Earnings Call Transcript - ALYAF Q3 2024

Operator, Operator

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

Unidentified Company Representative, Company Representative

Good morning, and thank you once again for joining us for Alithya's Third Quarter Fiscal 2024 Results Conference Call. The press release and MD&A with complete financial statements and related notes were issued this morning and are now posted on our website. The webcast presentation can also be found on our website in the Investors section. Please be advised that this call will contain statements that are forward-looking and which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These statements include, without limitation, our estimates, plans, expectations and other statements regarding the future growth, results of 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 and our ability to take advantage of business opportunities and meet our goals set in our current and next three-year strategic plan. For more information, please refer to the cautionary notes in our presentation and to the forward-looking statements and Risks and Uncertainties sections 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 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, and Claude Thibault, Chief Financial Officer. I will now turn the call over to Paul Raymond.

Paul Raymond, President and CEO

Good morning, everyone, and thank you for joining us this morning. I'm very pleased to share the details of our team's robust performance in the third quarter of fiscal 2024. With sequential revenue and margin growth as well as other notable achievements in Q3, we have many positive trends to discuss today. So I'd like to begin this morning by highlighting three critical areas that summarize our third quarter achievements. First, Alithya has set an internal record for gross margin as a percentage of revenues in Q3 as well as record adjusted EBITDA margins. Second, we made considerable progress in reducing our SG&A expenses while also generating notable positive cash flow in Q3. Additionally, we continue to reduce our debt in alignment with ongoing targeted initiatives. Third, Q3 was another strong quarter for bookings, and when excluding the two long-term contracts, we achieved a book-to-bill ratio of 1.2 and saw sequential revenue growth in all our geographies. Now let's take a closer look at these achievements. Last November, we highlighted gross margin as a source of pride in disclosing our Q2 results. In the third quarter, that upward trend continued with gross margins as a percentage of revenue reaching 31.3%, which is the highest mark to date in Alithya's history as a publicly traded company. That result is the fruit of targeted initiatives aimed at maximizing gross margins and higher value services, which includes more permanent employees in our mix and achieving better utilization rates. Our smart shoring operations currently account for 6% of our assigned people, but we continue to bolster and position our operations to take on a more substantial role in the quarters ahead. Smart shoring operations also serve us in building stronger project teams for our clients by enabling us to balance senior people with junior ones. This is a win-win situation because it also allows us to train our junior employees and to prepare them for career opportunities, which is a central element of our internal promise to our people. Q3 also saw continued improvement in SG&A expenses as our disciplined approach continues to deliver positive results. In fact, year-over-year, our expenses decreased by 5.4% in the third quarter, complemented by positive cash flow and further debt reduction. With these new efficiencies, reducing our spending, we also seized the opportunity to increase our credit facility ensuring future flexibility for addressing both organic growth and potential M&A. As mentioned in my introduction, our posted adjusted EBITDA margin in Q3 was also a record achievement for Alithya driven by both our gross margin performance and reduced SG&A expenses. On the bookings front, our performance was also strong, and our pipeline continues to be solid. Our book-to-bill ratio of 1.2 is also very encouraging when compared to the past 10 quarters. In addition to our Q3 bookings, we have signed multiple new contracts, including a $12 million deal at the start of Q4 with a large U.S. healthcare provider, which operates a network of hospitals, surgery centers, and physician practices across the U.S. This is one of the largest Oracle contracts that Alithya has signed to date. Also in Q4, in the healthcare and government sector, we won two additional large deals with a major Quebec-based health agency. One is a Microsoft project and the other one is an Oracle initiative. Regarding the latter, the contract win showcases how our cross-border collaboration and acquisition strategy serve as a catalyst for growth. Our long history of successful Oracle finance and supply chain implementations in the U.S. private healthcare systems, coupled with extensive knowledge of the public healthcare system in Quebec