Earnings Call Transcript - ALYAF Q1 2021

Operator, Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Alithya's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue-up for questions. Please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, August 13, 2020. I will now turn the conference over to Rachel Andrews, Vice President, Communications and Marketing. Please go ahead.

Rachel Andrews, Vice President, Communications and Marketing

Good morning, everyone, and thank you for joining us for Alithya's first quarter fiscal 2021 results conference call. The press release and MD&A with complete financial statements and related notes were issued earlier today and are posted on our website. The webcast presentation can also be found on our website in the Investors section. Presenting this morning are Paul Raymond, Alithya's President and Chief Executive Officer; and Claude Thibault, Chief Financial Officer. Following their comments, we will open the call for questions. Before we begin, I would like to specify that this conference call is intended for the financial community. Also please be advised that this call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the Risks and Uncertainties section of our MD&A available on our website for more detail. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. And be aware that we will refer to certain indicators that are non-IFRS measures. Please refer to our MD&A for more details. Now I would like to turn the call over to Paul.

Paul Raymond, President and Chief Executive Officer

Thank you, Rachel, and welcome to the Alithya team. Good morning, everyone. Bonjour. The past few months have been challenging for everyone and I want to sincerely thank all of our employees for their hard work and commitment and our clients for their confidence in Alithya. Everyone rose up to the challenges and I'm extremely proud of what we have achieved together. Please turn to slide 4. We are very pleased with our first quarter results which were better than expected in the context of the pandemic. They clearly demonstrate the resiliency of our business model as well as the growing demand for our digital transformation services. Our revenues were essentially flat at CAD 70.7 million compared to last year when we exclude the impact from the divestiture of our U.K. operations. In essence, the contribution from our latest acquisitions offset the negative impacts from the pandemic. We are proud that the three acquisitions we completed last year generated high single-digit organic growth as a whole. This means our integrations have been successful and that our scale as planned has created more business opportunities. If you remember in recent quarters, a few of our large historical Canadian clients have been reducing their spending levels. Although our year-over-year revenues are still impacted by this trend and by the COVID-19 pandemic, these large clients are in aggregate stabilizing on a sequential basis which is very encouraging. More importantly, despite the negative impacts from the pandemic, our adjusted EBITDA improved 8% to CAD 3.3 million in the first quarter and was higher by 62% on a sequential basis. This increase is a great reflection of the proactive and rapid measures taken by our teams to mitigate the effects of the current operating environment. Furthermore, we generated a record net cash flow from operations this quarter, which Claude will explain in a moment. Turning to slide 5 for some operational highlights. I'm happy to report that we introduced two new metrics this quarter: bookings and a book-to-bill ratio. This is to help the market better understand our business and its cycles. Bookings essentially refer to new contract wins, while book-to-bill ratio refers to bookings divided by revenues for the same period. In the quarter, our bookings totaled CAD 80.5 million, while our book-to-bill ratio was 1.14 or 114% of revenues. This is ahead of our expectation and an excellent performance in the current environment. I would like to remind everyone, however, that we believe a 12-month trailing book-to-bill ratio is a better indicator of future perspectives as notable variations can occur when looking at quarterly numbers alone. Having started reporting these new metrics as of April 1, we will now be able to provide annual measures by the end of this fiscal year. Despite the COVID restrictions in place in all of our geographies, we added 10 new clients in the quarter, including two significant multi-year cloud ERP contracts with the city of Montréal and one of the largest integrated children's health systems in the U.S. based out of Jacksonville, Florida. In addition, our teams are going strong and continue to deliver projects. More specifically, we completed more than a dozen ERP, CRM, and EPM system remote go-lives since April 1. Before COVID, it was difficult to imagine that such important client milestones could even be achieved with our professionals working 100% remotely. Finally, Alithya continued to be recognized by its business partners. We achieved the prestigious 2020/2021 Inner Circle for Microsoft award for the 15th year in a row. We were also named a finalist to the Modernize Finance and Operations 2020 Microsoft Partner of the Year Award. Our goal is to be a trusted adviser to our customer and this Microsoft recognition is a good indicator of what we are living up to that vision. Claude will now review our first quarter results and our financial positioning.

