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

Ladies and gentlemen, good morning My name is Rachel Andrews. I'm Vice President, Communications and Marketing at Alithya. Welcome to our Annual General Meeting of Shareholders, which will be held virtually. [Foreign Language] The presentations today will be in French and English. This year's simultaneous translation is also made available. You can, therefore, listen to our presentations in French, in English or in the original language spoken by the speakers which will switch from French to English from time to time. To change the language of the presentations, please click on the name of the language of your choice at the top of the broadcast screen. A playback of the webcast will be available on our website after the meeting. Before we proceed, I would like to take this opportunity to inform you that Alithya released its inaugural ESG report earlier this morning. This report is Alithya's first comprehensive disclosure document, which addresses critically important environmental, social and governance matters. I would like to warmly thank all Alithya team members who work together to capture this content and create a report to share with our stakeholders. It includes details on policies and programs that we continue to develop and implement along the road to simply doing the right thing. The full ESG report is now available on our website and both Alithya's Chair of the Board, Pierre Turcotte and President and Chief Executive Officer, Paul Raymond, will share details of this proud achievement with you in their personal remarks this morning. I would now like to bring your attention to the cautionary statement appearing on this slide of our presentation. During the meeting, we will make forward-looking statements that are subject to certain risks and uncertainties, which may be beyond Alithya's control and could cause actual events or results to differ materially from those expressed or implied in such statements. Those risks and uncertainties are described in our continuous disclosure documents available on SEDAR and EDGAR, including our annual and quarterly MD&A. We ask you to refer to and consider the risks and uncertainties that apply to Alithya and not place undue reliance on such statements. Please also note that certain measures contained in our presentations are non-IFRS measures and that since such measures have no standardized meaning prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. We again refer you to our MD&A for further information, including a description of each measure, why management believes this is useful information and when applicable, a reconciliation to their closest IFRS measure. Also, unless otherwise indicated, all dollar amounts in today's presentations refer to Canadian dollars. [Interpreted] Now I'd like to invite Pierre Turcotte Chair Board of Alithya to open the meeting.

[Interpreted] Thank you, Rachel. Ladies and gentlemen, welcome to Alithya's Annual General Meeting of Shareholders. Although the situation seems to be improving in the context of the ongoing pandemic, we have once again made a decision to hold the meeting virtually this year in order to protect our shareholders, employees and directors as well as other persons attending the meeting. As mentioned, we reiterate that despite these circumstances, Alithya remains committed to provide a forum for shareholders that properly participate, vote and communicate -- to properly participate vote and communicate during the meeting via the Lumi online platform that we are using again this year. And now I'm pleased to introduce my colleagues who are present at the meeting today and who will be able to answer any questions you may have. Paul Raymond, President and Chief Executive Officer; Claude Thibault, Chief Financial Officer; and Christine Garon, Senior Legal Counsel. And I would also like to welcome the director nominees who are attending this meeting virtually. In accordance with the notice of meeting that you received, we will cover the following items, the receipt of the audited consolidated financial statements of Alithya for the fiscal year that ended March 31, 2022, and the auditor's report thereon to the election of the directors and the appointment of the auditor for the year ending March 31, 2023, and the authorization of the Board of Directors to fix their compensation. Afterwards, Paul Raymond will present a review of the year, followed by a question period, Q&A period. In accordance with Alithya's bylaws, I will act as President of the meeting and appoint Christine Garon to act as Secretary. In addition, I appoint [indiscernible] both representatives of TSX Trust Company, which is Alithya's transfer agent as scrutineers of the meeting. Before we proceed, I would ask the Secretary of the Meeting to confirm if the meeting is duly constituted, to conduct the business for which it was convened and to explain certain important aspects of procedures, Christine?

