% Level 2 engineer, 30% to be done by Level 3 engineer. If I'm improving the playbook percentage in the organization, I can actually increase the number of hours, which are done by Level 1 versus Level 2 and Level 3 and then actually reducing the cost of the product for me. 80% today and why this is so important because 80% of the incident we deal with, they are coming from our monitoring tools proactively. So I have all the data for me in order to automate it and really reduce or, let's say, increase the combination of the Level 1 and Level 2 and Level 3. Think about the amount of 150,000 tickets saving a couple of minutes in each ticket means a lot for us. SLA and KPI. I think companies know this one very well. It's take weeks to generate this report for the customers. Happy to say we don't need to do it anymore because we have a live KPIs and SLAs today. So even up to some of our customers can see this data directly. You will see that I put customer satisfaction measurement in efficiency. Why? Because think about it today. If you already get to the levels that you get in a customer escalation, this is a minimum of 20 to 30 hours calls, internal, external, management calls and so on. If I do my measurement in advance good enough, I'm reducing the number of, let's say, external escalation. That for me is already a huge efficiency. We do, obviously, the NPS, which is happening yearly. We do the CSAT, which is happening for each ticket. We do also make customer satisfaction for calls because some of the calls does not get translated to ticket for, let's say, help desk, even that one we have for them, collecting customer feedback and we do also the random check for some incident. Maybe it sounds like too much of customer satisfaction report, but at the end of the day, collecting all this feedback and processing it where I can give the customer feeling before he is having some issue either positive or negative, also we consider it and kind of efficiency where I can save the escalation time. And the cost management. I touched base a little bit and the skill pyramid where we are very strict in how many hours each products have to consume from the different level of resources. But we -- usually, managed services does not do time reporting for utilization because you are running a kind of recurring revenue. But we do time reporting for different intention. Our time reporting is mainly to calculate hours we spend for the customers and time we are spending per product. And this is the data what we utilize in order either to look what's going on in that customers or in that product in particular. In terms of innovation, we have a circle of experts that we built recently, very closely with our [ practice ]. So especially with all what's happening in the change of the technology and getting closer with our product from the [ practice ] that's kind of our technical bridge between the 2 teams together. And I hope I'm not over time. So we have one of the other points we always talk about in the next generation is total transparency. So if you are a good managed services provider, actually, a customer is not supposed to be talking with you every day because you are supposed to be most of your -- doing most of your work proactively. What's happening sometimes customers since they are not getting any big outages, since everything is running in the back end very well, they are wondering what you are doing for me. Why I'm paying this money. So we have this type of -- not for all the customers, for some customers, where they can get a full customer view on all the incidents, all the changes, all the problems, whether it's he, as a customer, create them, or whether they have been created by our proactive systems. This also gives them access kind of a portal view for all the tools we manage for them. So let's say, a customer where we manage for them cloud security endpoint and so on, we have been able to create kind of a Board for these customers where the CIO from one view can look at everything happening at his infrastructure. That's not for every customer, by the way. That is for -- as of today is for certain customers, for certain size based on the need, hope with the intention that this can become our standard. And my favorite slide. Tools is good. Technology is good. But honestly, it's come down to the people in the managed services. That's the real asset we have today. We are talking about the business, which is daily about really talking with the customers. That video what you have seen, by the way, it was done kind of a homemade in our offices. These are our employees, not actors, just to be clear. So that is the culture what we are building. I think I mentioned to you this -- ExactlyIT would be company #3 where we built kind of delivery hub in Mexico. Internally, we do not call it nearshore. This word we are not using. We do not call it nearshore, we do not call it offshore for a very easy reason here is. We, for us, the location in Mexico is nothing else than just extension of our North American or our U.S. offices. That type of culture is very important that the team is not competing with each other, right? The other things I have even people, I mean, in U.S. managing people in Mexico, I have people in Mexico managing people in U.S. So we do not talk about it as it's a different nearshore country and so on. So this is #1. And we have even scenarios where people can grow in the organization and can move between countries absolutely. Talking about the people as well. I think someone was asking me how big we can grow there in Mexico. I would say it's really without a limit for a very easy reason. Yes, we already built locations up to 1,000 people there. We are in a city where have a lot of universities. We are -- our relationship with these universities is not the classical IT relationship. We have actually people from our team teaching in these universities so we can hunt the good talent early enough. We have academies together with these universities early enough. We have also internal academy in our offices where our people making academies for [indiscernible] technology. And the reality, we have academies running all the year in our offices. And the secret sauce for out there is not really the training by the way. Training is only 20% of this one. The real thing is what I mentioned here is a mentee/mentor program. So after the training is done I mean, that talent will have really maybe 20% of the knowledge what we need. Then we have the internal mentee/mentor program, which is happening in our facilities. The newcomer will be assigned to an engineer with clear checklist of what they are doing in the next 60 days. And there is even filter sometimes, not everyone survive all of this activity there, but we have kind of a strict way to keep the quality in that team. And that's really what's making today this organization kind of special. John was talking about the retention. And actually, just for -- when we were collecting this data, we were calculating how many of our employees, which we hired the last 2 years came through referral program. So I have the data only for Mexico, 59% of the people we hired the last 2 years came actually through referral programs. So employees recommend other employees to come, which is making a really big difference. And this is, for me, is an important indicator that we are doing well in the people side. Thank you very much. I think I can speak another 5 days. So it's a kind of what I like to do day-to-day in my business, but I think time for questions.