Claude Thibault, Chief Financial Officer

Thank you, Paul, and good morning. Let's review some Q1 numbers. Please turn to slide six. Excluding our small U.K. operations divestiture, revenues for the quarter were only slightly below the first quarter of last year at CAD 70.7 million, as the contribution from acquisitions, the continued transition from low-margin to higher-margin business, as well as new contract wins, offset most of the moderate impacts we suffered from the pandemic. Gross margin amounted to CAD 20.4 million, or 28.9%, down slightly from CAD 21.2 million or 29.3% last year. This variation mainly was due to the negative impacts from COVID-19, especially in Europe and in the U.S. It was partially offset by a positive revenue mix variation in Canada and some government wage subsidies in Canada and Europe. Of note, on a sequential basis, gross margin increased from 28.6% to 28.9% despite COVID-19. As previously disclosed, certain Canadian subsidiaries obtained CAD 1.5 million through the Canada Emergency Wage Subsidy program, of which CAD 1 million was recorded in Q1, a major portion of which was recorded to cost of revenues. As reported, SG&A expenses amounted to CAD 19.4 million, up 2.6% from CAD 18.9 million last year. However, if we look at SG&A expenses excluding share-based compensation, which is a non-cash item and excluding the adjustments considered in our adjusted EBITDA calculations, we had CAD 17.1 million of SG&A in Q1, a significant decrease from CAD 18.9 million in Q4 of fiscal 2020. This is also notably lower than Q1 of last year, which was at CAD 18.1 million and that number being before our three recent acquisitions of fiscal 2020. This decrease is mainly related to permanent and temporary decreases in expenses caused by COVID-19, including salaries, travel, and business developments, as well, again, as certain government subsidies. Adjusted EBITDA amounted to CAD 3.3 million, or 4.6% of revenues, versus CAD 3 million or 4.2% for the same period last year. This increase was driven by the contribution from acquisitions, increased margins from higher value-added business, as well as the above-mentioned reductions in SG&A. These factors were partially offset by the impact of COVID-19. On a sequential basis, adjusted EBITDA increased over 60% from CAD 2 million in the fourth quarter of fiscal 2020 to CAD 3.3 million. Net loss during the quarter amounted to CAD 4.5 million or CAD 0.08 per share compared to a net loss of CAD 1.5 million or CAD 0.03 per share for the same period last year. As in previous quarters, the amount of our accounting loss is basically equal to the amount of our non-cash amortization and depreciation expense. Now turning to our liquidity and financial position on page 9, net cash flow generated from operating activities amounted to CAD 8.1 million in the first quarter, a record for a single quarter, and almost double the CAD 4.2 million generated during the same quarter last year. This record cash flow was mainly driven by diligent working capital management in the context of the pandemic. Given our better-than-expected results, combined with our prudent cash management, we ended the quarter in a solid financial position. At the end of June, we had CAD 9.8 million of net bank borrowing, which is net of our CAD 17.5 million in cash and restricted cash, which is significantly down by CAD 17.1 million compared to a net bank debt of CAD 26.9 million at the end of March 2020. This reflects the above prudent working capital management and positive cash flow from operations, as well as the USD 6.3 million in PPP loans. We will shortly make application for forgiveness of such PPP loans. We believe we have used the funds for qualifying expenses and otherwise comply with all relevant rules and regulations of the program. However, there still can be no assurance that the company will obtain forgiveness, in whole or in part of the loans. We are also considering the new Canadian government wage subsidy rules, which have removed the obligation to reach a defined revenue reduction level for eligibility and will claim any amount, which may become available. As it stands today, considering our low net bank borrowing and the funding received from various government programs, we believe we are in a good financial position to navigate the current ongoing uncertainty and keep pursuing our business plan and objectives. I will now turn it back to Paul.