allowed us to demonstrate our proven abilities for the client. We are particularly pleased with these new large wins because they demonstrate the effectiveness of our cross-border collaboration on the part of our Global Oracle Healthcare practice. Now let's look at revenue growth. Although lower compared to our historical standards, we experienced sequential revenue growth in all our geographies in the third quarter. In Canada, despite ongoing softness in the banking sector, we saw some stabilization in Q3 in respect to our billable projects. We also continue to fine-tune our approach to the public sector by selectively choosing the projects that we want to bid on rather than reducing our prices as a response to an increasingly competitive market. We are also seeing benefits from more fixed-price projects in the government sector, which makes it easier for us to manage and allocate our workforce for optimal utilization and cost management. Our partnership with AWS also continues to develop and mature in the cloud space, and we see the potential for significant revenue potential moving forward. In the United States, both our Microsoft and Oracle practices and project sizes continue to grow. Our profitability also continues to increase relative to our projects. The success of our Oracle and Microsoft business is bolstered by a significant increase in multi-pillar projects for both practices driven by concerted efforts to increase cross-collaboration by combining two or more of our high-value offerings. As we head into the fourth quarter of fiscal '24, our Oracle practice is preparing to engage in a plethora of projects on the books as the delivery of these new wins starts ramping up. Also in the U.S., our Enterprise Solutions group completed 26 go-lives in the third quarter. In response to demand, the group continues to add technical resources, further leveraging our smart shoring operations to train personnel capable of addressing our growing needs. Finally, we are seeing increasing interest in Microsoft Copilot training being offered to our clients in the United States, and our industry is seeing overwhelming interest in artificial intelligence as a concept. As of now, however, that interest has not translated into substantial revenue generation, but current and potential clients are growing increasingly curious about its future potential. Technology is in a constant state of evolution, and Alithya strives to always remain on the crest of that wave. Currently, our AI-driven revenues are focused on sales of our IP solutions targeting automation and hyperautomation, including industry-specific solutions such as computer vision, fraud detection, process automation, legacy modernization and many others. Our subscription and software revenues currently represent 12% of our total revenues. As clients express greater interest and willingness to harness the power of AI to increase their efficiency, we intend to increase that proportion accordingly. This brings me to another topic that I would briefly like to discuss this morning, which is our Alithya awareness campaign with C-suite leaders. Alithya has no interest in selling products and services that don't address the business needs of our clients. This premise is a driving force behind the Alithya awareness campaign, which we deployed across our business lines to ensure our leaders are in direct alignment with those responsible for making important spending decisions in client organizations. The objective is to ensure that we have an accurate understanding of our clients' mid- and long-term strategies as well as their most critical priorities and challenges. In doing so, we significantly enhance our ability to identify potential opportunities for greater value creation down the road. Alithya remains a human-centric business with clients who turn to us as a trusted adviser for strategic advice, enterprise transformation, and business enablement. The key to it all is the skills of our people, and we are proud that globally, our client satisfaction score average over the past four fiscal years has been higher than 90%. Now before I turn things over to Claude Thibault, our Chief Financial Officer, I will close by emphasizing that our strategic alignment and selective course adjustments as we go on continue to improve our overall positioning. So as we enter the final quarter of our current three-year strategic plan, we are confident that we are well-positioned for the future while navigating through the current economic environment. Longer term, our next three-year plan will take effect on April 1, 2024. It will be inspired by the maturity, agility, and adaptability of the Alithya team. For over 30 years now, we have been highly successful in helping our clients leverage technology that addresses their business challenges. The desire to continue doing so drives us more than ever today as technology evolves at an ever-increasing speed. I look forward to discussing details of that plan with you in the coming months. So thank you once again for your time and interest this morning. Claude, over to you.

