Earnings Call Transcript - ALYAF Q4 2024

Operator, Operator

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 future growth, results of operations, performance, and business prospects of Alithya that do not exclusively relate to historical facts or which refer to future events, including statements regarding our expectation of our clients' demand for our services, 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 three-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 and Risks 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 detail. 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?

Paul Raymond, CEO

Bonjour and good morning everyone. Thank you for joining us today. This is an exciting time for Alithya as Q4 marks the end of a 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 three main areas today. One, our Q4 results. Two, a look at our 2024 fiscal year. And three, an overview of our new three-year plan which took effect this past April 1st. 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 two 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 three-year plan.

Bernard Dockrill, COO

Thank you, Paul. Our strong Q4 bookings were fueled by large wins in the healthcare and cybersecurity sectors. This includes a groundbreaking multi-million dollar contract for services to the health and social services industry in Quebec. Over the next five years, we'll be implementing a cloud-based Oracle ERP system designed to revolutionize supply chain processes across the province. 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 as a testament to our strategic approach, and we continue to gain traction in the healthcare sector in North America by leveraging our extensive business transformation expertise. Overall, our sense is that the low growth of the Canadian market in recent quarters is about to reverse. Some large banking clients have recently adopted a renewed focus on stalled 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 IP 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 for 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 US, revenues were up in Q4 and 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 US was a high watermark for fiscal 2024 in terms of revenue, gross margin, and contribution to EBITDA. The US 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 US. Alithya is seen as a high-quality and trusted partner. In April, a major international wholesaler went live with 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 replace multiple legacy systems as part of a digital transformation journey. The successful completion of that project is a testament to the type of collaborative partnerships that 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 and momentum in our Oracle business, including another significant win with a large network of five hospitals employing more than 18,000 people in Quebec. These organizations are implementing 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 US dollar contract represents one of the largest healthcare wins in the US today. It is also a logical step forward in our upward penetration of larger healthcare 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 US 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 US, 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 to become a trusted leader in this sector. The Alithya Copilot Academy is a comprehensive training program to benefit both beginners and advanced users. The weekly program, led by Alithya experts, includes hands-on sessions and workshops to provide a deeper understanding of Microsoft Copilot's functionalities and best practices. We also continue to invest in AI-assisted IP. While many businesses have been eager to put the cart before the horse, Alithya is well-positioned to help its clients prepare, capture, and structure their data using our proprietary rapid capture tool to extract 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 three-year plan which Paul will cover later, as they are both critical components of our plan. I will now pass it over to Claude to go over some financial metrics.

Claude Thibault, CFO

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 $120.5 million, a year-over-year decrease but a 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 in Alithya's services, regardless of market trends. If we dive a little deeper, we can see that revenues in the US increased sequentially by 7%, to $50.4 million, due to organic growth, although partially offset by a negative US dollar variation. On a year-over-year basis, Q4 revenues in the US also increased by 2.4%. Sequentially, our international revenues increased as well by 2%. Now in Canada, we still face some challenges as shown by our revenue numbers, both sequentially and year-over-year. Revenues decreased 5% sequentially to $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 1st. 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 $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 non-recurring 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 $6.4 million, driven mainly by reduced salary expenses, a 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 $10.5 million, which is slightly higher than the same period last year when our revenues were notably higher, and 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 hundred thousand dollars of the three-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 $6.1 million or $0.06 per share increased by 49% year-over-year and 40% sequentially. I would also point out our accounting net income of positive $2.3 million, which has improved significantly from negative $20 million in the same period of last year, even though Q4 last year had been impacted by certain non-recurring 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 non-recurring 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 cash flow positive, despite recording accounting losses, just because of high depreciation and amortization charges. Finally, considering our $10.5 million of adjusted EBITDA and our $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 $2 million of severance in Q4, which is excluded from adjusted EBITDA, while obviously impacting cash flow, in 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 $5 million reduction in SG&A expenses. In closing, let's discuss our liquidity and financial position. Net cash generated by operating activities was $9.7 million, representing an increase of $5.3 million or 120% year-over-year. As of March 31st, 2024, when combined with other cash flow elements, this resulted in total long-term debt reduction of $9.8 million to $117.4 million, and in our net debt to EBITDA multiple, falling back below 3 times. I will now pass it back to Paul to discuss our new three-year plan.