Paul Raymond, President and Chief Executive Officer

Thank you, Claude. Please turn to slide 10. So to summarize, our first quarter results were better than expected in the context of the pandemic and demonstrate the resiliency of our business model as well as the need, more than ever, for our digital transformation services. Despite this success and given the ongoing pandemic, we continue to implement our business continuity plan, including managing our operating expenses prudently, taking advantage of government programs and efficiency opportunities as well as monitoring new developments very closely. Having said this, we are seeing positive signs in our markets. Most projects that have been paused or delayed at the start of the pandemic have resumed. And as mentioned earlier, reduced spending by a few large Canadian clients appears to be stabilizing. We are continuing to sign new clients and new deals. Although we remain cautiously optimistic, this is very encouraging in the current environment. Our bookings and pipeline remain healthy, providing a good base to build on, but I would like to remind you again that we believe a better indicator of book-to-bill will be over a trailing 12-month period. A quick note for modeling purposes: our second quarter is typically seasonally soft given the vacation period and we believe this year will not be any different, adding to the overall COVID uncertainty. Finally, we finished the quarter with a solid financial position, which will allow us to continue to focus on the execution of the growth portion of our strategic plan, to increase our scale organically and through acquisitions. We have a strong foundation to support future growth, despite the potential headwinds from the COVID-19 crisis. We are well positioned to continue to focus on delivering our long-term plan of becoming a North American leader in strategy and digital transformation. To conclude, I would like to reiterate my sincere gratitude to our professionals, our clients, and our shareholders, for their unwavering support and trust in these unprecedented times. We will now be pleased to answer any questions you may have.

Operator, Operator

Your first question comes from the line of Maher Yaghi from Desjardins. Your line is now open.

Maher Yaghi, Analyst

Thank you for taking my question. I wanted to ask about your comment regarding the business starting to recover from the lows experienced during the COVID situation. Can you discuss how widespread this improvement is in the U.S. and Canada, and are there any differences? Additionally, regarding your existing client base in Canada, particularly with some of the larger companies, have you observed any stabilization and improvement in that area?

Paul Raymond, President and Chief Executive Officer

Good morning, Maher, and thank you for your question. We can provide a lot of context on this, as we have been closely managing our business since the beginning of the pandemic. At the end of March and into April, we were very concerned about the situation. Many projects were postponed, and authorities were determining how to proceed. However, we observed a gradual recovery in the quarter, which ended on a strong note. This is why we are noting that much of the work that had slowed down has resumed. You can also see this in our bookings, as many customers who had delayed decisions at the start of the quarter have since moved forward, contributing to a pleasant acceleration in our bookings which bodes well for the future. Regarding your second question about Canada, while we see year-over-year decreases when comparing this quarter to the same quarter last year, our analysis of large Canadian clients shows stabilization and sequential growth. This is indeed encouraging.

Maher Yaghi, Analyst

Okay, great. Can you discuss the bookings from the quarter? They seem quite good compared to other companies in the sector that mostly had a book-to-bill ratio below one. What types of projects did you book? Could you also provide the percentage of renewals versus new customers included in that booking number?

Paul Raymond, President and Chief Executive Officer

Thank you for the question. I can't provide you with the information this morning on the new versus existing customers, but I'll qualify it. And we'll look at that for coming quarters as an additional measure, I think this would be very useful. It's both. So we added 10 new customers in the quarter, which I think is also very impressive given the fact that we can't meet customers face-to-face anymore. Over the past quarter, our sales have been done virtually. This is using the tools that we have and a lot of this is from reputation and referrals. A good example is Microsoft. We were talking about the remote go-lives we did. Microsoft did their annual Inspire conference, which is their huge conference they do every year. Alithya was actually used as an example and the leader of Microsoft practice gave an interview during the Inspire conference on how to do remote go-lives. Those types of recognition and visibility generate new opportunities. So we had both some existing and some new. I think that the two significant ones that we closed in the quarter, which are very large cloud ERP implementations — one is for the city of Montreal, which is a major project and a major undertaking that we were selected to do, as well as the one in the U.S., which we can't name but it is a very large health care group. And I think it's important to mention those, because those are a direct result of the cross-selling that we have done between our existing business and the new acquisitions. Without the new acquisitions, we would not have been able to close those two deals. And the new acquisitions on their own would not have been able to close those two deals because of their size. I think those are great indications. The fact we can still do deals like that during the pandemic is a very good sign.

