Earnings Call Transcript - ALYAF Q4 2021

Operator, Operator

Good morning, ladies and gentlemen. Welcome to Alithya Q4 and Fiscal 2021 Results Conference Call. I would now like to turn the meeting over to Rachel Andrews. Please go ahead, Ms. Andrews. Thank you, Chris. Good morning, everyone. And thank you for joining us for Alithya’s fourth quarter and 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 and fiscal 2021 annual review 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 cautionary note on our presentation and to the forward-looking statements and risk 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 the cautionary note on our presentation and to the non-IFRS measures section of our MD&A for more details. Now, I would like to turn the call over to Paul Raymond.

Paul Raymond, CEO

Thank you, Rachel, and good morning, everyone. Bonjour. I’m very happy to be with you here today to share our Q4 results. Fiscal 2021 was anything but normal. We remain focused on being there for our people, for our clients, building the necessary trust that keeps Alithya top of mind when complex mission-critical work needs to get done. Throughout the year, we made decisions and investments with a view that Alithya would emerge from the pandemic stronger and better positioned than ever to successfully pursue our growth strategy. Our fourth quarter results prove this right. Before providing some color on the quarter, I want to take a minute to review our latest acquisition closed this past April, R3D, and explain the transformational impact that this deal will have on Alithya for at least the next 10 years. Because of the R3D transaction, we could say that we are starting our 2022 fiscal year that began this past April with a win at our backs. Indeed, this acquisition and its associated long-term contracts was a milestone deal for many reasons. I’d like to highlight four of those reasons for you now. First, this transformational acquisition added two 10-year contracts that combined will add approximately $600 million in total guaranteed revenues over the next 10 years starting on April 1st of this year. Once we are done with the expected ramp-up period, these contracts will be generating significant high-value recurring revenue for a very long time. Second, with nearly 600 new professionals coming from R3D, we now have more than 3,000 billable professionals in an industry where qualified personnel are scarce. This is also very positive. Third, the two historic contracts with Beneva, remember this is the company resulting from the merger of La Capitale and SSQ, and are now the largest mutual insurance company in Canada, and Québecor, a Canadian telecommunications and media leader, strengthen our presence in both those industries. These same industries are going through significant digital transformation phases and will require a trusted partner more than ever. Lastly, the transaction was immediately cash flow positive, reducing Alithya’s debt to adjusted EBITDA ratio and pointing to further deleveraging of our balance sheet. So before I move on to discuss our fourth quarter results, I can already tell you that R3D’s integration within Alithya’s current structure is progressing well and allowing for notable short- and mid-term synergies. We are repeating our successful formula of buying quality companies and accelerating their growth. Now let’s talk about our fourth quarter performance. Last year at this time, we were preparing for a period of great uncertainty, but one in which the underlying demand for digital transformation services was accelerating. Today, I am pleased to report the great work that our teams have been doing that led to these quarterly results by executing our strategic plan with discipline. Here are three examples that illustrate what I’m talking about. One, our revenues increased 6.5% to a record $78 million in the quarter, the percentage increase would have been 7.7% assuming a constant U.S. dollar exchange rate. This is strong organic growth in our industry where most players are showing year-over-year declines. Two, Q4 bookings reached $92.8 million, which translates into a book-to-bill ratio of 1.23. This reflects once again our well-established reputation as a trusted advisor in digital transformation. We started disclosing bookings and book-to-bill ratios in the first quarter of fiscal 2021 to offer insight into the trends and visibility about our new projects and volume of new business over time. Keep in mind that these numbers do not include the R3D acquisition and associated long-term contracts as the transaction closed after the end of fiscal 2021. R3D numbers will start being accounted for in our first quarter of 2022. Thirdly, as for our adjusted EBITDA, it increased 61.8% from last year as we continue to benefit from organic growth, our acquisition and operational