Paul Raymond, CEO

Thank you, Claude. Our new three-year plan took effect on April 1st 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. The 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 in 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. As organizational efficiency and optimization projects now rule the day, 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 three-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 $150 million in revenues over the next three 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 improvements while opening new doors to provide services in areas where we do not currently compete. Finally, our new three-year plan also lays out steps towards achieving net zero 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

Thank you. Your first question comes from Gavin Fairweather from Cormark Securities. Please go ahead.

Graham Smith, Analyst

Hi there. This is Graham on for Gavin. I just wanted to ask about the cadence of the smart shore hires. You 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'd be great. Thanks.

Bernard Dockrill, COO

Great. Thanks, Graham. And good morning. This is Bernard Dockrill. As Paul mentioned, he is actually touring our smart shore centers right now and he is unable to take the call today. So Claude and I will be fielding your questions and just timely agreeing with the smart shore question. Yeah, so we did say roughly now our total workforce about 8%, a little over 8% is now in our smart shore centers and our non-core centers out of the US, 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 hiring 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 got continued initiatives to continue this progress in future quarters.

Graham Smith, Analyst

That's great, thanks. And then just on the bank projects that are sort of starting to come online, could you give us a bit more color? Is that going to happen in the second half of fiscal 2025, or is that going to sort of take a few more months as they start to take these dormant projects back online? Thanks.

Bernard Dockrill, COO

Yeah, great question. We have been seeing a lot more activity on some of the projects that were stalled in previous quarters. So we haven't yet turned these projects 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.

Graham Smith, Analyst

Amazing. And then just one more for 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 percentage of smart shoring? Maybe just some more color on that would be great.

Bernard Dockrill, COO

Yes, a number of factors that are impacting our gross margins definitely are delivery excellence and our 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. 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.

Graham Smith, Analyst

That's amazing. I'll pass the line. Thanks.

Operator, Operator

Your next question comes from Jerome Dubreuil from Desjardins Bank. Please go ahead.

Jerome Dubreuil, Analyst

Thank you for answering my questions, Bernard. It's great to hear from you. My first question is about the long-term margin guidance. Many people will likely want to know what assumptions are behind the guidance on margins that we've seen in the past. Achieving this has been difficult, but we're starting to see positive momentum now. Are there assumptions regarding organic growth returning soon? Additionally, do you anticipate further improvements that would help meet that goal? Thank you.

Bernard Dockrill, COO

Thank you for the question, Jerome. While we don’t provide specific future guidance, we are optimistic about our ability to enhance our smart shoring capabilities. As we mentioned earlier, increased growth makes it easier for us to scale up in this area. Our clients are increasingly willing to engage in off-shore work to maximize their returns and improve our utilization rates. We have made significant strides in utilization, although it becomes more challenging as we achieve improvements. However, we believe there is still potential for further enhancement. Additionally, we have implemented several programs over the past year to boost our delivery excellence, which have yielded substantial benefits. I remain hopeful that we will see continued progress. On the growth front, the current market is difficult, particularly with rising interest rates. Nonetheless, we are noticing some positive developments that suggest we could return to previous growth levels in the latter half of the year.

Jerome Dubreuil, Analyst

Great. Second question for me, just a clarification. Is the healthcare deal with the government of Quebec included in the quarters booking?

Bernard Dockrill, COO

Yes. The two deals I mentioned in my remarks, the healthcare deal in Quebec, as well as the large healthcare deal that we had in the US, both of those deals were in our Q4 bookings and provided a good uplift to those bookings in the quarter.

Jerome Dubreuil, Analyst

That's good to hear. And finally, for 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 are you happy with the current mix?

Bernard Dockrill, COO

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, a lot of our ERP implementation work we do, we are more proactive in including managed service options in those agreements, which will create a long-term tail on those agreements as well. So it is part of our strategy to increase that.

