Alithya Group inc.

I'd say you got to change everything.

Good morning, ladies and gentlemen. Welcome to the Aletheia Q4 and Fiscal 2021 results conference call. I would now like to turn the meeting over to Rachel Andrus. Please go ahead, Ms. Andrus.

Thank you, Chris. Good morning, everyone, and thank you for joining us for Aletheia's fourth quarter and Fiscal 2021 results conference call. The press release and MDNA 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, Aletheia's president and chief executive officer, and Claude Cibot, 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 sections of our MDNA 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 MDNA for more details. Now, I would like to turn the call over to Paul Raymond.

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 remained focused on being there for our people, for our clients, building the necessary trust that keeps Aletheia top of mind when complex mission-critical work needs to get done. Throughout the year, we made decisions and investments with a view that Aletheia would emerge from the pandemic stronger and better positioned than ever to successfully pursue our growth strategy. Our fourth quarter results proved us 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 Aletheia 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 the wind in 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 Catica and SSQ and are now the largest mutual insurance company in Canada, and Qiteca, a Canadian telecommunications and media leader, strengthened 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 Aletheia's debt to adjusted EBITDA ratio and pointing to further deleveraging of our balance sheet. So before I move on to discuss our four-quarter results, I can already tell you that R3D's integration within Aletheia's current structure is progressing well and allowing for notable short and midterm synergies. We are repeating our successful formula of buying quality companies and accelerating their growth. Now let's talk about our four-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 .5% to a record $78 million in the quarter. The percentage increase would have been .7% assuming a constant US 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 translated 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's numbers will start being accounted for in our first quarter of 2022. Thirdly, as for our adjusted EBITDA, it increased .8% from last year as we continue to benefit from organic growth, our acquisitions and operational synergies from 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 Aletheia's US 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 our 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, we see solid momentum both among our private sector and public sector clients. More specifically in Canada, our teams who service our government clients perform very well. As an example, we won a significant contract worth $12.4 million to assist the Quebec government ministry, a Quebec government ministry, sorry, in providing project management services for their internal initiatives. This is one of the largest government contracts Alipia has been awarded in Quebec in recent years. This new contract combined with our recently acquired status as a preferred service provider of cloud solutions to Quebec public organizations is a clear demonstration of the trust we have gained with our public sector clients. That's the Alipia way. In the energy sector, we were also awarded a very significant contract this past quarter. It consists of a multi-year 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. Alipia's portfolio includes decades of work in regulatory compliance, including assisting other top tier customers to identify and address cybersecurity challenges and to implement strategies to improve system resilience. This brings me to highlight that one of our areas of focus is to straighten 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 Alipia practice areas, such as business intelligence, agility management, infrastructure, operational security, cloud services, machine learning, 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 two 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 Alipia, 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 and market segments, experiencing rapid growth. Diversification of our services, our customers and our regional presence has also involved in Alipia 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 complimentary and transformational acquisitions. As we witnessed during the past year, Alipia 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 Paul to go over some of the financial highlights, both.

Thank you, Paul and good morning. Let's review certain Q4 highlights. As Paul already mentioned, revenues in the fourth quarter increased .5% to $78 million compared to $73.2 million for the same quarter last year. That percentage increase would have been .7% assuming a constant US dollar exchange rate. On a sequential basis, we are also reporting a notable increase going 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 at certain key clients accounted for the bulk of the increase in revenues. The acquisition of Esqueda 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 US and Europe, as Paul also mentioned, we are seeing a notable recovery. In the US, the year over year decrease is almost entirely explained by the negative currency variation. In other words, when expressed in US 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 .1% during the same period. The percentage increase was driven primarily by increased gross margin from Canada and the US, due in part to improving productivity rates and the changing mix of revenues, as well as some governmental wage subsidies in Canada and the US, which were partially upset by the negative impacts of the US dollar exchange rate and the impact of increased costs on one large project. STN expenses totaled $21.7 million, an increase of $0.2 million or .9% from $21.5 million last year. This small increase was primarily driven by increases in Canada, including $0.3 million relating to the Esquida acquisition, largely upset by decreases in the US and France. Adjusted dividend amounted to $3.3 million, an increase of .8% compared to the same quarter last year. As explained above, this variation is attributable to higher revenues and gross margin and largely stable STN 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 US. On the other hand, fiscal 2021 was the first year with a full 12 months of our three acquisitions of the previous year, namely Matrisys, Traversant and Esquida. 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 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 solid financial position. At the end of March, we had $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 a 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 was 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 programs 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.