All right. Thanks, Mohammad. Avji, John, you guys want to come up? And team, I'll wrap before Q&A here just by highlighting a couple of points that I think are important and Mohammad touched on a couple of them. Number one, we talk a lot about what our differentiation is. And we talk a lot about externally all of the practices we bring to the table, right? And our ability to go end-to-end with our clients and talk about everything we do as an organization. But Mohammad touched on the other part, which is around the employees and our ability to give our employees an opportunity to go across those practices as well as a differentiator and why a lot of technical talent wants to come and be a part of the Converge team. Right? And that's been very, very important for us in terms of retention, in terms of recruiting and in terms of continuing to grow not just the managed services practice but all the practice areas. So our ability to continue to differentiate ourselves and be that trusted adviser with our clients across our entire portfolio will continue to be a differentiator for us. So I thought Mohammad did a great job touching on that. So with that, Rob.

Maybe there's one thing I'll add, given this is an investor audience here. No investor meeting can go without numbers. We do disclose our managed services number in our MD&A. As you will probably notice in the last couple of years and a couple of last quarters, our managed services gross sales revenue is around CAD 38 million to CAD 42 million every single quarter. What that includes in the Managed Services is 3 elements. First element is what Mohammad and John just talked about, are pure Managed Services that is driven by SLAs. Our second -- what we classify internally today are Managed Service is life cycle asset management. So this is where we're reselling devices, whether it's to public sector, to private sector, and we're managing the life cycle of those devices. And the third element today that classifies into that bucket is also some resale of managed services as well. So one of the things we're working on today for the future is really redefining what Managed Services is internally, what we classify as a managed service from a numbers perspective and disclosing that and providing a true ARR so that it is comparative from period to period, and it is driven based on SLAs and not based on whether it's resale of managed service and you get a spike in one quarter and the drop in the next quarter and so on. This is a subscription SaaS like business where it is truly reoccurring quarter after quarter.

Could you talk about your sales cycle in terms of how often -- is it an internal sale versus a response to an external RFP? What the timelines are for that? And then in terms of the revenue profile, that which would be SaaS versus usage based.

Yes. So the famous answer, Rob, is it depends. But what we're seeing right now is when you think about our sales cycles, right, in the Managed Services world, specifically, especially for larger deals, right, you're looking at 6 to 9 months, maybe longer especially for the big, big ones, right? When you think about our sales motions, right, our go-to-market strategy is twofold when you look at our Managed Services portfolio. Actually, I'll say it's threefold, right? There's the managed services sellers that we acquired through ExactlyIT and the other 9 organizations that we talked about earlier, right? They're still continuing to drive Managed Services offerings with their client base. The second piece is around our account executives, the 300-plus account executives in North America and Europe now that are now enabled on the go-to-market that we talked about and the solutions we're focused on across the managed services portfolio. So they're bringing us into new accounts and driving Managed Services opportunities with our clients. The third leg of the stool is the vendors, right? We talked about IP4G. IBM sales force is compensated on that. The Google sales force is compensated on that. So we're now seeing leads come in from the OEMs as well to drive the IP4G sales. And that's not just IP4G, right? When you look at some of the other solutions, VMC and AWS, we're partnering with the VMware team, the AWS team to drive those deals as well. So depending on the nature of where the lead is coming from, sometimes when we brought in by the OEM, those sales cycles could be 2 to 3 months, and they could happen faster, right, because they're further along in the sales cycle. But where we're developing the pipeline, that's -- those are typically 6 to 9 months, if not longer, from a Managed Services perspective. And if you think about the evolution of a client, we've talked a lot about this over time as we continue to build trust with our clients, you're selling them a product, you're selling them an advisory service or professional service and then the managed services and the rapport with those clients and the trust is there that you start seeing in the Managed Services happening. And that's what we're seeing with our client base now.