Maher Yaghi, Analyst

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

Paul Raymond, President and Chief Executive Officer

Thank you, Maher. So I'll start with the first one on the margin. We saw a lot of pressure at the beginning of the quarter. Again, this was generalized everywhere, where it wasn't just a question of pressure on the margins, but some customers were saying they want your people to work part-time or we're going to bring this project to four days a week or – everybody was looking at different formulas to save on cost. That's back to normal. We saw the evolution in the quarter as people were seeing that some of their business was actually increasing. I guess that's the comment that I can make on the challenging rates and so on. Because we're more in the value-added services like selling ERP implementations, we are not really competing for rates in that type of business. We're really competing based on competencies and the quality of our deliveries. Delivering an ERP project remotely, you don't want to go with the lowest bidder. You want to go with people that have actually done it before and can do it successfully. So that piece we're confident in. The – sorry, the second question was on – what was your second question again?

Maher Yaghi, Analyst

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

Paul Raymond, President and Chief Executive Officer

Yes. So we were very fortunate a little bit by design, but I guess the pandemic has demonstrated our model. All of the verticals where we have a strong presence are part of essential services. We really have only one large customer which we've talked about before which is in France in the airline industry, which of course, you know what's happening with the airline industry and it's going to take a while before it comes back. But the balance of our business has been doing fairly well and holding out in the context of the pandemic. We're seeing growth in most of them. Financial services is a big sector for us. Health care and government is a big sector for us which is growing. The manufacturing that we're in is actually in the food and medical business which is growing. People are eating and shopping in groceries more than ever. So we're very well positioned in that sector, which is doing well as well. Energy and telecommunications which again are doing fairly well. So we're really seeing positive signs in all of those sectors. Maybe Claude, do you want to add to that?

Claude Thibault, Chief Financial Officer

Yes. I mean, on gross margins, obviously in a declining top line environment, we need to make the decision whether we make some layoffs or not. And we're being very prudent doing that. As you know, we're in a world of scarce resources and we really wanted to protect our teams and our expertise. What happens is your top line goes down, but you basically keep a lot of costs for that very reason. So the fact that we were able to maintain the margin we have despite this and obviously, there's a bit of subsidies thrown in there, but it did not make up for what I just said. So the good news is when we turn this around, we should be in a good position to continue having very good margins.

Maher Yaghi, Analyst

Great. Thank you, guys.

Paul Raymond, President and Chief Executive Officer

Thank you.

Operator, Operator

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

Paul Steep, Analyst

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

Paul Raymond, President and Chief Executive Officer

Thank you, Paul, for the question. The overall performance of our U.S. business is strong. The reductions from Oracle that we've experienced in the past have stabilized. The main concern regarding the U.S. pertains more to geographical factors rather than our specific operations, reflecting the broader situation in the country. As you know, the COVID pandemic has escalated in recent weeks and months, compounded by significant political uncertainty. We are closely monitoring the macro conditions to ensure the safety of our team and our ability to serve our customers. There is considerable noise at the macro level. At the beginning of the quarter, we encountered similar challenges in the U.S. as we saw elsewhere, with customers being uncertain, delaying decisions, and pausing or pushing back projects. However, as the quarter progressed, we observed a turnaround. For instance, we secured a large contract with a healthcare group during this quarter, which had been delayed initially but ultimately was signed. We are successfully filling our backlog. Naturally, Q2 brings seasonal challenges due to vacations, but despite this, we are still seeing bookings come in. Therefore, we remain cautiously optimistic and are pleased with our current results, Paul.

Paul Steep, Analyst

Thanks. Could you give us an idea of the duration of the bookings? You won a couple of significant contracts this quarter, and while historically the durations have been shorter, it seems like there were some sizable wins. Thank you.

Paul Raymond, President and Chief Executive Officer

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

Operator, Operator

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

Amr Ezzat, Analyst

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

Paul Raymond, President and Chief Executive Officer

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

Amr Ezzat, Analyst

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

Claude Thibault, Chief Financial Officer

From acquisitions?