Jerome Dubreuil, Analyst

Great. Thanks a lot.

Operator, Operator

Your next question comes from Rob Goff from Echelon. Please go ahead.

Rob Goff, Analyst

Good morning, and congratulations on the margin performance. It's very impressive.

Bernard Dockrill, COO

Thank you.

Rob Goff, Analyst

Welcome. And perhaps going back to the ERP win in Quebec, can you discuss how you're working with Oracle and IBM and the broader scope of that contract? Would your share of that contract be relatively consistent with the win announced in the US, in terms of scale?

Bernard Dockrill, COO

If you can clarify your question as far as the relative scale to the US, the contract in Canada is slightly larger than the one that we had in the US from our portion. 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. Hopefully, I answered your question.

Rob Goff, Analyst

Sure. Is this a partnership that could pursue similar contracts in other provinces?

Bernard Dockrill, COO

Yeah, well, Oracle is one of our primary partners. So we do a lot of work with Oracle through our Oracle Cloud with ERP, specifically in healthcare and also in the EPM space. So that's a partnership that's been around for a long time. Even with LGS here in Quebec and other areas, we have partnered in the past. As we look at every deal, we look at every deal independently and what the best solution is for our client. 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 where we are right now with LGS, this is a very positive partnership.

Rob Goff, Analyst

And 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 returning to year-on-year growth in the second half?

Bernard Dockrill, COO

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

Rob Goff, Analyst

Thank you.

Operator, Operator

Your next question comes from John Shao from National Bank. Please go ahead.

John Shao, Analyst

Good morning. Thanks for taking my question. On smart shoring, could you remind us what needs to be done here to potentially close down the gaps relative to your peers who have a much higher mix? How should we think about the pace of acceleration on that front?

Bernard Dockrill, COO

Thanks for your question, John. Yes, smart shoring, there are a few things we are looking at. That is first of all our client delivery, which is the primary focus of our smart shore operations. Then also internally, moving more of our internal operations to our smart shore centers. So we have strategies we are pursuing to grow those centers. As I mentioned before, as we 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 on where we deliver the work from. So we are limited there, but as we grow and renew these contracts, we are accelerating that. Our clients are very interested in it. In most industries right now, they are looking for further savings and operational efficiencies, and smart shoring is one of the levers we can pull. 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 grow, we sign these new contracts, I do expect that our smart shore percentage will continue to improve.

John Shao, Analyst

Okay, thanks for the clarification. 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 and capacity to potentially take on more projects?

Bernard Dockrill, COO

Great question. There's only so much you can do with utilization. At some point it's just 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 as bench capacity aligns with the work we're seeing demands from our clients. That's kind of the key activity to make sure we can do that. But also going to the market to bring on new talent as we take on these new deals. The deal here 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. Of course, that has a little bit of an impact on your utilization when you bring on a 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 should be a little bit improvement in utilization as we stabilize.

John Shao, Analyst

Got it. Thanks again for the call and I’ll pass the line.

Operator, Operator

Your next question comes from Vincent Colicchio from Barrington Research. Please go ahead.

Vincent Colicchio, Analyst

Yes, Bernard, are you seeing engagements ramp in alignment with your expectation? In particular, I'm interested in the two large healthcare deals you signed last quarter.

Bernard Dockrill, COO

As far as our ramp-up on that? Yes. So, again, large initiatives are typically multi-year initiatives, so it's not all ramping up at one time. It will take a quarter or two before they reach peak capacity. The large deal in Quebec, it's a five-year implementation and has a managed services tail on it as well for several years. The revenue is spread over that period of time. But the deal in the US, we are ramping that up and it will ramp up over the next two quarters or so.

Vincent Colicchio, Analyst

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

Bernard Dockrill, COO

A little bit of dynamics are going on. One of the things we see in our pipeline is especially in the ERP space; we're bidding on more multi-pillar contracts, so contracts that include ERP, SCM, HCM, and EPM, and those are larger, 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. It's a good outcome for us. The two big wins that we had in Q4, specifically in our Oracle practice, did take a lot of energy from the team there to close those deals. So right now, we're refilling the pipeline with new deals in that space as we did close successfully a couple of big deals which impact our pipeline.