And I would add one other thing to what Greg said to your point of RFP. So in health care and in public sector, a lot of it is driven through RFPs and Avji talked about the 3 revenue streams. So our GIDS business, which is the far left-hand Global Integration Delivery Services, that's life cycle management. We do a ton of that in health care, in public sector, in Europe as well as in North America. That's RFP-based. Those cycles once you get -- once you win one of those contracts, and it goes on for 3, 4 or 5 years, they're very sticky. And that's part of the -- those reoccurring. It comes up contract renewal, but those are very sticky, and we have partnerships with CDW with a couple of our competitors, but it's just a business that they don't want to do that they've outsourced to us, Lenovo, CDW, that seems to be very, very solid for us.

Comment on your question on percentages. On the life -- asset life cycle management, it is generally a subscription. It's a fixed price. There's very little variability. But on the pure Managed Services side, most contracts will have some usage base as well as typical in the industry, depending on how many tickets usage, you -- as in any -- I'm going to say any SaaS business, you get allowed a certain usage. If you go above that, then it's based on usage based.

Christian [indiscernible] .

Is there an active upsell effort from the basic through to Essential through to Premier? Or do you sort of plan to customer where they fit best and then expand other ways. Like is there both cross-sell efforts?

It really depends on the customer situation, but if the customers start with the basic obviously, the intention of the CSM, the first goal is how to get him to the higher level. And we've seen the scenarios where sometimes customers, especially if this is the first time they are outsourcing a little bit, they have the fear whether this will work for them or not. They will start with the basic with the intention after then if it's working well that they will increase it or expanding even to different services. And this is also what kind of that let's say, the trust level through a customer relationship. A lot of the customers will be driven by, hey, I need only the services for this area because I don't have enough resources or something like that. Once the customer sees that it's working for him, it's much easier decision for them to expand.

And I'll just -- John, if you want to talk about the CSM, everyone in the room might not understand what the CSMs are doing on a day-to-day basis. Do you want to talk about just the CSM program and their drive to upsell on a consistent basis.

Yes. So part of the last slide I put up there, which I think is -- I think I called it our secret sauce, the Client Success Manager, they're assigned to all of our clients, their role is to drive the cross-sell, upsell, to drive our capabilities, to drive value, but it starts with delivering on the initial project and that the basic on the bottom part of our chart, the customer care piece is where we start with most of our clients. They're testing us, they're trying us, they're -- it's like test driving a car. They're kicking the tires on us to see the quality of work that we actually will deliver. So that CSM role that we've invested in, we'll continue to invest and we're expanding it now into our cloud business as well is really the glue. That's their whole measurement is to drive incremental value and then cross-sell, upsell. So they're compensated on that piece of it as well.

So part of main, let's say, issues or, let's say, challenges we had during the integration is you have 700 customers who are buying from a little bit of smaller organization, right? Now when we start integrating these customers under one Converge umbrella, that's exactly what's the fear that customer maybe will be afraid that he is not supported anymore by the boutique support, but now by big enterprise. Where the CSM exactly was the main person who was playing this role in order to create this relationship with the customers, even though they are supported by a shared team, the CSM together with a technical lead, that's another -- only 2 positions who are named for the customers. These 2 people, their role was to keep the customer in a feeling of boutique support even though that we are under enterprise. And by the way, this is a consistent model we have with all the customers today, even though the company is big and the company continue growing, customers still will have the feeling of I'm having named customer managers, named technical leaders, even if all the rest of the team is a shared resources.

