Alithya Group Inc. (ALYA) Earnings Call Transcript & Summary

Hello, my name is Rachel Andrews. I'm a proxy holder. I move that Raymond Chabot Grant Thornton be appointed as auditors of Alithya for the year ending March 31, 2021, and that the Board of Directors be authorized to fix their remuneration.

[Foreign Language] I will now ask someone to second the proposal.

[Foreign Language]

[Foreign Language] Are there any questions regarding the appointment of the auditors?

[Foreign Language] I confirm there is no question on that point.

[Foreign Language] The proposal having being duly made and seconded, and no question received, we now ask you to vote if you haven't done so already. [Foreign Language] As indicated before the meeting that 99.89% of the votes cast by proxies received on behalf of the persons named by management are in favor of the proposal. [Foreign Language] The poll will remain open for a few more seconds. [Foreign Language] We'll soon close the poll. [Foreign Language] I declare the vote on this item now closed. [Foreign Language] On the basis of the proxies received on behalf of the person named by the management, I declare the proposals adopted. The final results will be disclosed later today. [Foreign Language] Before ending the formal part of the meeting, I would ask Mrs. Forcier to confirm are there questions -- if are there questions relating to the part -- that part of the meeting has been received.

[Foreign Language] I confirm that there is no question.

[Foreign Language] As there are no other objections, I declare the formal part of the meeting completed. I now invite registered shareholders and newly appointed and registered proxy holder to submit their general questions via the online platform. Questions will be addressed at the end of the meeting. [Foreign Language] This year, although the COVID-19 pandemic has imposed significant pressure on businesses around the globe, it has also proven how key digital transformation is to business continuity and success. [Foreign Language] On behalf of the Board of Directors, I wish to take this opportunity to express our gratitude to our employees for their continued engagement, dedication and flexibility. I believe that Alithya has the required scale and leadership to emerge from this pandemic as a stronger company. [Foreign Language] If you haven't done so, I invite you to please read our 2020 annual review. The Board is proud to govern an agile company that makes every effort to remain alert and prepare for changes driven by high corporate governance standards, socially responsible practices and safe working environment. [Foreign Language] And now I'm pleased to give the floor to our President and Chief Executive Officer, Mr. Paul Raymond.