Claude Thibault, CFO

Good morning. As Paul mentioned, Alithya reported in Q3 notable performance improvements on a number of fronts. Consolidated revenues came in at $120.5 million, again, a sequential increase in all geographies of $2 million in total, which also represents a smaller year-over-year reduction versus what we reported in our second quarter. If we dive a little deeper, we can see that revenues in Canada stabilized with a small sequential increase to $68 million in Q3. We continue to see softness in technology investments in the Canadian banking sector. But when we look at revenues for specific financial services clients, we can see some stabilization. In the U.S., revenues increased sequentially from $45.7 million to $47.1 million. Despite this recovery, we continue to see weaker conditions in certain areas of the IT services sector, notably in digital skilling and change enablement services. Paul already discussed our great normalized book-to-bill ratio of 1.2 for the quarter, but I want to take a minute to make sure the difference between that number and the gross book-to-bill ratio is well understood. If you remember, the large acquisition of spring 2021 and the large 10-year agreements signed with its two main shareholders, we reported $600 million of bookings at that time. The issue is that we now have those recurring revenues in our quarterly actuals, but we are not reporting any new bookings anymore, which therefore, structurally understates our book-to-bill ratio on a gross basis. This is why we provide you with a normalized ratio, which excludes the long-term recurring revenues in order to provide a better indication of how we are doing with regards to the revenues which we do have to replace going forward. That being said, even our growth ratio in Q3 is above one which is very positive going forward. Back to our results. With regards to gross margin, I noted that back in November, how challenging it is to increase it during lower revenue quarters. However, we achieved sequential improvement again despite another quarter in the current softer revenue cycle. Gross margin as a percentage of revenues increased to 31.3% in Q3, up from 30% in the same quarter last year. On a sequential basis, gross margin percentage increased notably in comparison to the 29.4% reported in the second quarter. This notable increase is mainly due to the ongoing execution of multiple internal initiatives from better individual project management and discipline to better utilization management with continued focus on our higher-margin offerings. In Canada, our gross margin increase is mainly due to higher margin offerings and better utilization and a proportionately larger decrease in the use of subcontractors compared to permanent employees. As for the U.S., our gross margin increase is also the result of higher utilization rates and improved project performance. As we mentioned last quarter, this gross margin performance bodes very well for when we see our revenues return to a more typical historical organic growth pattern. Now looking at SG&A expenses, we also experienced notable improvements for consecutive quarters, and we are happy to see our cost improvement efforts continue to bear fruit. Total gross SG&A expenses in the third quarter totaled $29.5 million, a decrease of $1.7 million or 5.4% compared to $31.2 million in the same quarter last year, which is a notable decrease when looking at numbers on an annualized basis. This decrease is mainly due to the reduction in employee compensation cost as we continue our ongoing review of Alithya's cost structure, which was partially offset by certain seasonal timing and initiative-driven increases. While discussing SG&A expenses, I would like to take a moment to come back to our decision to consolidate trading on the TSX and to delist from the NASDAQ Exchange. This decision was based on our opinion that the limited benefits derived from being dual-listed no longer justify the administrative costs and efforts of maintaining the NASDAQ listing. Between listing fees themselves, D&O insurance, compliance, the SOX audit, legal and other costs, we are talking about over time of almost $1 million annually, not counting the time spent by our employees internally. The consolidation of the trading volume on the TSX and the associated increase in liquidity should not be overlooked as an additional benefit for our shareholders. Now back to Q3 performance. Overall, as a result of increased revenues and gross margin dollars on a sequential basis as well as good control over expenses, our third quarter adjusted EBITDA amounted to $9.5 million, representing an increase of $3 million or 46% compared to Q2. As Paul mentioned earlier, our Q3 adjusted EBITDA margin was 7.8%, representing a record high. Our improved financial performance also resulted in a number of interesting metrics and while our adjusted EBITDA in dollars is slightly lower than Q3 last year, as already mentioned, we should note the following. Our unadjusted EBITDA at $7.2 million is actually higher than last year, in addition to rebounding by $5.1 million from the second quarter. Secondly, our adjusted net earnings at $3.9 million or $0.04 per share is also higher than Q3 last year and rebounding from a negative adjusted net loss in the second quarter. Also, it is the first time that we are reporting a positive operating income as defined in our financial statements. Indeed, operating income is defined after acquisition and reorganization costs and after depreciation and amortization which are non-cash and non-recurring amounts respectively, but which had historically been fairly high amounts for Alithya. Our performance improvements have now taken us back into positive territory on this other accounting measure. We would also point out our accounting net loss of only $2.5 million which is improving significantly from negative $9.2 million in the second quarter. At this new level, we believe we may not require a big bump in revenues for continued declines in acquisition and reorganization costs or in depreciation and amortization or even interest to get to a positive accounting net profit, which remains a short-term objective and which we know would be a game changer for certain categories of potential investors even though this is just accounting and we have actually been cash flow positive for years. Of note, our accounting net loss of $2.5 million is the smallest in almost three years despite higher interest expenses currently. Lastly, considering our $9.5 million of adjusted EBITDA and our $7.4 million of cash generated from operating activities, before working capital variations, this translates into a great cash flow conversion of above 75%. And all these highlights, again, being achieved despite reporting lower year-over-year revenues in the third quarter. Turning to liquidity and financial position on Page 12. Net cash generated by operating activities was $15.6 million, which combined with other cash flow elements resulted in a net debt reduction of $11.5 million over the third quarter. At the end of Q3, we announced that we had increased our existing revolving credit facility to $140 million plus an uncommitted accordion of $50 million to April 2026 with options for one year extensions thereafter. Although this increased availability is not currently required, it provides the company with adequate access to capital to continue accelerated growth both organically and through acquisitions. Back to you, Paul.