synergies quarter-over-quarter. Let’s take a closer look at what is happening in our practices and geographies. In the United States, we are very happy to see sequential quarterly growth of our revenues from $27.6 million to $29.7 million despite a year-over-year decline. We can see that Alithya’s U.S. activities are recovering from the pandemic as we see traction in specific industries like food and beverage, healthcare, finance, and retail. Also, we’re pleased to see that our Microsoft and Oracle Enterprise Solution implementations are giving our existing and new customers the digital tools that they need to become more agile, productive and innovative in order to sustain their vision in a fast-changing, highly competitive post-COVID market. Now turning to Europe, we also see stabilization in their activities with the addition of new major clients, including in the aerospace industry, such as Airbus. On a sequential basis, revenues in Europe were essentially flat with a decrease of $100,000. In Canada, we saw fourth quarter organic growth both year-over-year and sequentially, and we see solid momentum both among our private sector and public sector clients. More specifically in Canada, our teams who service our government clients performed very well. As an example, we won a significant contract worth $12.4 million to assist a Québec Government Ministry in providing project management services for their internal initiatives. This is one of the largest government contracts Alithya has been awarded in Québec in recent years. This new contract combined with our recently acquired status as a preferred service provider of cloud solutions to Québec public organizations is a clear demonstration of the trust we have gained with our public sector clients. That’s the Alithya way. In the energy sector, we were also awarded a very significant contract this past quarter. It consists of a multiyear agreement with a $10 million initial value for plant level operational technology cybersecurity consulting services in the North American manufacturing and utilities sector. Excuse me, Alithya’s portfolio includes decades of work in regulatory compliance, including assisting other top-tier customers to identify and address cybersecurity challenges and implement strategies to improve system resilience. This brings me to highlight that one of our areas of focus is to strengthen our existing practices. One of the best examples of this is our Digital Solution Center. I spoke to you about it in my opening remarks last quarter, but I would like to highlight that with the acquisition of R3D, our Digital Solution Center now comprises more than 500 professionals, specializing in the transformation and modernization of custom systems geared towards new technologies to meet today’s most pressing digital transformation needs. We are also strengthening our expertise in key Alithya practice areas, such as business intelligence, agility management, infrastructure, operational security, cloud services, machine learning, and IoT, just to name a few. In the past quarters, you have also seen our cross-selling strategy pay off. We have won multiple cross-geography and cross-industry enterprise projects as a result of these efforts of leveraging past acquisitions to accelerate organic growth. Before I pass it over to Claude, I’d like to discuss two other items, diversification and M&A. As I indicated before, our exposure to our top client has been significantly reduced in the past few years, even though we continue as their strategic partner. As evidenced by organic growth of 17% in Canada while reducing our client concentration. We are managing a growing business and thanks to the diversification and range of high-value services offered by Alithya, we will prioritize and continue to strengthen our industry and geographic presence, our expertise, our integrated services offering, and our positioning in the value chain. Doing so will allow us to pursue our development in market segments experiencing rapid growth. Diversification of our services, our customers, and our regional presence has also enabled Alithya to solidly face this crisis. Over the next few years, growth will continue to be driven by existing and new clients through value-added services by investing in our talent and with greater scale from complementary and transformational acquisitions. As we witnessed during the past year, Alithya is built on strong foundations and we are ready to face potential headwinds to come. As I mentioned before, acquisitions remain an important component of our long-term growth strategy. Considering the scale of our existing platform, recent acquisitions were integrated quickly and smoothly, and allowed for immediate focus on cross-selling, accelerating growth and gradual efficiencies. I’ll now ask Claude to go over some of the financial highlights.