[Interpreted] Thank you, Mr. Turcotte. Before the meeting, I received confirmation from the scrutineers that a copy of the notice of meeting was sent to all shareholders entitled to vote at the meeting. A copy of the meeting documents as well as the affidavit confirming mailing thereof will be tabled in the record of the meeting. With regard to the quorum on the basis of the proxies received on behalf of the person named by management, more than 2 shareholders holding approximately 89.25% of the voting rights are represented at the meeting. Accordingly, I confirm that there is a quorum, I therefore declare this meeting duly called and constituted to conduct the business items on the agenda and I ask the scrutineer to provide their final report as soon as it's finalize to the table and to record the meeting. With regard to the vote, I would like to remind you that each proposal must be approved by a majority of the votes cast to facilitate the process of the virtual meeting, we ask certain employees duly appointed proxy holders to move and second this proposal. And before we begin, I would like to highlight certain basic features of the platform, such as how to view our presentation, vote and ask questions at the meeting. To you our representation while you are listening to the webcast, click the broadcast icon or the arrows, you can also change the language of the presentations by clicking on the name of language of your choice, French, English or original, which is the original version of the presenter's speech. The platform allows you to submit your vote online on each proposal that will be submitted to a vote. However, as explained in our notice of meeting, only registered shareholders and duly appointed and registered proxy holders who joined the meeting using their control number will be able to vote and ask questions. To simplify the voting process. Mr. Turcotte open the polls of the items of business for which a vote is required at the same time and will then present each of the proposals. This should, therefore, give you sufficient time to vote while he introduces each proposal. After the presentation of the last proposal, he will remind you to submit your vote if you haven't already done so, and we'll close the poll. When he'll declare the poll open, you will see the voting tab appear. To vote, choose one of the voting options, and the confirmation will appear. You may change or cancel your vote by selecting another voting option or the option cancel at any time before Mr. Turcotte declares the poll closed. Now to submit a question, please click on the messaging tab and write your question in the field provided for such purpose, you should receive a receipt confirmation once your question has been submitted. Although you may submit questions at any time during the meeting, we kindly ask you that you wait until after the formal part of the meeting before submitting a question that is not related to the part of the meeting. We will be pleased to answer your general question after our presentation. Please note that we will take a note of the questions received during the presentation, and we will group together, those are similar before submitting them to the Chair of the meeting for response by the relevant person at the appropriate time. Now if we encounter technical glitches, the meeting will be adjourned a few moments to allow us to resolve the situation. However, should we be unable to resume the meeting within a reasonable time, we might have to adjourn the meeting until a later date, which would then be communicated publicly. This concludes the presentation of the procedures and the functionalities of the platform. I will now give the floor back to the President, Pierre.

[Interpreted] Thank you very much, Christine. So let's start the formal part of the assembly, with the first item of the agenda, which is receiving the financial statements for fiscal 2022 ended at March 31, including the auditor's report and MD&A. These documents are available on our website as well as on SEDAR and EDGAR. A copy was also sent to all shareholders who requested them. I would ask the Secretary of the meeting to table these documents in the record of the meeting. Now let's proceed with the second item in the agenda. The election of directors. I now declare the polls opened for the items of business on which a vote is required. Please click on the voting tab to vote. Don't hesitate to vote while I'm presenting everybody. The Board has fixed, attend the number of directors to be elected at the meeting. The experience and expertise of each nominee are described in Alithya's management information circular. Management proposes that the following nominees be elected as directors. Dana Ades-Landy, André P. Brosseau, Robert Comeau, Mélissa Gilbert, Lucie Martel, Paul Raymond, James Renacci, Ghyslain Rivard, Lee Thomas and myself, Pierre Turcotte. As explained in Alithya's management information circular, only the persons nominated in accordance with the advanced notice bylaw may be proposed as Director nominee. In this regard, I was informed before the meeting that no other director nominations were received in accordance with the advanced notice bylaw. I would now ask someone to propose the nomination of the 10 director nominees for election of the Board of Director of Alithya.

Hello, my name is Rachel Andrews, and I'm a proxy holder. I nominate each of the 10 persons that you named for election as a Director of Alithya.

