管理層發言
Good morning, ladies and gentlemen, and welcome to the Alithya’s Second Quarter Fiscal 2025 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, November 14, 2024. I would now like to turn the conference over to Alithya Management. Please go ahead.
Thank you. Good morning and thank you once again for joining us for Alithya's second quarter fiscal 2025 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. These statements can also refer to future events, including those regarding our expectation of our clients' demands for our services, our ability to take advantage of business opportunities to leverage our service offering IP, AI and expertise to meet clients' needs, to stand out, and excel in a competitive market and to meet our goals set in our 3-year strategic plan as well as our ability to deploy our smart-shoring capability.
For more information, please refer to the cautionary note in our presentation and to the forward-looking statements and risks and uncertainties section of our MD&A available on our website. All figures discussed on today's call are in Canadian dollars unless otherwise stated and we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary note in our presentation and to the non-IFRS and other financial measures section of our MD&A for more detail. Presenting this morning are Paul Raymond, Alithya's President and Chief Executive Officer; Bernard Dockrill, Chief Operating Officer; and Debbie Di Gregorio, Interim Chief Financial Officer. I will now turn the call over to Paul.
Thank you, Benjamin. Good morning, everyone, and thank you for joining us today. I'd like to begin by highlighting three notable achievements from the second quarter of our fiscal 2025 year. I will then turn things over to Bernard to detail our operational performance, followed by Debbie to cover some of the financial highlights. First, I want to commend our team for the continued improvement in our profitability and for delivering a double-digit adjusted EBITDA increase. This was done in a difficult economic environment for discretionary technology spending, and given our current client base and type of work, most of our strategic and critical projects fall into the discretionary spending category. When we take a closer look at our large digital transformation projects, once they get started, they seldom stop, and we deliver on our promises, which is reflected in the excellent scores we receive on our client satisfaction surveys, contributing to our high value reputation and future work.
However, because of the current economic environment, newer projects, especially the large ones, are much slower to kick off, impacting our quarterly bookings. As a reminder, while we stay focused on moving opportunities down our funnel on a daily basis, our trailing 12 months' booking and total backlog are better measures of our future success. So despite the economic environment and seasonally soft summer months, we have delivered year-over-year growth in all areas of the business, except within our Quebec client base, and our backlog is strong. Furthermore, we have significantly improved our adjusted net earnings, which amounted to CAD 5.3 million in Q2, an increase of CAD 5 million year-over-year. This is the result of our team's continued focus on reductions in SG&A expenses and a higher value services mix. As we continue to deleverage and diligently manage our net cash from operating activities, we are better positioned to address acquisition opportunities that may present themselves.
Second, our gross margin as a percentage of revenue increased again year-over-year. This achievement was fueled by increasing demand for Alithya’s higher margin services, improved utilization of our workforce, and continued smart shore progress. And third, despite growth challenges with a handful of clients in Quebec, we saw continued share gain across many of our business lines, particularly in the Canadian renewable energy sector as well as in our Oracle and Microsoft implementations. We continue to grow and solidify our partnerships with industry-leading technology providers, and as we gain greater traction in higher-margin segments, Alithya's reputation as a trusted advisor with increasingly specialized expertise continues to grow. And on that note, I will now turn things over to Bernard to provide more details about our second-quarter operational performance.
Thank you, Paul. Good morning, and thank you for joining our call today. Despite softer revenues in the second quarter, largely attributable to spending reductions at a handful of clients in Quebec, particularly in the financial services and public sectors, we maintained our focus on improving gross margins by strengthening billable utilization and leveraging smart shore capabilities while providing higher value offerings to our clients. Geographically, on a positive note for our Canadian-based activities, our legacy application modernization services position us well to take advantage of the growing demand in the market. Our partnership with AWS, specifically related to Blu Age and application modernization, continues to deliver results and is something that we are very excited about. Through our continued investment with our partner and commitment to developing industry-leading capabilities, Alithya has established itself as a trusted implementation partner for AWS Blu Age technology.
The partnership has resulted in several high-margin projects in Canada, particularly in the mainframe modernization space, which is a rapidly growing market where we have developed a robust pipeline of opportunities. Blu Age is a specialized technology, and Alithya is currently one of AWS's top partners in terms of certifications and specializations. Also in Canada, as demand for clean energy continues to rise, our revenues in this sector have increased as we see the demand for our specialized services growing, supported by a pipeline of several opportunities in various stages, particularly in operational technologies, cybersecurity, as well as control and digital systems, refined over decades of engagement with key clients in the nuclear sector. Now let's take a look at the U.S. Revenues in the second quarter increased by 2.3% over the prior year because of organic growth from enterprise transformation initiatives in collaboration with our leading technology partners, including Microsoft and Oracle, and due to a favorable U.S. dollar exchange rate impact.