Claude Thibault, CFO

Thank you, Paul, and good morning. Let’s review certain Q4 highlights. As Paul already mentioned, revenues in the fourth quarter increased 6.5% to $78 million, compared to $73.2 million for the same quarter last year. That percentage increase would have been 7.7% assuming a constant U.S. dollar exchange rate. On a sequential basis, we are also reporting a notable increase growing from $70.6 million in the third quarter to again $78 million in the fourth quarter. More specifically, revenues in Canada increased by $7.2 million or 19% to $45.4 million. General organic growth in most areas and growth of certain key clients accounted for the bulk of the increase in revenues. The acquisition of Askida on February 1st of last year only accounts for additional revenues of $1.2 million in the quarter, meaning that the remaining $6 million after a year of COVID is true organic growth. Looking at the U.S. and Europe, as Paul also mentioned, we are seeing a notable recovery. In the U.S., the year-over-year decrease is almost entirely explained by the negative currency variation. In other words, when expressed in U.S. dollars, our American activities are basically stable year-over-year. However, those revenues are increasing on a sequential basis by $2.1 million from $27.6 million in the third quarter of this year, and that, despite an unfavorable currency impact of $0.9 million and the ongoing negative impacts of the COVID-19 pandemic. Conversely, in Europe, despite a year-over-year decrease because of COVID impacts, revenues in Q4 are sequentially stable and in line with the third quarter, pointing to some stabilization in that geography. Gross margin increased by $2.6 million or 12% to $23.5 million during the fourth quarter. Gross margin as a percentage of revenues increased to 30.1% during the same period. The percentage increase was driven primarily by increased gross margin from Canada and the U.S., due in part to improving productivity rates and the changing mix of revenues, as well as some governmental wage subsidies in Canada and the U.S., which were partially offset by the negative impacts of the U.S. dollar exchange rate and the impact of increased costs on one large project. SG&A expenses totaled $21.7 million, an increase of $0.2 million or 0.9% from $21.5 million last year. This small increase was primarily driven by increases in Canada, including $0.3 million relating to the Askida acquisition, largely offset by decreases in the U.S. and France. Adjusted EBITDA amounted to $3.3 million, an increase of 61.8% compared to the same quarter last year. As explained above, this variation is attributable to higher revenues and gross margin and largely stable SG&A expenses on a consolidated basis. As in previous quarters, our accounting operating loss of $2.6 million must be viewed against our non-cash depreciation and amortization expense of $3.5 million, before which we are actually reporting a positive operating profit. Revenues for the year amounted to $287.6 million, an increase of $8.6 million compared to revenues of $279 million last year. When looking at the whole year, revenues were obviously impacted by COVID, as previously discussed, especially in the U.S. On the other hand, fiscal 2021 was the first year with a full 12 months of our three acquisitions of the previous year, namely Matricis, Travercent, and Askida. That obviously means more revenues. But what our financial statements don’t tell is the organic growth within these acquisitions which was a remarkable 28%. Those are great examples of our M&A approach to find successful niche companies and give them the support, the tools, and the critical mass to accelerate their success. Now turning to our liquidity and financial position. Net cash flow used in operating activities amounted to $2.2 million in the fourth quarter, including negative working capital variations of $3 million, meaning that P&L elements in themselves generated positive cash flow in the quarter. Those negative working capital variations occurred in part in the wake of our notable sequential growth in revenues. We ended the quarter again in a solid financial position. At the end of March, we have $21.1 million of net bank borrowings, which is net of our $10 million in cash and restricted cash. It is an improvement of $5.8 million compared to our net bank debt of $26.9 million at the end of March 2020. In closing, a quick word on the Paycheck Protection Program in the United States. As you may have seen in our financial statements, out of the $7.9 million in PPP loans, which were received last year, $1.9 million have been forgiven and recognized in our P&L. Regarding the balance of approximately $6 million, while we believe we fully comply with all of the program’s forgiveness guidelines and conditions, and have used the PPP money for qualifying expenses, we are waiting to receive formal forgiveness notice before recognizing it to our P&L. Overall, as we appear to be emerging from the more uncertain phases of the pandemic, we are in good financial position to keep pursuing our business plan and objectives with renewed momentum. Turning back to Paul.