Thank you very much, Rachel. I will now ask someone to second the proposal.

Hi, Mr. Turcotte. My name is [ Natalie Robichaud ], and I'm a proxy holder. I second the proposal.

Thank you very much, Natalie. The third item on the agenda is the appointment of the auditor for the year ending March 31, 2023, and the authorization of the Board of Directors to fix their compensation. The management and Board of Directors of Alithya propose that KPMG be appointed as auditors of Alithya for the fiscal year ending March 31, 2023. I will now ask someone to make the necessary proposal for the nomination of KPMG.

Hello, my name is Rachel Andrews, and I'm a proxy holder. I move that KPMG be appointed as auditor of Alithya for the year ending March 31, 2023, and that the Board of Directors be authorized to fix the auditor's compensation.

Thank you, Rachel. I will now ask someone to second the proposal.

Hi, Mr. Turcotte. My name is [ Natalie Robichaud ]. I'm a proxy holder, and I second the motion.

Thanks again, Natalie. [Interpreted] We will now open the floor for questions. [Operator Instructions] We are back. Christine, are there questions relating to one of the items of business of today's meeting?

[Interpreted] Mr. Turcotte, I confirm that we have not received any questions related to the items of business of today's meeting.

[Interpreted] Thank you, Christine. As there are no questions, we now ask you to vote if you haven't done so already. Please vote. We will wait a few seconds to allow all shareholders and proxy holders to submit their votes, after which we will close the polls. [Voting]

The polls are now closed with respect to voting on all of the motions. I ask the scrutineers to table the results and provide their final report as soon as finalized. The final results will be publicly disclosed shortly after the meeting. That being said, based on the proxies received on behalf of the persons named by management, we can, however, confirm the preliminary results. The scrutineers indicated before the meeting that each director nominee received at least 96.41% of the votes cast by proxies received on behalf of the persons named by management. As such, on the basis of the proxies received, on behalf of the person named by the management, I declare each of director nominees duly elected sends our congratulations to all of our directors. [Interpreted] The scrutineers have also told that 95% of the vote cast by proxies received on behalf of the persons named by our management, are in favor of the appointment of KMPG (sic) [KPMG] as auditor. On the basis of the proxies received on behalf of the persons named by management, are the proposal adopted, KPMG as therefore, appointed as auditor of Alithya for the year ending March 31, 2023, and the Board of Directors is authorized to fix their remuneration. And before we end the formal part of the meeting, I will ask the Secretary of the Meeting to confirm if questions regard to this part of the meeting have been received.

[Interpreted] Thank you, Mr. Turcotte. I confirm that no questions relating to this part of the meeting have been received.