Vincent Colicchio, Analyst

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

Bernard Dockrill, COO

Yeah, very interesting question, Vincent. We look at our digital adoption practice, and you may have seen the press release on our Copilot Academy. That's that group combined with our Microsoft team delivering that. We are seeing a bit of an uptick as we look at the AI space. The market is looking for help on how it fits in. This 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.

Vincent Colicchio, Analyst

Okay, thanks for answering my questions.

Operator, Operator

Your next question comes from Divya Goyal from Scotiabank. Please go ahead.

Divya Goyal, Analyst

Good morning everyone, it's nice to speak to you here, Bernard. I wanted to get more details about the Datum acquisition. There was a significant recovery on the earn-out reflected in the numbers we discussed this morning. I'm trying to understand more about that and if there could be additional potential.

Bernard Dockrill, COO

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

Divya Goyal, Analyst

I wanted to get a little more detail on the numbers released this morning. Are there any scheduled, and can we expect further recovery based on that deal?

Bernard Dockrill, COO

Yeah, I still can't hear you, Divya, but I believe your questions are around the Datum acquisition and the earn-out and the progress we've made there and what we look at. So yes, that was the one-time adjustment there. It was with 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 RAPID suite of products, and there are a couple of things in the RAPID suite that right now have a lot of traction in the market. You've heard Paul talk a lot before about the RAPID Capture, which is a utility that is AI-enabled for capturing paper and other unstructured data and putting that into systems. There's a lot of demand for that. Some of the existing clients have ramped up their usage of that product. So we see positive trends there. We also, with the RAPID BRX 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 US market around the move to the cloud. That tool is critical to what we're seeing there. So we are seeing some opportunities this year that, bundled with some of our other capabilities, as well. 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 the next year could show different outcomes than what you saw in the last year.

Claude Thibault, CFO

Maybe Bernard, sorry 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.

Divya Goyal, Analyst

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

Claude Thibault, CFO

Maybe Bernard, I can answer this one. 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 integration, acquisition, and reorganization costs. In the most recent year, we've made reductions in headcount, and we've had some severance charges that were fairly significant. Also, interest charges are something we need to look at. All these buckets are expected to decrease going forward. As we go forward, amortization, depreciation goes down; we are paying down debt, as I explained, so interest is going down. The interest rate has also gone down a bit. Finally, we've reached a comfortable level for now, in terms of reductions to SG&A, so that too should be going down. If you look at our information for Q4, you can see the amount that the non-recurring element that helped us become positive will not be there going forward, but we're still aiming to become net earnings positive over the coming quarters.

Divya Goyal, Analyst

That's helpful. And last question that I wanted to get some 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 to be close to $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. Thank you.

Bernard Dockrill, COO

Thank you, Divya. I’ll begin, and Claude, feel free to add later. We have set a target for mergers and acquisitions over the next three years. Our goal is to pursue accretive acquisitions by identifying the right targets, which will influence our performance. Currently, we are focused on the significant IT spending in Canada, the US, and Western Europe, with the US being our largest market, where we see ample growth potential. Regarding our services, we aim to expand our offerings. While we have a solid practice in ERP, there are additional ERP packages we’d like to incorporate so we can broaden our reach in specific industries. Our overall strategy is to position ourselves as a trusted advisor for clients during ERP implementations and beyond, ensuring we can support them in various areas. We recognize existing gaps in our service offerings, particularly in the domains of data and AI, and we're eager to enhance our cloud capabilities in those areas. We are looking to develop these services in the targeted geographies. Hopefully, that addresses your inquiry. Claude, do you have anything to add?

Claude Thibault, CFO

No, that's very well put.

Divya Goyal, Analyst

Thank you.

Bernard Dockrill, COO

Thank you, Divya.

Operator, Operator

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

Bernard Dockrill, COO

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

Operator, Operator

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