Paul Raymond, President and CEO

Thank you, Claude. So let's recap the three notable areas of achievement from our third quarter. First, Alithya set an internal record on gross margin as a percentage of revenues in Q3 as well as record adjusted EBITDA margin. Second, we made significant progress in addressing our SG&A expenses while also generating notable positive cash flow in Q3 and continue to reduce our debt in alignment with our ongoing initiatives. And finally, third, Q3 was another strong quarter for bookings when excluding the long-term contracts with a book-to-bill ratio of 1.2. Now we'll be happy to take questions. Julie?

Operator, Operator

Your first question comes from Rob Goff from Echelon.

Rob Goff, Analyst

Congratulations as well on the Q4 contract wins. Could you discuss how we might see those Q4 contract wins translate into revenues? And also on the revenue side, can you talk to where in Canada you're now seeing sequential revenue growth? How might we look at that going forward?

Paul Raymond, President and CEO

Thank you for the question, Rob. The large contracts we secured in Q4 are typical of our usual ERP projects. The ramp-up period typically spans a few months or a quarter. Therefore, you can anticipate that the ramp-up for contracts won in Q4 will commence in Q1 of the next fiscal year. It generally takes several months to fully implement these projects. Once they reach full scale, these are substantial, multi-year projects that typically generate ongoing revenue. Being in Canada, we view this as very encouraging. These contracts are in the government sector, which we believe will grow at a faster rate than the financial services sector, based on current trends. We have observed some stabilization in the financial sector, but it remains under pressure. Thus, we expect growth in other areas to likely outpace that moving forward.

Claude Thibault, CFO

Does that answer your question, Rob?

Rob Goff, Analyst

It does. And if I may, one more on the revenue side of things, could you talk to your sales pipeline RFPs outstanding, and that in prior quarters, you talked to your participating in larger RFPs. I suspect that one of those was actually booked in Q4, but can you talk to your current pipeline?

Paul Raymond, President and CEO

Sure. The current pipeline is very strong. As I mentioned earlier, we are securing larger deals, such as the $12 million contract, which is among our biggest pure ERP contracts signed. We will announce another significant win as soon as the contract is finalized, and it is even larger. Our experience and proven track record in delivering ERP projects are key. We achieved 26 go-lives on ERP projects in a single quarter, which is impressive, as many companies struggle to do that in an entire year. Implementing an ERP system is quite challenging, so completing that many in just one quarter is a testament to our team’s exceptional performance. Due to our track record and scale, we now have access to much larger ERP projects than we did a few years ago, and we are capitalizing on those opportunities in new sectors and regions. Our success in winning two large healthcare contracts in Quebec was attributed to our experience with hospitals in the U.S. All these factors are aligning, and I believe we are in a strong position to harness that moving forward.