[Foreign Language] Good morning to all our fellow shareholders attending remotely from locations around the world. We are still facing a crisis that has a terrible impact on many of our fellow citizens around the world. I again express our gratitude to all our frontline health and safety workers who are making a difference in our lives every day. [Foreign Language] This pandemic has also had severe economic ramifications, which are fundamentally changing the speed at which our customers need to transition in a rapidly evolving digital world. At Alithya, the hard work and investments completed over the past several years towards our goal of being a leading digital transformation leader, has put us in a position to weather the storm. As you can see from our results, our liquidity and balance sheet perspectives. With that said, and although fiscal 2020 feels like a long time ago, considering the pandemic started to be part of our lives last March, I will briefly recap last year's highlights and share with you in more detail, our 6-month timeline of the pandemic. I would like to start by saying that we remain fully committed to our strategic plan with the ambition of doubling the company's size over 3 to 5 years. As you can see from the track record of our past 4 years, we have the experience and the tools at our disposal to accomplish this. As a reminder, Alithya's consolidated scope and scale allows us to better leverage our geographies, our expertise and our growing integrated offerings. Executing our plan is also positioning us on the value chain to target the fastest-growing IT segments even in the face of great adversity such as COVID. In fact, Alithya's specialization in digital technologies and the flexibility to either deploy enterprise solutions or deliver solutions tailored to specific business objectives, responds directly to client needs and expectations. Now on the state of the organization's performance. [Foreign Language] Let me begin with our fiscal 2020 results, which then coincided with the internationalization of the pandemic that would change our way of doing things. Fiscal 2020 was an exceptional year in the Alithya's journey to become a leader in digital transformation services in North America. We reached our highest results in terms of revenue, gross margins, adjusted EBITDA and cash flow generated from operations. Our revenues reached $279 million, up 33% as compared to fiscal 2019, primarily driven by the contribution from acquisitions and growth of higher-value services. During the year, we successfully completed the integration of our 2018 U.S. transformative acquisition and successfully divested our small U.K. operations. Since going public, we have placed great emphasis on expanding our gross margins, and we delivered on that front in 2020. Over the past 4 years, we have grown our topline by over 30% annually on average, and our gross margin has improved from the low 20s to close to 30% today, a level in line with significantly larger players in our industry. We were able to do this by selectively diversifying our business to higher value-added services in all our markets. [Foreign Language] After close to 2 years since going public, Alithya is a very different and better company. We diversified our business by industry, by geography and by clients. For example, 2 years ago, we were highly concentrated in the finance sector. Alithya had almost all of its revenues generated in Canada, and our top 8 clients represented 70% of our business. Today, our revenues are diversified in several essential industry sectors with finance representing less than 30%. Furthermore, our U.S. acquisitions -- with our U.S. acquisition, sorry, our revenues are almost evenly split between Canada and the U.S., and our top 8 clients now represent less than 31% of our revenues. In addition to the financial sector, which remains core to Alithya, we diversified our operations by growing in health care, renewable energy, manufacturing and telecommunications market, which are all recognized as essential services sectors. This has benefited our clients, our people and our company during the pandemic and will continue to position us as a very resilient company in a high-growth sector. Since the beginning of the pandemic, we have stayed true to our values and our business continuity plan focused on protecting our ecosystem. We should all be very enthusiastic about our results. [Foreign Language] Our diversification provides us with a much stronger foundation to face the potential challenges of upcoming quarters, which remain under the COVID-19 cloud. We will, however, continue to remain cautious in these uncertain times, partly because we know the health of the U.S. economy drives a great deal of what is happening in Canada and around the world. Alithya U.S. as a whole is doing well, and our Oracle cloud business has outpaced our Oracle legacy business. The concern with the U.S. is now more geopolitical in nature. As you know, the COVID-19 pandemic has significantly hit the U.S., and there is also political uncertainty given the upcoming elections. Therefore, we are tracking these elements at the macro level to ensure we keep our people safe and that we can still serve our customers. As the pandemic has shown us, people will need technology more than ever. The management team and I are very confident in our business model and how it has demonstrated resilience in the last 2 quarters and how we are doing within all of the uncertainty that we're seeing this year. So let me summarize it this way. Alithya remains cautious but optimistic about the near future and very confident in our long-term plan. Given the ongoing pandemic is still not a thing of the past, we continue to follow our business continuity plan, including managing our operating expenses prudently, taking advantage of government programs and efficiency opportunities as well as monitoring new developments very closely. [Foreign Language] On a more optimistic note, the most recent results of Alithya are also very encouraging. We are very pleased with our first quarter results, especially in the context of the COVID-19 pandemic and which clearly demonstrate the resiliency of our business model as well as the growing demand for our digital transformation services. This is also showing that Alithya's build-in-by-strategy is bearing fruit. Recent acquisitions generated high single-digit organic growth during the pandemic or the first quarter of fiscal 2021, helping us offset ongoing headwinds in some of our legacy areas. The net of this was limited impacts on our revenue and improvements in our adjusted EBITDA. In fiscal 2020, we were very active on the acquisition front. We completed 3 acquisitions, 2 in Canada and 1 in the U.S. We were very happy to welcome teams that are specialized in artificial intelligence, or AI, the Internet of Things, IOT, software quality assurance automation, application development and modernization, health care and Oracle's enterprise cloud applications. [Foreign Language] Considering the scale of our existing platform, recent acquisitions were integrated quickly and smoothly and allowed for immediate focus on cross-selling opportunities. We are witnessing the benefits of these new additions in recent large project wins. I will give you some examples and address our bookings in a few minutes. Like I said, at the beginning of the pandemic, our focus was on making sure, and throughout the organization, that everything was under control and that we were taking the steps to protect our people, our clients and the company. We also believe Alithya's business model should enable us to continue to find suitable acquisition targets to grow, and our acquisition funnel is healthy as well. Rest assured that we will have the same disciplined approach to our acquisitions in terms of what we look for and what we pay for them. We are seeking companies with a cultural fit with management willing to remain after the acquisition and with complementary services for our clients. Since the management buyout in 2011, we have completed 10 acquisitions of various sizes. We know our recipe works. Without the new acquisitions and associated cross-selling