Amr Ezzat, Analyst

Yes.

Claude Thibault, Chief Financial Officer

No, we're not providing that information because it would be too detailed. Additionally, we are carefully integrating our acquisitions. As Paul mentioned, we are maximizing cross-selling efforts. When a joint project arises, we need to decide whether to include it in the acquisitions' P&L or in our historical P&L, which depends on the specific situation. Therefore, it would be complicated to offer those figures following the acquisitions.

Amr Ezzat, Analyst

Okay.

Claude Thibault, Chief Financial Officer

We are still recently integrating a number of our acquisitions, so we can report that we are experiencing organic growth from these three acquisitions both sequentially and year-over-year. While we did not have these figures in our records last year, we are aware of them and can confirm that we are seeing organic growth in total.

Paul Raymond, President and Chief Executive Officer

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

Amr Ezzat, Analyst

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

Paul Raymond, President and Chief Executive Officer

Sure. Thanks. So at the beginning of the pandemic, our focus was really on making sure and throughout the organization that everything was under control and we're taking the steps to protect the company and our people. So the focus was not on M&A at the beginning of the pandemic. I can guarantee you that. So we put a lot of the discussions on hold to focus on our business. However, I can say that as the quarter evolved, a lot of these deals were put on hold as a common mutual agreement by everybody we talked to. So those discussions have restarted. Our funnel is very healthy. The pandemic had the benefit of identifying the good targets versus the ones we did not do as well. So it was a way of validating what people were telling us. There's still a lot of very nice companies out there and our model is still very healthy. Now that you saw the numbers and the position that we're in, we think we're in a great position to keep that going.

Amr Ezzat, Analyst

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

Paul Raymond, President and Chief Executive Officer

Well, there are always opportunities for improvements Amr. As Claude was mentioning, we have some recent acquisitions that are being integrated and that's why you're seeing some year-over-year improvement. That's going to continue. As we integrate the businesses, we always find synergies and ways to do better. I don't know, Claude if you want to add to that?

Claude Thibault, Chief Financial Officer

Yes. So obviously in this first quarter anything having to do with travel, business development, training even recruiting to a certain extent, even though we did not stop recruiting, we still for a while were less active on that front. So those expenses, how they turn around remains to be seen and what's going to happen with COVID and restrictions on travel and so on and so forth. I don't think we're going to go back to how it was before ever. So it remains to be seen exactly what the rebound in SG&A in these categories will be. We had also some headcount reductions. We talked about that in our Q4 reporting. So I guess on a structural basis, our reduction in SG&A will mainly come from increased scale. Our existing infrastructure can take us to CAD 1 billion and maybe more with minimal increases in mid-level or junior levels in our corporate functions. That's what I would say. But you can probably expect if COVID – if there's a return to normality, some categories would increase back. That can be a few hundred thousand dollars on a quarterly basis easily. But right now for the second quarter, we haven't seen much change yet.

Amr Ezzat, Analyst

Okay. Thanks, that’s it. That’s very helpful. I’ll pass it on.

Paul Raymond, President and Chief Executive Officer

Thank you.

Operator, Operator

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

Gavin Fairweather, Analyst

Hey, good morning.

Paul Raymond, President and Chief Executive Officer

Good morning, Gavin.

Gavin Fairweather, Analyst

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

Paul Raymond, President and Chief Executive Officer

Sure. Thank you. So on the project kickoff as I was saying earlier we saw a lot of delays at the beginning of the quarter, as people were trying to figure out how to do things in the new environment. As I mentioned earlier, especially in the large projects like the ERP implementations, even considering doing those remotely in the past would have been seen as a major shift. Actually, a lot of people realized they could do things much better remotely than face-to-face. We have done over a dozen go-lives in the quarter. And of course, those came later in the quarter. The results have been quite impressive. The quality of the project kickoffs and implementation has actually proceeded very smoothly. We have been giving training on how to do it. We were highlighted at the Microsoft Inspire conference for how we do these things. We actually posted a lot of video training on our websites and for our customers on how to do these types of things because of the experience we had. So I'd say all in all, we were able to turn that around and come up with a new way of doing things that is very appreciated out there in the current market conditions.