And the other thing I would add, Christian, to your comment is it's one thing to cross-sell at the client level for the CSM. The other thing we didn't talk about, but we changed compensation plans internally. So all of Greg's executives, direct reports, effective this year are paid on professional services, managed services every quarter, ranked, rated and reported on. In addition, we have in the United States and in Canada, we rank and rate all of our sellers. We know exactly if they're selling analytics, they're selling cyber, they're selling -- and what are they selling, professional services, managed services, and we rank that. And to qualify for our $1 million club, they've got to sell managed services and professional services. They just can't sell a bunch of hardware or software. We like that, too. That pays a lot of bills. But we need to make sure that we're transforming the mindset of our technical teams, our architects and our client execs. So that whole point, we launched that in February of this year as well, and we'll continue to tweak that as we move into 2024.

And part of that is really the evolution of whatever -- a lot of people still consider us as a VAR. We're no longer a VAR, we're a solution provider, and we're internally aligning all our metrics, our compensation metrics to drive that solution provider -- end-to-end solution provider mode. And that's the transformation journey we're on.

I think you mentioned an incentive to drive the cross-sell. Maybe you can expand the topic a little bit just to discuss initiatives that you have regarding your salespeople to really drive that penetration. I think one of the low-hanging fruits is you've got a solid customer base out there and you're going to just drive cross-sell and one more question on that topic is do you have an internal, let's say, penetration rate? And before that, we can expect like scaling organic growth from MS.

Yes. So I'll take that first, right? So when you think about the incentives structure we've built and as John mentioned, we launched it in February of 2022, it was all around driving that cross-sell, right? So before to be considered a top seller across Converge, you just had to sell $1 million worth of gross profit period, right? Now we've changed that to make sure that you have to sell multiple practice areas, right? So you have to sell 3-plus practice areas, and you have to sell a certain amount of recurring revenue to go on that trip, right? And the reason we did that was, as you think about that journey, we want our customers buying more than one practice from us. Because we can prove out our technical skills, and we can drive more solutions, right? And it's all about driving more solutions with the clients. But the recurring revenue piece is obviously critical for our journey. So in order to incent the rep's behavior, we made that change on the club trip side as well as incenting them at a higher tier to drive those professional and managed services, right? The higher value solutions that we want to continue to drive across the business, the reps will continue to make more money and be recognized as a top performer by driving those solutions. And that will continue, right? And we'll continue to look at where do we want to focus as we head into 2024. Where are we going to double down? Where is the market going? Where do we want our sellers driving those conversations? And we'll continue to tweak that compensation plan on an annual basis to reward and drive that behavior that we want.

And we rank and we report out every month on the performance of our sales teams. Who's selling 4 or 5 practices, who's selling only 1 practice and who's not selling services? So in the United States, where GDPR is not that big of a challenge, we are able to rank and rate our sales teams and our technical teams. And that's something that Greg reviews with us on a monthly basis, not quarterly anymore, but every month, so they get their names, they're either at the top of the chart or at the bottom of the chart. Most salespeople do not want to be at the bottom of the chart. So a little bit of competition through that as well.

The only thing I'll add is this transition will take time, moving away from sales individuals that are so used to only selling one piece of hardware or hardware and software to a full solution requires a lot of education internally, requires a lot of investment and support. So we've invested in a lot of presale solution providers where now those individuals tag on with our sales reps to go meet the client and to be able to articulate our overall solution rather than just a hardware, software. So that transition will take time, and we're starting to see momentum.

Got it. Maybe one more question. John, at the beginning of the presentation, you mentioned 92% customer retention. Just curious what happened to the remaining 8 percentage? Do they just go out of business or just do they move to the competitors? What happened to them?

Yes, all of the above. And a lot of them have in-source. Some of them have in-source, Some of them made a decision that to go with another provider. Sometimes, we part ways with clients as well if the relationship isn't a win-win for both of us. But 92% retention in this industry is, again, it's like our NPS score. It's so high right now. We literally have not wanted to talk about it because we're a year into this business integration and 50-plus percent NPS is an incredible score. 92% retention in this market is fairly high, is incredibly high. So keeping these metrics up is his responsibility now. So it's -- a lot of customers leave for many different reasons, but the number of clients that we've left and the number of clients we've added has continued to increase, which is the good sign [indiscernible] .

Could you talk to the percentage of the sales reps. Like is there a sweet spot? So if you're at 56%, do you want that to step up every year? Or do you raise the bar, so your sweet spot is 56%.