Operator, Operator

Your next question comes from Jerome Dubreuil from Desjardins Bank.

Jerome Dubreuil, Analyst

Let's start with the margin improvement side, indeed, higher utilization with lower revenue, it's quite unusual, so good to see. Can you maybe describe some of the initiatives and call data terms that have been implemented? Or is this just a general change of mindset?

Paul Raymond, President and CEO

Are you talking about revenue specifically, Jerome? or gross margin?

Jerome Dubreuil, Analyst

Yes.

Paul Raymond, President and CEO

We discussed this last quarter as part of our strategic plan. If you recall two years ago, we mentioned that we could significantly improve by focusing on higher value projects that naturally lead to greater gross margins. This involves several factors: firstly, the types of projects we pursue; secondly, having a greater proportion of permanent staff and experts rather than relying on subcontractors; and thirdly, utilizing our smart shore operations. With larger projects, like the recent one we announced, we gain much better control over the work—how, where, and with whom we carry it out. This allows us to utilize our personnel more effectively and take advantage of our lower-cost locations while maintaining better control over utilization. All of these elements greatly influence our gross margin moving forward. Although our revenue has declined, the reductions we’ve made, which have soft revenues, primarily come from lower-margin areas. When large organizations cut back on spending, they often first eliminate temporary resources, such as time-and-material contracts and subcontractors, which are the easiest to halt. In contrast, ongoing projects are usually quite challenging to discontinue due to their significant business impacts, particularly those tied to long-term initiatives like ERP projects. Therefore, we're currently experiencing softness in lower-margin segments, but this is proving beneficial for our margins.

Claude Thibault, CFO

Maybe Paul, I would add, Jerome. Looking at Alithya from 2017 when we went public after fiscal 2017, up to fiscal 2023. So before this current year where we are seeing the impacts of the slowdown. Our organic CAGR, so our organic growth has been 12% on average. And on top of that, you add our acquisitions, growth from acquisitions, which has been obviously much higher. So we really took the opportunity with slower revenue growth that we've seen in recent quarters, we really took that opportunity to look at how we manage projects, implement best practices, in terms of tracking projects. We've organized internal meetings to do a better job at that, really focusing on individual project performance. So this is not very sexy when you think about it, but it really makes a difference in a slower growth phase, which we believe will end sooner or later, but it's really been an opportunity to take the time to look at how we do these things, and you can see the impact as well in addition to everything Paul mentioned.

Jerome Dubreuil, Analyst

It's great to hear that we're not focusing solely on attractive aspects but rather on profitability. Regarding the potential for a re-acceleration in revenue, which seems to be a shared expectation with the contracts mentioned for global peers, do you think it's necessary to hire in advance of the anticipated demand increase, or do you believe the current labor market conditions might allow for more just-in-time hiring as you've practiced before?

Claude Thibault, CFO

We try to.

Paul Raymond, President and CEO

It's an interesting question. So there are two ways of looking at it. The hiring is really tied to the type of business that we do. So when we're more focused on projects and higher value offerings, we have a lot more lead time and a lot more structure around, who we hire and why, and the higher for the long term as opposed to a lot of the short-term lower-margin business, where a client wants somebody to help them out next week, right, which becomes a very reactive type of hiring. So our model has been a lot more on hiring for what's coming. You have to time it well. You don't want to hire too far ahead of time, but we hire for what's coming, what's in the pipeline, hiring more intelligently. And we also have our own academies where we hire graduates right from school and train them. That's a three-month process to train them for projects. So we have a pretty good balance on that front in terms of what we need and how we prepare for it.

Jerome Dubreuil, Analyst

Great. Regarding the margins, considering the nature of your work and the past margin guidance you've provided, is it accurate to say that there are still some straightforward opportunities for efficiency improvements?