Gavin Fairweather, Analyst

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

Paul Raymond, President and Chief Executive Officer

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

Gavin Fairweather, Analyst

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

Paul Raymond, President and Chief Executive Officer

No. The bookings are based on the signed contracts. When we sign a contract and when the project begins are usually two different timelines. The contract is signed first, followed by a kickoff and a ramp-up that can vary depending on the project type, but they are distinct events.

Gavin Fairweather, Analyst

Okay. Thank you. That's it.

Operator, Operator

Your next question comes from the line of Deepak Kaushal from Stifel GMP. Your line is now open.

Deepak Kaushal, Analyst

Hey, guys. Paul and Claude, good morning.

Paul Raymond, President and Chief Executive Officer

Good morning, Deepak.

Claude Thibault, Chief Financial Officer

Good morning.

Deepak Kaushal, Analyst

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

Paul Raymond, President and Chief Executive Officer

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

Deepak Kaushal, Analyst

That's perfect.

Paul Raymond, President and Chief Executive Officer

Reflecting back to March, there was a lot of uncertainty globally about what was going to happen. By May and June, it became clear that life would continue despite challenges, and businesses found ways to operate. Many realized the benefits of cloud-based solutions that allowed employees to work from home. Initially, many organizations struggled to adapt, but we had already transitioned our team to remote work before it was mandated because our entire infrastructure is cloud-based. We are in a strong position with our systems in place. As sectors began to recover, industries like financial services recognized the ongoing need for banking, while the food sector saw increased demand from large grocers and manufacturers who had to quickly adapt. Each sector has come to understand that business must continue in this new environment. Our digital transformation services are still in demand, and people are recognizing the importance of technology now more than ever. Larger organizations that previously viewed technology mainly as a cost are now seeking ways to harness it for better, faster, and more efficient operations. This shift in perspective among CEOs demonstrates that they see technology as an opportunity rather than just an expense. Looking ahead to the fall, it remains uncertain, especially with the current issues in the U.S. impacting Canada and beyond. We are satisfied with our business model and how we’ve remained resilient during this period of uncertainty. While we remain cautiously optimistic, many factors, including political and geographical issues in the U.S., make the future hard to predict, especially in terms of potential second waves or vaccine rollout. Normalcy in air travel still seems a year away, assuming a vaccine becomes available. We continue to adapt to our current operational mode, which is influencing our acquisition strategy, focusing on businesses that offer complementary services along with high revenue recurrence and predictability. This situation has instilled greater discipline across the industry, which we have navigated effectively. Prior to the pandemic, our team already worked remotely, so adapting to a fully remote environment, particularly for project launches and implementations, was the primary challenge. On the business development side, we are adjusting our sales strategies for remote engagement, which has proven successful and is something we plan to continue leveraging as we anticipate this situation lasting for a while. I hope that provides some insights into our customers' outlook and our own perspective for the fall, Deepak.

Deepak Kaushal, Analyst

Yes, that's very helpful. You mentioned in the outlook that large organizations are trying to leverage technology. Do you have any insights regarding the new normal? Before a vaccine is widely available and mass immunity is achieved, do you have a sense of whether the new normal is larger or smaller than the previous one? In terms of same-store sales, do you have an idea of where this might end up? Are we looking at being 10% higher than expected before COVID, or are we 10% lower?

Paul Raymond, President and Chief Executive Officer

I believe this new normal will persist for some time. There will always be a necessity for in-person interactions for team building and fostering company culture, but I don't expect organizations to return to previous levels. This shift will significantly influence retail and how we shop, travel, and work in the medium to long term. The impact on the digital landscape will be profound, affecting how we use tools and navigate both our work and personal lives. Having been in the industry for a long time, I'm aware that we often view these trends as temporary, but I genuinely think the need for constant onsite presence, to monitor productivity, is a concept of the past.