Thank you, Claude. So to summarize, one, we have just had a record quarter on the top line 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 US operations are also growing and improving sequentially. And three, our integration of R3D has started on April 1st, 2021, and will be included in our fiscal 2022 year starting Q1. So Claude and I will now be pleased to answer any questions you may have, and I'll turn it back to you, Chris. Thank

you. Ladies and gentlemen, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Paul Skeith of Scotia Capital, Canada.

Great 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.

Sure, thanks,

Paul.

So when we announced that, we said it would take 12 to 24 months to ramp up, to get the 60 million of combined, the existing plus the new 36. However, it's guaranteed. So we have mechanisms in the contract to make sure that if we don't get to the minimums, they get added to the subsequent year and so on. So none of it's lost, and the total 600 million is guaranteed. As you can imagine, we're working very hard at accelerating that ramp up, and we're very happy where we're at so far.

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?

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 wanna get you to just reclarify 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.

Yep, so usually our plan is always to complete our integrations within 12 months. And in this case, it started on the first day of a new fiscal year. So the plan is to have it completed before the end of the fiscal year. As you can imagine, given the size, the complexities are more around integrating back office systems and so on and so forth. But from a business integration, it's day one. I mean, day one, these people are in our email, in our sales structure, in our 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.

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 where we're at in the current world, thanks.

Yeah, thank you for the question, Paul. We're actually seeing very strong demand across all of our practices, at the higher value practices. We've, as you know, over the past three years, we've transformed the business significantly and we're seeing the reflection of that in our gross margins in the quarter. We're back up above 30%. And that's despite the fact, as we mentioned, that our US business isn't back to where it was pre-COVID yet. They are getting there. We love the trend we're seeing in the US. So when our US operations are back to where they were pre-COVID, it's a very positive indicator of the future or trend that we like. Our bookings, like I said, we're solid across the board. We're also a lot more selective on the type of business that we go after because of the strong demand. So we can focus on those value-added services, the digital transformation, the cloud ERP. It's really been across the board and in all our geographies as well.

Great, thanks very much.

If you go back to the Gartner's latest numbers, if all, maybe a segue, if you look at, we really focus on the enterprise systems and 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.

Again, if you would like to ask a question, press star, the number one on your telephone keypad. Your next question comes from Kevin Krishnarottney of Desjardins, Canada. Your line is open.

Hey there, good morning, gentlemen. Question three may be leading off of the focus that you have on sort of higher growth areas of IT spending. You had a really good, I think you called it organic growth of 17% in Canada in the quarter. Can you talk about sort of what grows that in the disclosures you talked about, benefits from some certain clients in the quarter? Could you just unpack that growth there in the quarter? And then how do we think about rough guidelines on where 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. Good morning, Kevin. Thank you for the question. So I'll take the two questions. One was on the kind of the bookings, more qualitative on the bookings and then on the organic growth. So on the bookings, as 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, four years ago was 75% of our revenues is now closer to 30% of our revenues. 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's been coming from Canada, you can say that the most change in the business has been happening in Canada in terms of margin profile, which is again, very positive based on our historical, the 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's 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 our 3D is gonna 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.

Okay, thanks for that, Paul. So it sounds like you got a lot of different things going in the business, R3D, like you mentioned. I'm wondering if you could just comment on what are you cautious, what are you looking at in terms of your cautious outlook? Because in the press release you mentioned, you're still very cautious on the outlook. So I'm just wondering, what are the things you're looking for? Where would areas of potential weakness be? Is that something on the revenue side or are you talking about potentially maybe on the optics side, given, it's hard to not hear stories of demand for tech talent being strong. And I'm wondering, when you talk about that cautious outlook on the guidance, what you're referring to.

Yeah, thanks Kevin, it's a great question. There are two things. One is I'm very cautious at the macro level of what's gonna happen with the pandemic. We're seeing, even in the UK, where they were ahead of everybody on the vaccinations, we're seeing an uptick in new cases with the younger people because of the variants. Nobody really knows at this point, the long-term effects of the vaccine on the variants. So I'm kinda, we're keeping a close eye on that one. The return to the normal, as I would call it, post-COVID is a very variable speed, variable speed by country and by region. So we're following all of that very closely, even though we've been able to manage around that. It's been, we have to be very sensitive to that, I think as a company and as a country. It's out there, we just have to keep track of it. And we know how to manage it in that area, but it's still, I keep that in the back of my mind. And the other one is people, right? So we've been hiring like crazy. We've been able to attract people because of the type of projects that we do. If you remember from Pascal, one of our strategies as part of shifting the higher value project and businesses, it is to attract and retain the best people. So we've been able to do it. But if you look at our growth and everything that we're seeing in the market and the new initiatives, finding people, I think is gonna be an industry-wide challenge in the coming months. So we like where we're at, but I'm keeping an eye on it.

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 you had to remain competitive with that great talent base that you have?