[Interpreted] Thank you, Christine. Since there are no objections, I declare the formal part of the meeting closed. I would like to invite registered shareholders and duly appointed and registered proxy holders to submit their general questions via the online platform. Questions will be addressed at the end of the meeting. Please submit your questions. And before giving the floor to our President and Chief Executive Officer, I would like to express on behalf of the Board, my sincere appreciation to Alithya's professional, I would like to express my appreciation to Alithya's professional and management team for their steadfast commitment to protecting the interest of all of our stakeholders during the past year. Fiscal 2022 was truly a year of validation for Alithya. We have -- this was marked by significant progress made by the inaugural year of our long-term strategic plan, Paul Raymond, our President and Chief Executive Officer, will address our 2024 strategic targets in a few minutes this year. It was also a year that defined -- that was defined -- this year was defined by meaningful steps forward on numerous fronts, and we really wish to do the right thing for Alithya's stakeholders, our approach to mergers and acquisitions, which is a core of our long-term strategic plan continues to drive Alithya forward. That disciplined approach, which focuses on acquired complementary companies with high margin profiles, enabled us to conclude a total of 4 value-added acquisitions in fiscal 2022 and the first quarter of fiscal 2023. Those carefully targeted acquisitions continue to expand Alithya's offering, expertise and market presence in coveted markets all over the world. And as mergers and acquisitions contribute to Alithya's transition to higher-value services, a seamless integration of those operations into Alithya's ecosystem will allow us to focus intently on cost efficiencies and synergies that will help us achieve our gross margin and SG&A targets. Alithya also recognizes that profitable growth is not achievable without sustainable growth and fiscal 2022 marked rather giant leap forward in our continued pursuit of environmental, social and governance excellence. As social consciousness rises to the forefront of our society, profitable growth has become increasingly dependent upon sustainable growth. That being said, publishing our first comprehensive ESG report this morning is not only an exercise in fulfilling the 21st century requirements of corporate responsibility, it is also about embracing the challenges of social consciousness as a noble concept, it's simply the right thing to do. The implementation of responsible environmental, social and governance good practices reaches every corner of Alithya's ecosystem from the Board of Directors to our employees, our investors, our partners, our customers and our customers' customers. Alithya's Board of Directors is at the forefront of the company's response to societal demands and is charged with establishing a tone, direction and pace of ESG matters. Alithya's Board of Directors is at the forefront of the company's response to societal demand. Each of the board standing committees have embraced a set of responsibilities in that regard, and we continue to listen activity to other markets demand as well as issues of employees and clients. So we continue to advance with the implementation of our 3-year strategic plan. We also move forward with great determination and a strong sense of pride in knowing that Alithya is doing the right thing. Thank you for all of your confidence and support that you continue to provide us with. And now dear shareholders, I would like to give the floor to Mr. Paul Raymond, our CEO.