Paul Raymond, CEO

Thank you, Claude. So to summarize, one, we have just had a record quarter on the topline with solid organic growth and improved margins and based on Gartner’s latest projections, we remain focused on the fastest-growing sectors of our industry; two, our U.S. operations are also growing and improving sequentially; and three, our integration of R3D has started on April 1, 2021 and will be included in our fiscal 2022 years starting Q1. Claude and I will now be pleased to answer any questions you may have and I’ll turn it back to you, Chris.

Operator, Operator

Thank you. Your first question comes from Paul Steep of Scotia Capital in Canada.

Paul Steep, Analyst

Great. Good morning. Hey, Paul, could you talk just to go back to R3D for a second. Can you remind us of the outlook on the ramp-up period for the incremental $36 million in new contracts the timing of that? And then, maybe we can get Claude to jump in and just talk about the synergy plan and the ramp-up there that we should think about for R3D over the course of the next few years?

Paul Raymond, CEO

Sure. Thanks, Paul. When we announced, we mentioned that it would take between 12 to 24 months to ramp up to achieve $60 million, which includes both the existing and the new $36 million. However, this is guaranteed. We have contractual mechanisms in place to ensure that if we don't reach the minimums, they will roll over into the following year, so nothing is lost, and the total amount is guaranteed at $600 million. As you can imagine, we are working diligently to speed up this ramp-up and are pleased with our progress so far.

Claude Thibault, CFO

Maybe, Paul, if I may, so that means the contractual commitment applies to the first year as well. So there are mechanisms to account for that ramp-up period, but when you divide the $600 million by 10 years, the individual year target is the same for all years, so it’s not lost. Just to be clear on that point. Does that answer your question, Paul?

Paul Steep, Analyst

That helps on the first part. I guess the second part is just thinking about the synergies and respecting that we have normal times you’ve laid out your normal integration plan. I just want to get you to just re-clarify how you’re thinking about that in this maybe different environment that we’re all operating in temporarily and how you’d maybe see those synergies ramping? And then I got one quick follow-up to go back to Q4.

Claude Thibault, CFO

Yeah. So, usually our plan is always to complete our integrations within 12 months, and in this case, it started on the first day of the new fiscal year. So the plan is to have it completed before the end of the fiscal year.

Paul Steep, Analyst

Okay.

Claude Thibault, CFO

As you can imagine, given the size and the complexities are more around integrating back office systems and so on and so forth. But from that business integration, it’s day one. I mean day one means people are on our email and then our sales structure and then delivery structure, we’re selling together, we’re going after business together, everybody’s been rebadged. So that was day one. But some of the back office stuff takes more time because of the systems integration.

Paul Steep, Analyst

Great. And then just on the new bookings that you secured in the quarter. Again, maybe talk to us a little bit about what you’ve seen in terms of either mix of service offering, service line, whether it’s Oracle, Microsoft or digital transformation? What the complexion of that just sort of looks like and if it’s changed given the where we’re at in the current world? Thanks.

Claude Thibault, CFO

Thank you for the question, Paul. We're experiencing strong demand across all our higher value practices. Over the past three years, we've significantly transformed the business, and we're seeing that reflected in our gross margins this quarter, which are back above 30%. Even though our U.S. business hasn't fully returned to pre-COVID levels yet, we're optimistic about the trend we see. Once our U.S. operations bounce back, it will be a positive sign for the future. Our bookings were solid overall, and we are being more selective about the types of business we pursue due to strong demand. This allows us to focus on value-added services, digital transformation, and cloud ERP. This trend is evident across all areas, including other geographies.

Paul Steep, Analyst

Great. Thanks very much.

Claude Thibault, CFO

If you go back to the Gartner’s latest numbers at all, maybe a segue. If you look at, we really focus on the enterprise systems in the IT services category, if you look at the Gartner charts. That’s where they’re predicting the most significant growth in the next two years. And even though last year, they said the market actually shrunk. We generated organic growth during that period year-over-year, which is kind of indicative of where our business is right now.