So that's a good follow-up, Kevin, 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 gonna go down over time gradually. R3D over the next 12 months is also gonna go down significantly from an SG&A perspective. So we know we're gonna be freeing up some room to work there to keep our people happy and keep recruiting and keep growing. So we see opportunities there.

Okay, right, yeah, and I guess on that then, you did allude to 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?

We don't, but you can kind of deduct, it's 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 that work on several projects at the same time. So when you look at our gross margins in our ERP business, it's tied directly to productivity. So how many hours these people are billing on those projects goes straight to the bottom line because the cost doesn't change. In other areas where we're on a time and material basis, well, the utilization there is more important. But I think our gross margins is really the bigger item that we track because gross margins basically mean 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, that the difference is gonna translate to the bottom line with the scale that we're getting.

Okay, great. That's very helpful. Thanks very much for all the answers. I'll pass the line.

Thank you, Kevin. Your next question comes from Gavin Fairweather of Cormark, Canada. Your line is open. Oh, here they are, good morning.

Hey, good morning, Gavin. I just had a follow on up, like I said, Kevin's kind of questioning around utilization and it's good to hear some of your commentary of the green suits and the momentum that's kind of returning to the US business. Now, I'm not sure, Paul or Claude, if you could just comment on, you know, how much slack you feel like is in that business. I guess I'm trying to think about you moving back towards your targets and whether that would drive, you know, kind of quarterly billings up into the 35, 40 million range. Do you think that that's reasonable given the businesses in the workforce that you have there?

So maybe I'll give you a bit more detail, Gavin. Thank you for the question. If you look at the utilization or the productivity as we call it, and you go back and look at last year in the US, and I think that's where the biggest impact is. When the pandemic hit and everything stopped everywhere, a lot of companies were letting go a lot of people. We took a different route. We applied for and received the PPP program in the US. There was a bit of CWS in Canada for the same thing. And we used that to hang on to our people. It did not compensate for the decrease in productivity by any stretch of the imagination, but it was there to serve a purpose and we leveraged it. So we hung on to the high quality people that we know that we're needing now. And we're seeing it with the organic growth and the business that's picking up. So instead of fighting to hire people, we already have them. So yes, we're hiring, we're adding new people for new projects, but a lot of the existing underlying business, we already have the expertise. So if you go back and look at our gross margins in the US year over year, you'll see a big decrease there. It's ramping back up. So one way of looking at it is every point of gross margin that we add in the US goes straight to the bottom line because we already have the people and it's increasing the productivity of those people for the projects that we have. So that's why we're happy with what we're seeing from a trending perspective in the US. And we know that, as I said, every additional point of gross margin that we get there is a direct trickles down to the bottom line pretty fast. So we see that as a positive.

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're reporting Q4. Can you just remind us on the timing there and any change to kind of your reading on the tea leaves there?

Thank you. I wish I would know in terms of timing and everybody we talk to, be it lawyers who are familiar with this, there's some consultants that are becoming experts at that or even our own bank in the US that deals with the SBA in terms of processing the files. They do not know for the amounts for the loans which are above $2 million, which were singled out as having to go through more scrutiny and then diligence and audit. We do not know, we just don't know that the volume over there appears to be very high and we're basically waiting. But I would reiterate that as far as we know, and again, talking to all these people, I just mentioned, we are exactly the kind of companies that the SBA wanted to support through last year and we did exactly what they wanted us to do, keep the people on our payroll through the uncertain phases. So I guess it's a matter of time, but we don't know the answer to that, unfortunately. 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 was 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 that's wrapping up and do you feel like it, it doesn't tell like it was huge material overall, but do you feel like that project's now kind of in hand and ready to be kind of bricked even from a gross profit line going forward?

Yeah, thanks, Gavin. I'll let Claude comment on the financials of it, but yes, the project's under control. 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 the 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.

So yes, there could be impacts over the coming quarters of that continuing project. We're negotiating with the client. As Paul mentioned, we saw that as an investment in our IP. That's the reason we got into that project in the first place, but it should not have material impacts going forward.

Okay, that's it for me. Thanks so much. Thanks, Gavin.

We have time for a couple of more questions, operator. Thank you.

Thank you. Your next question comes from Nick Agostino of Florence and Bank Securities Canada. You may go ahead.