We are pleased with our new bookings in the second quarter in the U.S., where bookings exceeded 1x revenue for the quarter, reflecting strong demand and a healthy pipeline for our services. Specifically, we saw a strong demand for enterprise transformation, Microsoft Dynamics 365. Microsoft indicated in their last disclosure that they expect Dynamics 365 revenue growth to be in the mid to high teens, driven by continued growth across all workloads. Dynamics is an area where Alithya is well-positioned to capitalize on opportunities alongside Microsoft, leveraging our long history of successful business transformations and our industry specialization. For example, we are investing in our offerings related to Microsoft Dynamics 365 contact center, expanding our capabilities in line with long-term demand signals. Microsoft Dynamics 365 contact center is a Microsoft Copilot first contact center solution that delivers generative AI at every customer engagement channel.
Also related to Dynamics, this time on the ERP side, Microsoft has purchased an Alithya-developed accelerator, Alithya EDGE, with the intention of integrating it into core Dynamics 365 process manufacturing and distribution functionality, specifically to address the U.S. Food and Drug Administration requirements. Microsoft has acquired IP from Alithya on several occasions incorporated into Dynamics 365, emphasizing the strength of our long-term collaborative partnership. Similarly, Alithya has licensed the Microsoft utility to assist clients in the automated migration of robotic process automation platforms or RPA to their Microsoft Power Automate platform. This utility is available on the Microsoft marketplace and is creating a pipeline of new opportunities for Alithya as we seek lower-cost solutions for hyper-automation needs. On the Microsoft learning side, we also continue to assist our clients in improving their AI preparedness through our change enablement service offerings.
In relation to our Oracle Cloud Transformation Services, our business continues to grow in line with the advancement of our industry diversification strategy as we see our pipeline of future opportunities in life sciences, manufacturing, financial services, and professional services increase. Additionally, we're seeing a positive trend in Oracle managed services demand where Alithya has gained credibility, including in respect to the expansion of our smart shore delivery centers. Multi-year managed services options are now included in many of our implementation proposals, and we continue to build a pipeline of standalone managed service opportunities. We also see increasingly exploring options as support for on-premise ERP platforms is phased out. We see this trend as a significant opportunity for Alithya to capitalize on growing demand for enterprise transformation and cloud migration expertise.
Before I turn it over to Debbie, I would like to take the opportunity to recognize the Alithya team for their contributions to these efforts and their continued focus on cost containment profitability in these challenging market conditions. With that, let me turn it over to Debbie.
Thank you, Bernard. Good morning, everyone, and thank you for joining us today. First, consolidated revenues came in at CAD 111.5 million, a year-over-year decrease of 5.9% from CAD 118.5 million for the second quarter of fiscal 2024. Despite the current situation regarding our revenue performance, approximately 84% of Alithya’s Q2 sales came from existing clients, which we had in Q2 of last year. This demonstrates strong client relationships, trust, and satisfaction in Alithya’s services, regardless of market trends. We are reporting another quarter of continued performance regarding gross margin as a percentage of revenues increasing to 30.6%, up from 29.4% in Q2 of last year. As noted during our Investor Day presentations in September, our focus remains on improving gross margin by leveraging previously outlined initiatives and prioritizing high-value offerings. From a geographic perspective, let's just start with Canada, where Bernard addressed some of the challenges we face in our Canadian business.
Revenues decreased to CAD 59.6 million in Q2 or by 12.2% when compared year-over-year. However, when we look at our gross margin in Canada, we can see that compared to the same quarter last year, it increased. This is mainly due to higher billing rates and a proportionally larger decrease in the use of subcontractors compared to permanent employees. U.S. revenues increased by CAD 1.1 million or 2.3% to CAD 46.8 million in Q2, due primarily to organic growth in certain areas of our business, including a favorable U.S. dollar exchange rate impact of CAD 800,000 between the two periods. Our gross margin as a percentage of revenues decreased slightly compared to the same period last year due to a decrease in software revenues, which historically have a higher gross margin. Our revenues from international operations also increased year-over-year. In fact, they increased 5.8% when compared to Q2 of fiscal 2024.
Now looking at SG&A expenses. We are consistently and carefully optimizing our cost structure to ensure efficiency and long-term performance. In the second quarter, SG&A expenses amounted to CAD 25.9 million, a decrease of 13.6% year-over-year. The decrease is in large part due to reduced employee compensation expenses including variable compensation as well as the optimization of our cost structure to gain efficiencies. SG&A expenses as a percentage of revenues came in at 23.2% in Q2 compared to 25.3% for the same period last year. Overall, thanks to the performance on cost management, our second quarter adjusted EBITDA amounted to CAD 9.3 million, a 44% increase year-over-year. This is significantly higher than the same period last year when our revenues were notably higher. Again, this reflects our rigorous approach to not losing ground on the progress we've made in terms of operational performance, and it will position us well once we return to our higher historical revenue levels.