Operator, Operator

Your next question comes from Kevin Krishnaratne of Desjardins Canada. Your line is open.

Kevin Krishnaratne, Analyst

Hey, there. Good morning, gentlemen. Question for you maybe leading off of the focus that you have on sort of higher growth areas of IT spending, yet a really good thing called the organic growth of 17% in Canada in the quarter. Can you talk about sort of what drove that into disclosures you talked about benefits from some certain clients in the quarter? Can you just unpack that growth there in the quarter? And then how do we think about rough guideline on where do you see organic growth over the course of this year in Canada, just given your focus on some of the higher growth, higher value areas of IT spending? Thanks.

Paul Raymond, CEO

Hi. Good morning, Kevin. Thank you for the question. So I’ll take the two questions. One was on the bookings, more qualitative on the bookings and then on the organic growth. So on the booking, I was saying, several very large contracts. It’s really across the board. Our client concentration, as I was saying earlier, is actually going down. So, if you think of our, let’s say, our top eight customers that three years or four years ago was 75% of our revenues, it is now closer to 30% of our revenue. So, very good diversification, very good bookings in all of our higher value practices and that’s why we’re seeing it reflected in our gross margins. And given most of the growth has been coming from Canada, you can say that the most change in the business has been happening in Canada in terms of the margin profile, which is again very positive based on our historical nature of our relationships. On the organic growth front, if you look back the past four quarters, it’s been going up gradually every quarter and our bookings have been very strong. So we don’t see any reason why that should slow down. We like where we’re at. We think a lot of people during the pandemic cut themselves to greatness, we invested in growth and we’re seeing it paying off, and we like our perspectives for next year. Especially given R3D is going to hit our Q1 numbers, which they weren’t in last year. So, again, we have growth coming from that and from the two new contracts that we signed.

Kevin Krishnaratne, Analyst

Thank you for that, Paul. It sounds like there are several developments happening in the business, particularly with R3D. Can you elaborate on your cautious outlook mentioned in the press release? What specific factors are contributing to that cautious perspective? Are you referring to potential weaknesses in revenue or possibly on the operating expense side, especially considering the strong demand for tech talent? I'm curious about what you're highlighting when discussing the cautious outlook in your guidance.

Paul Raymond, CEO

Thank you, Kevin, for the question. I have some caution regarding the macro situation, particularly with the pandemic. In the U.K., despite being ahead in vaccinations, there's an increase in cases among younger people due to new variants. The long-term effects of the vaccine on these variants remain uncertain, and we're monitoring the situation closely. The return to normal, or post-COVID scenario, varies significantly by country and region, and we are paying attention to these developments. While we've managed to adapt, we need to remain sensitive to the ongoing situation, which is always in the back of my mind. On the people front, we've been aggressively hiring and have successfully attracted talent due to the nature of our projects. As part of our strategy to focus on higher-value projects, we aim to attract and retain top talent. Although we find ourselves in a good position, I believe that finding qualified individuals will be a challenge across the industry in the coming months. We are satisfied with our current status, but we are keeping a watchful eye on this aspect.

Kevin Krishnaratne, Analyst

Okay. So on that point then how do we think about your current sort of OpEx levels? What are you baking in in terms of your views on where costs could go if yet to remain competitive with that great talent base that you have?

Paul Raymond, CEO

So that’s a good follow-up, Kevin, and in that, we’ve completed many acquisitions as Claude was saying, our SG&A has gone up because of these acquisitions. In the past year, we were much more focused on generating growth than cutting costs. So as these integrations take place, our SG&A is going to go down over time gradually; R3D over the next 12 months is also going to go down significantly from an SG&A perspective. So we know we’re going to be freeing up some room to work there to keep our people happy and keep recruiting and keep growing. So we see opportunities there.