opportunities, we would not have been able to close the recently announced larger deals. Furthermore, the new acquisitions on their own would not have been able to close those same deals because of their smaller size and scale. The management team believes those are great examples of our strategy unfolding. [Foreign Language] Like many organizations, last few months have been a rollercoaster. However, like other great teams, we have turned adversity to our benefit. Many projects that had been delayed at the start of the pandemic have since resumed, and we have been recently seeing increased spending at some of our larger Canadian clients. During the past 6 months, Alithya has also built new ways to deliver services, thus allowing us to stand out versus some of our competitors and gain efficiencies for a post-pandemic world. [Foreign Language] From a technology perspective, one of our latest completed initiatives is the implementation of a modern enterprise-wide CRM tool designed to help us enhance and maintain both new and existing customer relationships at a return. The Microsoft Dynamics 365 platform is now putting our business developers on the frontline of Alithya's growth, accelerating the process, thanks to the powerful tools offered by a company-wide integrated system. As you saw when we released our first quarter results, we are now disclosing our bookings, which we believe will allow our investors to see how healthier sales funnel is and give an indicator of our future perspectives. This single data point of 1.14x book-to-bill or 114% of revenue demonstrates our strong capacity to sign new contracts despite physical distancing measures in place. This is an excellent performance in the current environment. I would like to remind you, however, that we believe a 12-month trailing book-to-bill ratio is a better indicator of future perspectives as notable variations can occur when looking at quarterly numbers alone. You will agree that despite all the challenges of the pandemic, businesses were still operating in the spring and summertime. IT systems are essential for all companies to operate today and in the future. A lot of companies also realize that the more cloud-based they are, the more flexible and effective their workforce can be, whether working remotely or from company office locations. Under such circumstances, our view is that we will continue to be in a transitory process through 2021 as we rebalance our portfolio, shifting more legacy business towards Microsoft, Oracle, Amazon Web Services and our other cloud practices. [Foreign Language] Let me end this portion of my remarks by addressing software IP revenues. Our specialized IP products help customers do business in ways that they had not previously considered. Whether it's AI-driven financial fraud detection or automated testing or Internet of Things integration or other proprietary solutions, we have been accelerating the sales of our full range of IP-driven solutions to industry-leading organizations to help create more value. I invite you to learn more about these innovative solutions at alithya.com. We continually update our website with our growing service offerings. You can visit our website or start receiving the latest news directly in your inbox by subscribing to the Alithya press releases or social networks. We believe at Alithya that we operate in a tightly linked ecosystem that requires all our stakeholders to win. We aspire to grow in order to provide our clients with more value. We aspire to grow to give our people with bigger and better career growth opportunities. We aspire to grow to provide our shareholders with an attractive investment opportunity. We also aspire to grow to better serve the communities where we live and work. Alithya and its employees were involved in numerous social and environmental causes, such as the Make-A-Wish 48-Hour Bike Ride for 6 kids, where more than 120 Alithya employees, friends and families raised $100,000 for the cost. We also participated in Terry Fox Run in Toronto, the Atlanta Community Food Bank or the France World Clean Up Day. [Foreign Language] In the same vein, we encourage our teams to share their IT know-how with nonprofit organizations. For example, recently, we drove innovation for a worthy cause in the states. A team leveraged Microsoft Cloud technology to reduce the barriers to adoption and ultimately increase the number of child placements into qualified, safe and loving homes and reduced waiting times dramatically from months to weeks. During the initial rollout in Orlando, in the Florida area, a family was able to complete a home study training and placement within 35 days of beginning the process. A process that previously could have taken years. [Foreign Language] In endeavoring to drive positive change to our digital transformation projects, we are very proud to actively engage in community activities. [Foreign Language] The Adoption-Share, Sainte-Justine Children Hospital and Solutionwheels project epitomizes that spirit. Social and environmental issues have always been at the heart of how we operate, and we intend to keep demonstrating our leadership in this area. I would like to end my remarks with a word on diversity. [Foreign Language] I have been sad and deeply troubled by recent events in the U.S. and around the world. I want to make it clear that Alithya has always tried to build an inclusive culture and to provide all our people with a safe environment in which to work and grow. At Alithya, there is no place for racism, discrimination, hate or violence of any kind nor should there be in the rest of society. Alithya's core values recognize the importance of all of our people regardless of race, gender, beliefs or place of origin. We are proud of our diversity, and we encourage it. [Foreign Language] We also believe in diversity of ideas. We believe providing a safe environment to exchange these ideas would only make us better and stronger. We will always have progress to make in this area and are committed to doing so. As an example, as of last quarter, while women in the larger IT sector account for less than 20% of the workforce, approximately 36% of Alithya's senior management team was comprised of women with women accounting for 28% of our overall workforce. We will also enhance our diversity initiatives when it comes to hiring more members of visible minorities, whether it's indigenous people and people with disabilities. In closing, our achievements over the past year, and especially those that have emerged since the onset of the pandemic would not have been possible without the support, dedication and cooperation of our teams. I'm very proud to work with an extremely strong group of individuals who really stepped up bravely to be there for our customers during a time of epic uncertainty. I sincerely thank the entire Alithya team and my executive team; Claude Rousseau, Claude Thibault, Nathalie Forcier, Natalie Piccinin and Robert Lamarre; and want them to know how much their efforts are appreciated. [Foreign Language] I also thank our Board members for their continued insight, support and positive energy, and especially our Chair of Pierre Turcotte, for his valuable counsel during these times and always [Foreign Language]. Lastly, to you, our shareholders. The recent market turmoil has been gut-wrenching, but you should also know that our organization is strong and resilient. We thank you for demonstrating your continued support through your investments in Alithya. Alithya is determined more than ever to deliver sustainable, long-term profitable growth. Thank you for your confidence, and back to you, Mr. Chairman.

[Foreign Language] Now we are open for questions. Do not hesitate to submit your questions via the Lumi platform, please. [Foreign Language]

[Foreign Language] We've received no questions. So if you want to ask one, you can just type it in the -- on the platform. We'll give you a few more seconds.

[Foreign Language] Ladies and gentlemen, this concludes Alithya's 2020 Annual General Meeting of Shareholders. I thank you very much for having been part of the -- and with us today and look forward to seeing you in 2021. Thank you very much.