Good morning, and thank you all for joining us today. I'm very pleased to be here to share Alithya's performance highlights with you and to outline how our ongoing efforts continue to advance the core objectives of our long-term vision for the company. I'm also very proud of our team's efforts in producing our first comprehensive ESG report, which we proudly released to the public this morning. I look forward to discussing this great achievement with you in greater detail in a few minutes. But first, let's take a moment to acknowledge the collective efforts that have positioned Alithya as a growth company that innovates, elevates and today, celebrates. Indeed, I'm particularly pleased to be here with you today in a year when Alithya is celebrating its 30th anniversary and to celebrate the support of all our stakeholders who have helped us build a long-lasting company with a strong purpose. The pearl metaphor lies at the heart of Alithya's first 30 years of success, a process of development and cultivation that has produced a gem. In addition to being a symbol of 30th anniversaries, the pearl is also recognized as a symbol of honesty, purity and wisdom. In 1992, Alithya was founded upon the purest of motives fueled by the desire to be part of an evolving world that was rapidly expanding around technology. While the trials and tribulations of our 30th year have been exceptional, the same bold spirit that catapulted us forward 30 years ago has been evident in our resilience. In fact, we have emerged from this tumultuous period as one of the fastest-growing companies in our sector. Experiencing over 50% growth in revenues in the past fiscal year alone, with record bookings across all our geographies. In short, after 30 years of sustained growth, Alithya has emerged as a cultured pro and I truly believe that the world is our oyster. Our performance in sustained growth helped carry us through to yet another record fiscal year in 2022 as well as a strong first quarter entering fiscal 2023. Those successes have positioned us ahead of the curve in implementation of our 3-year strategic plan. Our new scale enables us to forge strategic partnerships which has served to expand our offerings in numerous sectors. Leveraging partnerships helps us gain market traction across all our practices, combining our extensive expertise with leading industry solutions. In February, the reputation market traction of our Oracle Practice continued in the U.S. with the successful implementation of Oracle Cloud enterprise resource planning and Human Capital Management solutions for North Bay Healthcare, a nonprofit organization that includes 2 hospitals in its membership network. Our U.S. Oracle Practice also signed a multiyear USD 10 million contract to a company an existing Oracle client offering dental insurance coverage to millions of Americans. In August, we announced that our Oracle Practice in the U.S. has successfully implemented multiple Oracle cloud solutions for Inspire Health, a charitable nonprofit health care organization and a regional leader in physician training in the state of New Jersey. Towards the end of fiscal 2022, we also announced the signing of a multiyear master service agreement with one of Canada's big 6 banks reflecting our status as a trusted adviser in the eyes of Canada's major financial institutions. Throughout the year, we also strengthened our Microsoft practice, helping Balchem Corporation roll out a global deployment of Microsoft Dynamics Cloud 365 to consolidate processes and realize its goal of a single technology platform. We also gained a new traction helping higher education institutions recently announcing a major contract and building on Alithya's preferred partnership with Frequency Foundry to support a Canadian University in the acceleration of the digital transformation of its administrative processes and elevate its student digital experience. Alithya was again recognized as an important partner of Microsoft being named part of the inner circle for the 16th year in a row. Top 15 Azure partners in Canada and the top 1% of Dynamic partners in the world. In May, we leveraged our status as a Splunk preferred partner and authorized reseller to announce the signing of a USD 7 million in contract with financial services and public sector customers. And in February, we proudly announced our status as an Amazon Web Services advanced tier services provider partner followed in March by news that Alithya is now a certified system integrator for Talend, a global leader in data integration and data governance. Fiscal 2022 marked the first year of our ambitious 3-year plan. In terms of revenues, we continue to pursue sustained organic growth and selective strategic acquisitions in order to reach the $600 million mark. Currently, our organic growth and acquisitions of the past year have brought us to a $0.5 billion annual revenue run rate. In terms of gross margin, we believe our long-term strategies remain appropriate and relevant for gradual improvement. We also intend to leverage our new nearshore and offshore capabilities that I will address shortly and to continue to target acquisitions with high-value profiles. Our recent acquisitions of Datum and Vitalyst are certainly very good examples of that. As for SG&A, we believe that we have now reached a certain critical mass and a stabilization of certain expense categories. Moving forward, we expect those expenses to grow at a slower pace than our revenues. In a nutshell, we are following Alithya's step-by-step playbook to achieve our 3-year objective of $600 million in revenue with an EBITDA margin of 9% to 13%. Now let's take a look at 3 key highlights of fiscal 2022 as well as our latest first quarter performance. My first highlight is focused on our incredible people. With talent attraction and retention continue to be a major challenge in our industry, we have demonstrated our ability to respond to those challenges. In 1992, Alithya started out with 11 professionals. With numerous acquisitions along the way, Alithya has now reached a critical mass with more than 3,900 highly skilled professional. Here's another interesting statistics. 