Kevin Krishnaratne, Analyst

Okay. Right. And I guess on that thing, you did allude to them in your remarks that utilization rates are ticking higher. Do you ever provide commentary on what those utilization rates are, maybe not a specific number, but just broadly where they are now versus maybe last quarter?

Paul Raymond, CEO

We don’t. But you can kind of deduct, because it varies tremendously by business. Kevin, it’s actually a very good question. So in some of our businesses, so for example, on the ERP implementation side, our gross margins are very high because it’s a project, there’s a start, there’s a beginning, we control who we put on it. The people come from various different locations. They’ll work on several projects at the same time. So when you look at our gross margins and our ERP business, it’s tied directly to productivity. So how many hours these people are billing on those projects go straight to the bottom line and the cost doesn’t change. In other areas where we’re on a time and materials basis, while the utilization there is more important. But I think our gross margin is really the bigger item that we track because gross margin basically means that we’re doing a better job on productivity. We’re working on better, higher-value projects. And that’s really where we’re pushing the business because we know as we grow that the difference is going to translate to the bottom line with the scale that we’re getting.

Kevin Krishnaratne, Analyst

Okay. Great. That’s very helpful. Thanks very much for all the answers. I’ll pass the line.

Paul Raymond, CEO

Thank you, Kevin.

Gavin Fairweather, Analyst

Oh! Hey there. Good morning.

Paul Raymond, CEO

Hey. Good morning, Gavin.

Gavin Fairweather, Analyst

I just had a follow-on with Kevin’s questioning around utilization, and it’s good to hear some of your commentary on the green shoots momentum that’s kind of returning to the U.S. business. No, I’m not sure Paul or Claude, if you could just comment on how much slack you feel like is in that business? I guess I’m trying to think about just giving back towards your targets and whether that would drive kind of quarterly billings up into the $35 million, $40 million? Do you think that that’s reasonable given the businesses and the workforce that you have there?

Paul Raymond, CEO

Thank you for the question, Gavin. Let me provide a bit more detail. Looking at the utilization or productivity from last year in the U.S., we can see that the pandemic significantly impacted the industry. While many companies laid off workers, we opted to retain our employees by applying for and receiving the PPP program in the U.S. We also had some assistance in Canada for similar purposes. Although this support did not fully offset the decline in productivity, it allowed us to keep our talented workforce intact, which we are now benefiting from as the business grows. Instead of struggling to hire, we already have the skilled individuals we need. We are indeed hiring for new projects, but we also have the necessary expertise for our existing business. If you review our gross margins in the U.S. year-over-year, you’ll notice a significant drop, which is now recovering. Each point of increased gross margin in the U.S. directly improves our bottom line because we have the team in place, leading to enhanced productivity on our current projects. Therefore, we are pleased with the current trends in the U.S., and every additional point of gross margin contributes positively to our profitability.

Gavin Fairweather, Analyst

Yeah. That’s great. And then maybe for Claude, I think that you were hoping to have kind of news on the PPP loan forgiveness, I guess, by the end of your fiscal year or as you are reporting Q4. Can you just remind us on the timing there and any change to come you’re reading on the key moves?

Claude Thibault, CFO

Thank you. I wish I knew about the timing. Everyone we spoke to, including lawyers familiar with this issue, some consultants who are becoming experts, and even our bank in the U.S. that handles SBA processing, are uncertain. The volume seems very high, and we are essentially in a waiting position. However, I want to emphasize that, based on discussions with these individuals, we are the type of company that the SBA aimed to support last year. We did exactly what they wanted by maintaining our payroll during uncertain times. So, it's just a matter of time, but unfortunately, we don’t have the answer at this moment.

Gavin Fairweather, Analyst

Okay. And then just lastly for me, I think I caught in your prepared remarks you were talking about a fixed price project in Canada where maybe there is a bit of a gross margin hit this quarter. I think you called it out in Q3 too. Can you just remind us kind of when not propping up and do you feel like it doesn’t sound like it was huge or material overall. But do you feel like that that project now kind of in hand and ready to be kind of breakeven from a gross profit line going forward?