Paul Raymond, President and CEO

Well, I think the biggest low-hanging fruit that I've talked about in the past is leveraging more of our smart shoring operations, which we're growing slowly but surely. We see huge potential there. And again, it's a pure cost structure play. We have a very highly qualified people in our centers in global delivery that we're growing intelligently. Yes, we see significant opportunity there for improved gross margin, everything else being equal.

Operator, Operator

Your next question comes from Gavin Fairweather from Cormark.

Gavin Fairweather, Analyst

Just following on, on the trended gross margins. Curious if there's more upside to utilization or more subcontractors that you can take out? Is there further upside on that front? Or are we pretty optimized here in the quarter?

Paul Raymond, President and CEO

There's still opportunities there, Gavin. We still have some subcontractors on some projects. And there's always room for improvement in utilization. So yes, still the opportunity there.

Gavin Fairweather, Analyst

And then in your prepared remarks, you touched on the pricing environment a little bit. I was hoping to just get a little bit of color in terms of what you're seeing from a competitive perspective on pricing for work out there in the pipeline?

Paul Raymond, President and CEO

I was looking forward to addressing that. Currently, we have a strong presence in the financial sector, which has been challenging for us in recent quarters due to the slowdown. As you've noticed, banks are implementing layoffs, and this is affecting the overall environment. Historically, during recessions, government spending tends to increase. If you follow the news, you’ll see major investments in government modernization, infrastructure, new roads, trains, and similar initiatives. What we've observed is that companies which normally don’t participate in government business are suddenly looking to shift and bid on these projects since other opportunities are dwindling. The price pressure we are experiencing primarily comes from these non-traditional players entering markets where they usually don’t compete. When these competitors try to gain business, they typically undercut prices through cost-cutting. Unfortunately, they often overlook that establishing a long-term contract, particularly in the government sector, involves strict pricing structures and rate increases. Offering a very low price to secure a three-year contract is not a viable strategy. Therefore, we are selective about the projects we pursue, which has been our approach in the past. We aim to focus on projects where value is prioritized over price. In our experience with large ERP projects, simply choosing the lowest bidder does not guarantee project success. We are choosy and tend to win the bids we pursue. This positions us well to navigate the current environment, which is reflected in our gross margins. We have managed to sustain and even improve our margins despite these challenges, which we believe are temporary.

Gavin Fairweather, Analyst

Good to hear. It does. I think you normally reset your salaries for the internal workforce on April 1. You could just discuss kind of the macro environment, whether it's taking a little bit of pressure off of your labor cost.

Paul Raymond, President and CEO

It's taking a little bit of pressure off. But we've always been competitive on April 1, every year. We've done it, and the same thing this year. We look at the market. We have a lot of market data for all of our geographies, and we try to be competitive. The idea is you want to hang on to the people. We're doing well. We're always looking at resizing the team or shuffling based on where the demand is. So to me, those are two separate issues. One is you have to take care of the people that you have and make sure that they want to be here, they're well compensated and then you have to adjust in the areas where demand is lower. So I think we do a very good job at that.

Gavin Fairweather, Analyst

Great. And then just lastly for me, maybe for Claude. Would you view the working cap as still being a little bit elevated exiting calendar '23? I think there was a mention for last quarter, and we got about maybe 8 or 9 back this quarter.

Claude Thibault, CFO

Yes. The short answer is yes. We can still have improvements. If you look at our historical cycles, I'm expecting that to be stable going forward at worse. It's going to go up and down quarter-to-quarter, but the general trend is where we are now, if not slight improvements still to come. But it really depends on timing. As I often say, we were basically a two-million-dollar per day business now at the scale we're at, so $2 million going out to $2 million coming in. A little bit more coming in than going out, obviously. But $2 million, if we just slip a couple of days on both fronts in the wrong direction, it adds up to millions of dollars. So we did a great job in Q3. We're going to keep at it. So yes, I'm certainly working towards more improvements there.

Operator, Operator

Your next question comes from Vincent Colicchio from Barrington Research.

Vincent Colicchio, Analyst

Could you provide an update on your current offshore footprint? What steps are being taken to expand it, and are you considering an acquisition to enhance your presence?