As our adjusted net earnings came in at CAD 5.3 million, representing an increase of CAD 5 million or CAD 0.05 per share year-over-year. I would point out that our accounting net loss of negative CAD 270,000 in Q2 improved significantly from negative CAD 9.2 million in the same period last year. Net cash generated by operations of CAD 3 million represented an increase of 117.3% year-over-year. As of September 30, 2024, when combined with other cash flow elements, this resulted in a total long-term debt reduction of CAD 8.4 million to CAD 109 million. Alithya's net debt decreased to CAD 97 million in Q2, down from CAD 109 million at the end of fiscal 2024, primarily as a result of the decrease in long-term debt, partially offset by an increase in cash. Our goal is to continue deleveraging by diligently managing our net cash from operating activities to focus on debt reduction. Our deleveraging will provide for good positioning when the right acquisition opportunity presents itself. With that, I'll pass it back to Paul.
Thank you, Debbie. Before jumping to questions, I'd just like to take this opportunity to thank Debbie for her commitment and support over the past few months as our Interim CFO. She's kept us on the right path and helped position the team for the arrival of our new CFO, Nicolas Lavoie. As announced this morning, Nicolas will join us starting December 9. Nicolas brings a wide range of experience in leadership roles focused on strategic transformation, operational excellence, and accelerating growth through M&A. I look forward to having the opportunity to discuss Alithya's performance with him and I will now turn to questions.
分析師問答
Thank you so much. We will now begin the question-and-answer session. And our first question comes from the line of Gavin Fairweather of Cormark Securities. Please ask your question.
Hi guys, this is Graham Smith on for Gavin. The first thing I just wanted to ask about was on Quebec. Could you just provide a bit more color on what you're seeing in the pipeline so far in Q4? Any color on that would be appreciated.
Yes, thanks Graham for the question. As I mentioned, we saw a continuation from last quarter, the slow bookings in Quebec, but as I highlighted on the AWS side, there are some larger transformation opportunities. So the pipeline for those deals is there in the Quebec market. I would say the pipeline remains where we expected it to be. Just the deals are taking a little longer to close.
That's great. Thanks. And then just on the offshore mix in the quarter, can you describe how that's progressing in terms of the cadence and what the outlook is on that?
Yes, thanks, Graham. Smartchoice continues to be a key focus for us. With the limited growth, it gets more difficult to move projects to Smartchoice, but you've seen in some of the SG&A reductions, we continue to find opportunities to mobilize more of our effort there. As we look forward, as most of our proposals now have a significant smart shore component, we expect that to continue to grow in the upcoming quarters.
Great, thanks. And just the last one for me, regarding the gross margin dip this quarter, I know it's a summer quarter, but could you discuss where utilization was versus targets and any further details on changes in capacity you are considering?
Yes. You highlighted it correctly; the summer months typically have lower utilization due to vacations. We do see opportunities to improve our usage targets as we approach the next quarter, which also has holiday periods but we are optimistic about those improvements.
Thank you so much. And our next question comes from the line of Rob Goff of Ventum. Your line is now open.
Perhaps a follow-up question on the Quebec outlook. Could you talk to where you see or when you see stabilization or potentially a return to year-on-year or Q-on-Q growth?
Yes, great question, Rob. The pipeline's still healthy. Our win rates haven't really changed, so we're not losing deals; they just take longer to close. We continue to monitor this situation and believe that as the market evolves, we'll see a return to growth in Quebec.
Very good. And could you talk about momentum in U.S. revenues? It's notable that you're recording year-on-year growth. Do you see that potentially accelerating as we move forward?
Yes. Our strategy remains focused on high-mix work. We have strong relationships with our partners. We have progressed in building our pipeline and have diversified into new industries like life sciences and manufacturing. We're optimistic as companies begin to increase discretionary spending, particularly as we see positive trends in areas like Microsoft Dynamics.
Thank you so much. And our next question comes from the line of Jerome Dubrow of Desjardins. Your line is now open.
I got a few questions as well. The first is on the Copilot implementation. Where are we in terms of the roadmap? Are we just talking about pilot projects or actual implementations? Can you discuss the early appetite and whether this could spur an increase in demand?
Yes, when we look at AI in general, particularly in regards to Copilot, these concepts are embedded within other deals. It's not solely just an AI opportunity; the Microsoft contact center is built around the Copilot strategy. We are embedding more AI into our products, which is creating revenue opportunities for us.