Paul Raymond, CEO

Yeah. Thanks, Gavin. I’ll let Claude comment on the financials of it. But, yes, the project is under control and no it’s not over. It should be over soon. So we’re still investing in that project. So, again, our margins would have been even higher without that. And, again, I just wanted to remind you that we’re investing in it because we’re getting some IP out of it and IP that we’re going to be reselling and marketing with the help of the customer. So we see it as a positive thing in the long-term and ready to take the short-term hit on it.

Claude Thibault, CFO

Yes, there could be impacts in the upcoming quarters from that ongoing project. We are in discussions with the client. As Paul mentioned, we view this as an investment in our intellectual property, which is why we initiated the project. However, it should not have significant impacts moving forward.

Gavin Fairweather, Analyst

Okay. That’s it for me. Thanks so much.

Paul Raymond, CEO

Thanks, Gavin.

Operator, Operator

We have time for a couple of more questions, Operator. Thank you. Thank you. Your next question comes from Nick Agostino of Laurentian Bank Securities Canada. You may go ahead.

Nick Agostino, Analyst

Thank you, and good morning. I would like to get some details on your bookings number. I believe you mentioned that you began providing bookings data throughout fiscal 2021. Could you share the bookings growth when comparing fiscal Q4 2021 to fiscal Q4 2020? This would help us understand how your bookings are starting to grow. Also, regarding the seasonality of your bookings, with this quarter's $92.3 million being your calendar Q1 equivalent and a strong calendar Q4, I notice that in the IT market, there tends to be stronger demand in calendar Q2 and Q4. Are you experiencing a similar trend in your upcoming quarter? In other words, is your bookings growth aligned with the overall IT market on a calendar basis? If not, could that explain your earlier cautious comments concerning the pandemic and macroeconomic factors?

Paul Raymond, CEO

Thank you for the question, Nick. We did not record bookings in 2020 because it was before we launched our new Microsoft CRM platform. We were using various systems from different companies to track bookings, and we didn't feel comfortable sharing a figure that might need future adjustments. This year is the first time we have reported bookings consistently every quarter. I wish I could provide more details on that, but I can't. However, I know that you will be able to compare it to Q1 next year. We report our bookings quarterly, but we really analyze them on an annual basis because it can vary widely by industry. Last year, especially due to the pandemic, things were unpredictable. Government contracts typically come in around March and April due to their fiscal year cycles, so we see fluctuations there influenced by the overall economy. Last year, many companies paused their activities, so it was interesting that we reported strong bookings despite that situation. We are pleased with the number, and the $1.3 million for the year is impressive, especially without R3D. I can already predict that Q1 numbers will be very strong. We have a positive outlook on our bookings. My main concern is the macro level implications of COVID; if someone had a crystal ball to predict what would happen next, that would be great.

Nick Agostino, Analyst

Okay. And then just one other quick follow up. Obviously, the bookings number is very much appreciated. Can you just highlight where the backlog sits overall?

Paul Raymond, CEO

So, again, so if you look at the bookings of the past year, that’s in the backlog. If I include Q1, the backlog is going to be quite impressive adding $600 million at least in the Q1 from the R3D deal, but we did have contracts prior to this reporting year. So we’ll try to give you more color on the total backlog at the end of Q1 and I think it’s a great question. We’ll have to make sure that the stuff from the previous years is well structured to report it appropriately.

Nick Agostino, Analyst

Okay. That’d be great. Thank you.

Paul Raymond, CEO

Yeah. Thank you.

Amir Ezzat, Analyst

Great. Thanks for taking my questions. Congrats on the strong quarter, guys.

Paul Raymond, CEO

Hi, Amir.

Amir Ezzat, Analyst

Just maybe I’ll do a question and a follow-up. I just wanted to circle back on R3D. Can you walk us through EBITDA contribution as you guys like ramp the $60 million in revenues? Claude, you mentioned like a 12-month integration period. So how do we think about the dollar EBITDA number in the second year? Can you guys like give us a range or refresh our memories?