Paul Raymond, President and CEO

Today, we are operating offshore in India, Eastern Europe, and Morocco, which represents about 6% of our total delivery workforce. The last time we expanded our offshore capabilities was through an acquisition, and we are always exploring that option, Vince. However, any such move would need to involve customers based in North America or Europe. Our primary focus markets are North America and Western Europe, including the U.K., where we already have clients. We are actively looking for opportunities to accelerate the growth of our delivery centers, both through acquisitions and organic growth. Additionally, we have several internal initiatives underway aimed at facilitating this growth.

Claude Thibault, CFO

And maybe I would add also, Vince, as we've reported, it's been a couple of quarters of softer revenues. To increase our usage of near-shoring resources is much easier to do when you're up on the upswing in terms of revenues. Because in those situations, you're looking for resources anywhere and you need them fast. So that's probably where you're going to start seeing significant acceleration to our offshore and nearshore usage as opposed to what we've achieved.

Vincent Colicchio, Analyst

And Paul, I think you mentioned that there isn’t significant revenue yet from generative AI. Are you seeing growth in that area? Could you discuss qualitatively how your collaboration with clients is evolving on that front?

Paul Raymond, President and CEO

There's a lot of discussion happening, Vince. All our clients are interested in this topic. I mentioned earlier our executive awareness campaign, and we are meeting with many senior executives. Everyone wants to engage on this and is looking for potential pilot projects. However, there is a significant delay between these discussions and making actual decisions to move forward with projects. We do have some AI initiatives in progress, but the growth isn't matching expectations. It's coming, but I believe it will be a slow process.

Vincent Colicchio, Analyst

And then lastly, any help on the sort of sequential revenue growth you may see in the Q4.

Paul Raymond, President and CEO

Good question, but we tried out the comment on the forward-looking stuff events. I mean we've seen quarter-over-quarter that the financial services kind of flattened out, so that's good. And we're seeing some sequential growth. The bookings are solid. So if bookings are any indication, I'd say that would be the best way to look at it.

Operator, Operator

Your next question comes from John Shao from National Bank.

John Shao, Analyst

So Paul, could you maybe talk about your staff utilization for this quarter and how we should think about it in the next quarter and one or two?

Paul Raymond, President and CEO

Thanks, John. Yes, we monitor utilization as one of our key performance indicators, although it isn't the only one. We often have fixed-price projects where utilization is assessed differently. It's important to note that our third quarter includes December, which has holiday time that affects our numbers. This year, many employees took extended vacation in December, and some clients also had longer shutdowns, which impacted our utilization rates. In January, there are usually fewer vacations due to the way the calendar is arranged this year, so I expect improvement then. February has an extra day this year, but we also have to consider the impact of the Easter holidays, which fall in March this year as opposed to April last year. All these factors will influence utilization, but we remain optimistic about our current position.

Claude Thibault, CFO

No. It was just to reiterate the same idea we've mentioned several times today. We achieved a strong performance in utilization during quarters with slower revenue cycles, which is quite challenging. As we move into the upswing, we're actively seeking resources everywhere. Therefore, we're hopeful that we can improve on that metric, at least from a mathematical perspective.

John Shao, Analyst

That's making a lot of sense. Could you maybe talk about the M&A environment and your pipeline? How should we think about the valuation versus last year?

Paul Raymond, President and CEO

So if you look at our historical M&A track record, we haven't done an acquisition in 1.5 years right now. So everything that we're doing now is around integrating and getting efficiencies out of past acquisitions. We're actively looking. We've got an interesting funnel of acquisitions. However, the prices on quality assets, and I mentioned this in the past, are not coming down. I mean there's some stuff out there that kind of have fire sales. But the quality assets that we're interested in, prices are not coming down. So we're being very selective and very disciplined looking at these and where they would impact and how they would help. But no changes on the multiples from what we're seeing.

Operator, Operator

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

Paul Raymond, President and CEO

Thank you Julie, and thank you everybody for joining us this morning. Happy Valentine's Day. Enjoy the rest of the week.

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.