Yes. So some of it depends on region, right, where we are. But when we're talking about North America, the goal is we want everybody selling Managed Service right? And that's -- but that's going to be the evolution, right? So we look at it on a monthly and quarterly basis. And the good news is we're seeing an increase every month, right? We look at not only who's driving Managed Services, but we look at the number of unique account execs that are driving each practice. So we can say in the Northeast, 80% of our sellers are driving 4-plus practice areas. Now in the west, that number is 50%. So how do we get that 50% to 80% over the next 12 to 18 months. So we'll continue to look at it on a quarterly basis and raise that bar every quarter, right? But at the end of the day, we want every single one of our sellers driving all 6 practices and advisory implementation and managed services. We won't get there tomorrow. We won't get there next year. But every year, we'll continue to change the mark and raise that expectation across the board. And even for expectations on gross profit growth, right? We'll continue to raise that bar as well. So it's not just $1 million, it's $1.2 million with all of those factors as well. So we'll continue to move the needle there.

At the end of the day, this is a relationship and trust industry, just like any other consulting industry. As you start to build trust based on the capabilities you have, the more that you add on then you truly become their trusted adviser. What we internally call ourselves. We are our customers' trusted advisers. And to gain that trust, you have to show success, and that takes time.

How are you guys thinking about the longer-term margin potential as you sort of grow the regional delivery centers. And like you said, you're not really thinking about the near term -- or sorry, nearshore versus like onshoring. But as you increase maybe the mix of the people in lower labor cost areas and you grow the again, regional delivery centers?

So that margin expansion will come over time. One of the things I will talk about is -- and we'll talk about this on our quarterly calls every quarter as well. One of the best ways to increase your margin is to reduce your hardware business and increase every other business. But we don't want to do that. That is -- that would not be good for any business to reduce what's your -- I'm going to call it our traditional bread and butter. We're going to -- our goal is to grow both at the same time, our -- continue grow our resale business, along with our Professional Services and Managed Services business. And given how big our resale business is, it will have a slower impact on margin percentages. We are if I look at last quarter, our gross sales was $900-something million -- $950 million. To move the needle on a $950 million gross sales, it requires a significant momentum on Professional Service and Managed Services. It will just happen over a period of time. It won't happen in 2 quarters or 4 quarters, it will just happen over time.

But I think in terms of managed services profitability, right, when you look at that first slide we showed where we had 10 companies across North America that have now become one Managed Services organization. We've already started to see some of that labor shift where we're taking resources in the U.S. or even in Canada down to Mexico on Mohammad's team. So where we see the opportunity to drive some of that increased profitability. We've already done some of it, right? We haven't done all of it. And then as you see us driving more scale and more opportunity around certain solutions, the profitability for those solutions go up as well, right? So it's all about making sure we have the right mix of talent in Mexico and across North America where we need to. Now some clients require us to be in the U.S. or be in Canada, where we don't, we can continue to leverage Mohammad and his expansion down in Mexico to drive that profitability up. And then it's all about driving more sales, right? In the Managed Services world, the more opportunities you have, the more deals you're doing, the more profitable you are as an organization. So -- and we've been seeing that over the course of the acquisition of Exactly.

Mohammad is a great salesperson. He's continuously telling me how can we move more of our back office to Mexico, so he can manage it all.

As part of your managed services journey, like which you guys started 15, 2 years ago. I mean, you guys mentioned that you always try and do the Level 1 first for your customers, and you have 700 customers. What's the ballpark of percentage of customers that are still in the level 1 that has potentially moved to level 2 or level 3 like more deep collaboration and partnership with you guys. So assuming that you guys don't win a single customer anymore. Of the 700, like how much can you guys take from the current Level 1 to Level 3? And when you go from Level 1 to Level 2, Level 3, what's the revenue jump and margin progression that we can see?

Unfortunately, we don't provide those details [indiscernible]

Are we at the very beginning stage?

I would say we're at the beginning stages, Yes. We are at the beginning stages. If I was to look at the chart, there's probably bulk of our customers are going to be underneath -- I'm going to say, half and less in that chart that we're looking at. So there's a lot of opportunity to expand those in the value chain and have more and more managed services. And the pie is also expanding. The pie is not the same. The more we perform for our customers, the more we can do on Managed Services. Again, goes back to the trust element and our delivery and our satisfaction.