Paul Raymond, CEO

Sure. Thanks, Amir. I’ll let Claude refresh your memory.

Claude Thibault, CFO

It's a challenging question. We are aware of the numbers. Regarding our three acquisitions from the previous fiscal year, we are pleased with how the Alithya playbook approach to mergers and acquisitions is performing. We have no reason to adjust our expectations for R3D, which was an excellent company with strong momentum, great clients, and talented people. The figure we shared for the trailing 12 months when we announced the acquisition serves as a baseline for us. You can have confidence in that number for the reasons I mentioned. Historically, their gross margins are lower than Alithya’s, likely due to their business model resembling where we were a few years ago. We are actively working to improve that on various fronts. However, we will adopt a more conservative baseline. Regarding SG&A, we are retaining some of their infrastructure, particularly in sales and marketing, as they had some effective strategies. The back office will be managed differently. We are implementing Oracle internally, as many of you may know, and it is a robust tool suitable for a larger organization. Over the next 12 months, they will transition to Oracle. Unfortunately, while I understand the numbers, I cannot provide that level of detail at this time. I can add to Amir's comment about the gross margin. When we mention that the gross margin is low, it’s not due to the nature of the business, but rather the employee structure. They have a higher proportion of subcontractors compared to employees, whereas we are the opposite. We were in a similar situation five years ago, so we understand how to transition towards building a permanent workforce that we wish to invest in and grow with. This is also part of our transition plan to enhance their gross margins by transforming their current workforce.

Amir Ezzat, Analyst

Great. And my follow-up, I guess, like related to that. Can you walk us through your current staffing levels and maybe high-level utilization rates? We’re seeing a lot of companies have trouble with their talent acquisition with a very tight market. How does that sort of look for you guys and I’m not sure if you could sort of quantify if it’s constraining your sales growth? That’s it for me. Thanks.

Paul Raymond, CEO

All right. Great question to hammer on the people side. I mean, if you just go back a year, we were around 2,000 people and that we’re over 3,000 now. So that should give you a pretty good idea, not only the people coming in from R3D, which is about 600, but the growth that we’re getting with the additional people. So we are hiring significantly. We’re very happy with what’s happening in terms of finding people even in challenging times. We’re very successful at finding people and finding the right people. And one of the reasons for that is, coming back to your last question is, whether we’re turning down business. I’d say where we’re selecting business instead of turning it down. You used to be and there’s a lot of companies out there that go after anything and everything. We have a strategic plan to focus on higher value business where we can build trust and long-term relationships with our customers. So we’ve moved away from a lot of the lower margin stuff, the subcontracting and so on and so forth to focus on projects and high-value projects. And that’s why you’re seeing our gross margins today in line with the best-in-class in our industry. I mean we’re above 30%. I think we can do better. We’re working very hard on that based on our business mix. So to me, it’s not growing at all costs. It’s profitable growth and in the right areas because we want to be at this for a very long time. So we’re not looking at the short-term quick wins. We’re really looking at the long-term, the good business that we know is going to help us grow the company and grow our quality company. So we’re turning down the business we don’t want, I guess, would be a way of putting it. But recruiting is going to be a challenge for the whole industry, and we think we’re doing pretty well.

Operator, Operator

There are no further questions.

Paul Raymond, CEO

Anytime I need to add a thousand people in a year and with those sizes, we think it’s a good year.

Operator, Operator

That was today’s final question. I’ll now return the call to Mr. Raymond.

Paul Raymond, CEO

Yeah. Thank you, Chris. Thank you everybody for being with us today. Very strong quarter. We’re very happy with it and have a safe and happy and enjoyable summer and make sure you take some time off. Thank you.

Operator, Operator

This concludes today’s conference call. Thank you for your participation. You may now disconnect.