I think that's a great way to articulate it, Jerome. It's becoming more central to everything we do rather than discrete individual AI initiatives.
Thanks. I'm wondering if there's a link between the lower SG&A in the quarter and the slower bookings. Are less investments being made in sales right now, and could this potentially impact SG&A when things pick up again?
No, the SG&A improvements are not due to cuts in sales and business development. If anything, we are doubling down in certain areas. The improvements are coming from operational efficiencies and optimizing other areas of the business.
And lastly, could you discuss your nuclear business? There's growing interest in that segment. How do you see growth evolving in the coming quarters?
Yes, the revenue growth this quarter benefits from a significant booking made in Q1. We see strong growth opportunities in our pipeline, particularly in Ontario. There are also opportunities for us in other geographies where investments in technology, including SMR technologies, are occurring.
Thank you so much. And our next question comes from the line of John Shao of National Bank. Your line is now open.
I just have a quick question regarding your U.S. market. Based on the customer verticals you have now, have you seen any impact on your business from the election results? It seems like the new administration is going to cut down on government spending. Is the government vertical significant for you in the U.S.?
Actually, that's one vertical where we have very minimal exposure in the U.S. market. Most of our business in the U.S. is in the commercial sector.
That's good to know. Could you elaborate on the high-margin services that helped improve profitability this quarter? Are these multi-year long-term contracts or short-term based?
Yes, great question. We aim to transition away from lower-margin business to higher value enterprise transformation and managed services. These enterprise transformations yield higher margins through higher bill rates and managed services benefit from improved utilization and smart shore operations.
Okay, thanks. Lastly, can you help us quantify the reduction in variable compensation this quarter?
I'll let Debbie provide some visibility on what we can share, but most of it relates to share-based compensation.
Yes, the reduction is tied to share-based compensation, with some variables related to commission adjustments that reflect our perspective on the company's performance annually.
Some of this is tied to commission reductions linked to the decline in sales, making the situation more linear in nature.
Thank you so much. And our next question comes from the line of Divya Goyal of Scotiabank. Your line is now open.
Good morning, everyone. Building on some questions asked earlier, could you elaborate on the nature of the discretionary work? You mentioned there is a slight uptick in discretionary work; could you help us understand what that looks like and the visibility you have for the coming quarters?
Most of the work we do is discretionary to some degree. Clients have flexibility regarding the start of ERP projects, usually tied to their timelines for completion. While they have some discretion in the timing, these projects are critical once started, so we're seeing delays in some of our larger projects in Quebec.
That's helpful. I was wondering if many consulting engagements in the mix are causing some weakness in bookings that you historically saw but are not reviving in the near term?
On the consulting side, our bookings have been steady. Smaller consulting engagements are easier for clients to pause in tough market conditions. We've been focused on higher-margin business, choosing to walk away from opportunities that don't align with our profitability goals.
That sounds good, and your client base seems to be growing, which is promising. Just one question on the SG&A front. With regard to the sales reduction and share comp reduction, will you potentially need to rehire as business picks up, or can you manage with the existing workforce?
As of now, we don't anticipate needing to hire additional staff to meet current demand. However, as our opportunities grow, we will always consider expansion in this area. It's important to note we haven't reduced SG&A related to business development and have actually found areas to invest more.
Thank you so much. And our next question comes from the line of Vincent Colicchio of Barrington Research. Your line is now open.
Yes, Paul. Last quarter, I believe the banking vertical was stable. Could you give us more color on what happened this quarter and your outlook?
The banking sector in Quebec was impacted by the conclusion of a substantial transformation project with one client. It's been challenging to backfill that revenue amidst current market conditions and the complexity of obtaining new deals. Our bookings in the U.S. and Ontario are stronger, so this is more isolated to a few clients in Quebec.
Regarding your acquisition pipeline, is it currently substantial? And how are valuations?
We have a healthy funnel of acquisition opportunities. We focus on finding niche, highly profitable companies that fit well into our strategy. Our balance sheet is strong, having deleveraged significantly, which positions us well for M&A activities.
Thank you so much. And we have a follow-up question from Rob Goff of Ventum. Please ask your question.
A more detailed modeling question. Are you finding any trends in accounts receivables or accounts payables as we look at your working capital?
No. We continue to generate cash from operations. We've also reduced work in process, which is reflected in our accounts receivable, and we'll collect that within the normal course of business. We stay diligent regarding cash flow.
If you review the balance sheet, you will see that we've effectively managed collections and have decreased our Days Sales Outstanding significantly.
Thank you so much. And presenters, there are no further questions at this time. I would now like to turn the call to Paul for closing remarks.
Thanks, everyone, for joining us today. I look forward to talking in the near future.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Have a good day.