2,300 professionals have joined our ranks since the company has gone public in November 2018, less than 4 years ago. In the past year alone, approximately 400 new team members have joined our growing professional family, which now has a footprint on 5 continents. And that accumulation of passion experts continues to drive innovation. Alithya proudly announced the launch of BénéClic in fiscal 2022, a mobile application developed by members of our digital solutions center to improve accessibility and connection between volunteers and sick children at Centre Hospitalier Universitaire, Sainte-Justine, one of the 4 most important pediatric centers in North America. In January, we launched Alithya GoTest, a proprietary test automation and continuous testing solution developed entirely by Alithya experts that facilitates automated testing in all software environments and programming languages. That segues nicely into a discussion of our newly formed remote delivery teams. We are very pleased with the growth potential and margin improvement still to come from our nearshore and offshore operations. Our first center was opened in Morocco this past year. The initiative of the Datum team on July 1 also added to our offshore workforce. Collectively, Alithya now has a global -- has global teams of professionals located in Canada, the United States and Europe. We're supported by delivery teams in Morocco, Spain, Eastern Europe and India. We intend to accelerate the growth of our nearshore and offshore activities moving forward. This will enable us to better support our growth and our customers while improving our efficiency. Second, over and above our significant organic growth, which I will discuss in a moment. We also had a very active year for mergers and acquisitions at Alithya with the addition of 4 new companies since April 1, 2021. Our disciplined approach to mergers and acquisition has been a foundational component of our success story since the company was founded in 1992. Our fiscal year was marked by notable growth in revenues and adjusted EBITDA. Our revenues amounted to $438 million in fiscal 2022, representing a 52% increase compared to fiscal 2021, more than 50%, that's a tremendous speed in our industry, considering more than half of that growth was organic. As for adjusted EBITDA, it amounted to $23 million for fiscal 2022, which is an increase of 134% year-over-year. We also posted a strong performance in terms of bookings with a robust annual book-to-bill of 2.36 for the past 12 months. Our healthy pipeline of signed contracts reflects the level of trust that our customers continue to place in us as we carry out their critical digital transformation projects. It also validates the strategic merits of our recent acquisitions with customers now demanding additional services derived from those transactions, including new solutions and bolstered expertise. In the first quarter of our new fiscal year, Alithya once again achieved industry-leading organic growth. Our revenues amounted to $127 million in Q1, marking a 23% increase compared to the same quarter last year. We also achieved sequential growth in terms of gross margin as a percentage of revenues. It increased 40 basis points sequentially to 26.9% despite company-wide annual salary increases, which came into effect at the beginning of the first quarter of this year. This leads me to the second highlight that I would like to emphasize, namely that our gross margins continue to improve. Following a period of sustained growth, we began fiscal 2023 with a focus on efficiencies. We implemented processes targeting company-wide SG&A optimization that aligns with our 2021-2024 strategic objectives. We have begun to experience some reductions stemming from certain initiatives that were implemented in the pursuit of our target of SG&A eventually falling to 20% of revenues. We expect to benefit from those initiatives gradually over the course of the coming quarters. As I mentioned in my opening remarks, fiscal 2022 was also marked by the creation of our first comprehensive ESG report, which we released to the public this morning. The significant investment of time to digitally prepare the report is a reminder to us all that doing the right thing is not necessarily the same as doing the easy thing. As we celebrate 30 years of continuous growth, I am extremely proud of what we have built and particularly of one all-encompassing principle, safeguarding the well-being of our people, our customers and our company. On that note, I would like to take a moment to mention an achievement that we are very proud of at Alithya. In Q4 of fiscal 2022, the tireless dedication of our internal women and leadership committee carried us forward to the bronze certification from the women and government's organization, paving the road further ahead towards a truly inclusive and diverse workplace. Again, we are proud of the many things that we have already achieved, both internally and externally regarding ESG issues. And as we balance our desire to do the right thing with our commitment to doing things right, I believe that our actions are moving in the right direction. We have been able to develop a robust and resilient ESG strategy designed to adapt to the challenges and opportunities that lie ahead based on a framework encompassing 5 key material topics: talent, organizational culture, cybersecurity and data privacy, transitioning to a lower carbon economy and governance. Our inaugural ESG report expands upon what we are already doing in support of our commitments and reiterates our intention to ensuring that Alithya's ESG initiatives become a source of pride for all of our stakeholders. Above all, it highlights our commitment to continuous improvement in all that we do. I invite you to read the report, which is now available on our website. To conclude, one essential message that I wish to emphasize is that despite challenges beyond anyone's control, such as inflation, recessions, pandemics and global conflicts, Alithya is a steady ship that continues to navigate confidently through rough waters. As we look to the future, there is another important factor to keep in mind. It is safe to say that there will be even more technology in our lives 10 years down the road. And given the likelihood, I believe that Alithya is in the right industry at the right time. Thank you all for your time today, and back to you, Pierre.

[Interpreted] Thank you, Paul. All of this is very impressive. We will now open the Q&A session, question period. [Operator Instructions] We are back. Christine. Have we received any questions?

Thank you, Mr. Turcotte. I confirm that no questions have been received.

Thank you, Christine. So ladies and gentlemen, dear shareholders, this concludes the Q&A session. Thank you for being with us today. At this AGM of shareholders and so I look forward to seeing you in 2023. Thank you, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]