And the other thing that you need to look at is when you look at our portfolio, right, within just Managed Services alone, that has grown, right, tremendously. So Mohammad has done a great job working with each of the practices to talk about what other solutions can we build, right? Kubernetes as a service, right? We weren't talking about that 2 years ago, right? So we'll continue to look at IP4G. Two years ago, we didn't have that in the portfolio. So it's really at its infancy because there's so much upside in terms of how much more we can do with each client. But more importantly, we're being strategic with our practice areas to build more offerings and capabilities so we can go to our clients and give them that flexibility, right? Because to us, it's all about -- we need to make sure we can provide the flexibility for our clients on how they want to consume the technology and be that value-added partner that can do it, whether it's on-site or whether we're managing it for them, we'll continue to expand our portfolio. So the chart that John showed where you saw the entire portfolio across the practices, but then what was highlighted as Managed Services, that's going to continue to drive more and more growth as well and new opportunities for us. Does that make sense?

Is it easier for your existing reseller reps to sell to small clients, medium clients or large clients? I mean, obviously, they have different time scale to onboard, but what do you guys think is the easiest to convince?

It's all where they have the relationship, right? And we service all of them. So when we're in the large enterprise and we have that trusted relationship, we can have the conversation around Managed Services. So it's easier to close a transaction when it's smaller, but depending on the rep's relationship is where we're seeing the activity.

And do you guys get like from -- when you talk to a customer who's doing this in-house already? What's the kind of the pushback that you see, which is natural attention from internal IT guys that don't want to be displaced by you guys. They would be like, no, the guy sucks, we want to do it ourselves. I think that's obviously the natural attention when you want to displace someone from internal.

It depends with whom you are talking from the customer. If you are talking with the CIO or if you are talking with the CFO. So mostly, I mean, if your deal level is with the technical team at the customer side, it's really going down to mostly the customer just would like to follow his processes sometimes. And there is a little bit of resistance of giving it all at once, even though to be real, the customer would benefit much more if he just give a bigger part of his IT to be managed instead of just giving task. When you are talking with the CFO, it's obviously it's a cost, right? You need to look at his long-term plan, how the return of the investment is going to happen for him. So that's the kind of discussion you have. There is also a type of customers who are not yet used to outsourcing at all, and this is the first-generation outsourcers. That's totally different discussion where together with our [ practice ] team, we can really take it from the beginning to the end. So usually, the team will be just participating in implementation there. And then we come in say, okay, from here, we can continue developing it for you customer instead for you, buildings the skills and so on and so on.

We're not all about just cost. Maybe I'll talk about it from the other side as well because in my prior life, I have outsourced and done some of the managed services. As a CFO, there's 3 elements I have always considered: risk, control and cost and they're on the opposite spectrums. Historically, they were. And looking at, am I giving control to my IT to somebody else, essentially giving your keys of your house to somebody else? And do you feel safe and do you trust them? And is it going to save me money or not? And that's the sort of the process you go through. And in today's environment, when you look at it's -- when I go to the risk for a lot of companies, it's actually more risky for them to manage it in-house than to outsource because they do not have the capabilities. IT environment is rapidly changing, whether you look at the new buzz AI or whether you look at cybersecurity and so on, that environment is changing and having the right skill set in-house to be able to manage that infrastructure is becoming more and more difficult. And that's where having service providers like us to be able to have it to give it to the specialists and manage it on your behalf, you might not need a full-time cybersecurity person in-house because you're a small shop or your medium-size shop. You only need 25% of a body, but you can't hire 25% of a body or you cannot hire one person in IT that knows it all, and that's where we come in.

Maybe last question. In one of the case studies that you guys highlighted, you can either pick the famous Canadian book retailer or the global industrial spin-off. I mean the global industrial spin-off, you guys -- I'm guessing that you guys kind of competed against that in the beauty contest to win that contract to stand the company up. But in the book retailer example, was that also through relationships that you guys got the entire contract? Or is that kind of a bid on an RFP basis against other competitors? And if so, like what kind of competitors are they?

Yes. In that specific one, the retailer one, that was in partnership with IBM. So IBM brought us into that. It was also an existing account of ours, so we had relationships at the account, so it made the transition very smooth.