Deepak Kaushal, Analyst

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

Claude Thibault, Chief Financial Officer

Yes, it was Paul speaking earlier, and we do have similar voices. Regarding rent, which is our second largest expense, you can anticipate a decrease in our needs over the next few quarters and years, as Paul mentioned. The subleasing market is currently quite soft. However, when we evaluate acquisitions, it's reasonable to say that our space requirements will be limited. We have surplus space in our existing facilities due to COVID, which simplifies synergies. The variations in working capital may actually be a silver lining from declining revenues, as the decrease in receivables typically improves cash flow. We've actually excelled beyond expectations in this area, with our days sales outstanding remaining stable or even slightly declining despite COVID. We might have anticipated slower client payments, but that hasn’t been the case in Canada or the U.S. However, as our revenues level off and ideally start to grow again, we might see a reversal of these positive working capital trends, making it tough to predict overall performance. We consider ourselves a growth company, and we’ve always indicated that as we expand, we will continuously need to invest in our working capital. On the topic of ERP expenses, they are diminishing as we approach the end of our current phase. For a while now, we've been more focused on investments needed to integrate our acquisitions onto our Oracle platform, where the majority of ERP spending is directed. You can expect that trend to persist; spending decreased in Q4, and that will continue even though investing in ERP is an ongoing necessity. This is our core business, so we continually need to implement new modules, updates, function personalization, training, and bug fixes. Although the investment amount is expected to decline, it will never cease altogether.

Deepak Kaushal, Analyst

I think it was premise relocation costs.

Claude Thibault, Chief Financial Officer

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

Deepak Kaushal, Analyst

Okay. Thank you so much, Claude and thank you again Paul for your earlier answers and I appreciate your time, guys.

Paul Raymond, President and Chief Executive Officer

Thank you.

Operator, Operator

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

Suthan Sukumar, Analyst

Hi, guys. Thanks for taking my questions here. Just given the growth of recent acquisitions, I just wanted to get an update on any progress on software-driven IP revenues.

Paul Raymond, President and Chief Executive Officer

It's still fairly low. Obviously, we resell Oracle and Microsoft licenses, but as far as proprietary IP, that's still a small amount. We're really looking for IP that we can sell services around; that's our business model. If you look in our financial statements, we have removed the notes. It's pretty limited. Your question is very good, and it's something we want to grow and explore. Today, it's very limited. The last acquisition we made with Askida includes a significant portion of IP. However, when you consider the overall size of Alithya, it remains small compared to the rest of our revenues today.

Suthan Sukumar, Analyst

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

Paul Raymond, President and Chief Executive Officer

Sure. We have a very disciplined approach to our M&A in terms of what we look for: a cultural fit, management sticking around, the complementary nature of the services, and the industry that they're in. We have a checklist that we go through and we qualify all these companies before we even go to the next step. We added to that list based on the COVID. For example, the sectors was something that we looked at in the past, but I think the visibility of the sector whether it's in essential services or not is now at the top of the list because as we've seen from COVID if this thing lasts for the next two years, it's much better to have targets that are in similar sectors to us and that are COVID-resistant. Let me put it that way. So that's an example. We've added a few new criteria that we look at as we scan these companies. Given that the pandemic we're now into month six of it, it's really easy to tell how that has impacted the targets that we're looking at. It’s very interesting. So we've added a few new criteria and I'm not going to go into detail because I think it's part of our secret recipe. But there are still some interesting targets out there despite all these things.

Suthan Sukumar, Analyst

Okay, that's perfect. Thanks a lot, guys. I'll pass along.

Paul Raymond, President and Chief Executive Officer

Thank you, Suthan.

Operator, Operator

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

Paul Raymond, President and Chief Executive Officer

Thank you, Joanne. So, again, very happy with the quarter. Thank you everybody for being on the call today. Just wanted to remind everybody that our Annual General Meeting of Shareholders will be held as a virtual meeting this year on Wednesday, September 16, 2020. To access the meeting documents, you can visit our Investors section on the Alithya website. Thank you again for being on the call today. We look forward to speaking with you on the next quarterly call. Thank you. Have a nice day and stay safe.

Operator, Operator

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