Yes, sorry. Thank you. Good morning. So just focusing some granularity or color on your bookings number. I'm not sure. I think you guys said that you started providing bookings really throughout all of fiscal 2021. And apologies, I haven't seen, but can you disclose what the bookings growth was like if we compare fiscal Q4 2021 versus fiscal Q4 2020, just to get a sense of how your book is starting to grow? And then also, when I look at, I guess, the seasonality on your bookings, if we talk in terms of calendar, this quarter, the 92.3 being your calendar Q1 equivalent, you also had a strong calendar Q4. But we see, when we think about the IT market in general, we see stronger demand in calendar Q2 and Q4. I'm just wondering, are you seeing that type of trend as we sit here, you know, largely through your next quarter itself? In other words, is your bookings following the overall IT market on a calendar basis? Or if the answer is no, is that reason why you kind of provide a little bit of a cautionary commentary earlier on when it comes to, I guess, the pandemics and the macroloan stuff?

Yeah, thanks for the question, Nick. We did not report bookings in 2020 for the simple reason that it was prior to us rolling out our new Microsoft CRM platform. So we had multiple different systems from different companies tracking bookings, and we did not feel comfortable of sharing a number that we would have to change and modify in the future and qualify and whatever. So this was the first year that we actually reported bookings every quarter in a structured and consistent fashion. So I wish I could give you more colour on that, but I can't. However, I know that you'll be able to compare Q1 next year with Q1. I mean, that's my first comment. The second is, we report our bookings quarterly, but really we look at it on an annual basis because it's depending on the industry, depending on, especially last year with the pandemic, it was all over the place. But government contracts tend to come in more in the March, April timeframe because of their fiscal year end and new fiscal year starting. So we see changes there. It varies by industry. It varies based on what's happening in the general economy. Last year, a lot of companies put a lot of stuff on hold. So it was kind of interesting that we had this strong of a booking report despite that. So we're very happy with the number. The 1.3 for the year is very impressive. And that's without, as I mentioned, without R3D. So I can already tell you that Q1, the numbers are going to be very strong if you just take that one. So we're very positive. We're very positive on where the bookings are. And my concern really is more a macro level of what the heck's going to happen with COVID. And if somebody had a crystal ball and could tell me, I'd be very happy.

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?

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, Nick, I think it's a good time to start It's a great question. We'll just have to make sure that the stuff from the previous years is well structured to report it appropriately. OK, that'd be great. Thank you. All right. Thank you. Maybe a last question there, Chris.

Your final question comes from Amir Azat, Echelon Partners Canada. Your line is over.

Great. Thanks for taking my questions. Congrats on a strong quarter, guys. I just maybe I'll do a question and a follow up. I just want to circle back on R3D. Can you walk us through EBITDA contribution as you guys like ramp to $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 give us a range or refresh our memories?

Sure. Thanks, Amir. I'll let Claude refresh your

memories. It's a tough one. It's a tough question. Obviously, we know these numbers. Obviously, my comment on our three acquisitions of the previous fiscal year, I mean, the momentum we see that the Aletheia playbook and approach to M&A, that is working well. We do not see reasons to have different expectations with our 3D, which was a great company to start with, great momentum, great clients, great people. So the number we disclosed for the trailing 12 months, when we announced the acquisition, that's a baseline for us. You can be positive on that number because of what I just said. Historically, gross margins are lower than Aletheia because probably their business model is where we were a few years ago. We're working to change that on different levels. Again, you can be looking up for that, but the baseline would be somewhat more conservative. In terms of the S&A, again, we're keeping some of their infrastructure, sales, marketing. We're really keeping the best elements. They had great things they were doing over there. The back office is a different story. We're using Oracle internally, as some of you may know. That's a very solid, very complete tool for a much larger organization. So over the next 12 months, they're going to be coming over onto Oracle. And so unfortunately, I know the numbers, but we're not disclosing that level of details.

Maybe I can add, Emmer, on the gross margin comment. When we say the gross margin is lower there, it's not because of the type of business. It's because of the employees. So they have a higher percentage of subcontractors versus employees. We're the opposite. And so we were in the same place they were five years ago. So we know how to do that migration of going towards a permanent workforce of people that we want to invest in and then grow with. So that's part of our transition plan over there as well, is getting their gross margins up by transforming the workforce that they have.

Great. And my follow-up, I guess, 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 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.

All right. Great. Great question, Emmer. On the people side, I mean, if you just go back a year, we were around 2,000 people. We're over 3,000 now. So that should give you a pretty good idea of not only the people coming in from Art3D, which are 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 we're selecting business instead of turning it down. We 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 a higher value business where we can build trust and long term relationship 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 and the good business that we know is going to help us grow the company and grow a quality company. So we're turning down the business we don't want. I guess would be a way of putting it. But no, recruiting is going to be a challenge for the whole industry. And we think we're doing pretty well.

There

are no further questions. Anytime you add a thousand people in a year, and we're at our size, we think it's a good year.

And that was today's final question. I'll now return the call to Mr. Harington.

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. This concludes today's conference call. Thank you for your

participation. You may not as can have.