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

[Interpreted] Okay. We're back. So are there any questions relating to any of the items of today's meeting?

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

[Interpreted] Thank you, David. Since there are no questions, we would now like to ask you to finalize and submit your vote if this has not already been done. We will wait a few seconds and give you a few seconds to submit your votes, and then we will close the polls. [Voting]

[Interpreted] I declare the polls closed with respect to voting on all the motions, and 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. This said, based on the proxies received on behalf of the persons named by management before the meeting, we can, however, confirm the preliminary results. The scrutineers indicate or indicated rather before the meeting that each director nominee received at least 77.04% of votes cast by proxy received on behalf of the persons appointed by management. On this basis, I declare each of the 8 director nominees duly elected. Congratulations to directors and good continuation for the year to come. Now when it comes to the nomination of the auditor, scrutineers have indicated before the meeting that 94.68% of votes cast by proxy received on behalf of the persons named by management are in favor of the appointment of KPMG as an auditor. On this basis, I declare the motions adopted. KPMG is therefore appointed auditor of Alithya for the year ending March 31, 2027, and the Board of Directors is authorized to set their compensation. Before closing the formal portion of the meeting, I would like to ask the Secretary of the meeting to confirm if there are any other questions relating to this portion of the meeting.

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

[Interpreted] Thank you, David. Given that there are no other questions, I declare the formal portion of the meeting closed. I now invite registered shareholders and duly appointed and registered proxy holders to submit their questions of a general nature through the online platform during the presentations that will follow. Questions will be answered at the end of the meeting. Now on behalf of the Board of Directors, I wish to thank the management team and all our dedicated professionals for continuing to safeguard the interest of all of our stakeholders. Your professionalism and expertise are key to continuing the strategic journey and the growth of Alithya. And now dear shareholders, I am pleased to turn the floor over to our President and Chief Executive Officer, Mr. Paul Raymond. Paul?

Thank you, Pierre. Hello to all, and thank you for being here with us for Alithya's AGM. Before I begin, I want to thank our Board of Directors and our senior management team for their guidance throughout the year, our employees for their ongoing commitment and our clients who continue to trust us with their most critical initiatives. I will start with where Alithya stands today and the industry-first strategy that got us here, then our results, a few client stories and an update on our people. And finally, a word on the strategic review that was launched by our Board. Let me begin with the most important point I will make this morning. Over the last several years, we have fundamentally transformed Alithya. We strengthened our industry focus, built significant partnerships with leading enterprise partners and hyperscalers, expanded our capabilities in enterprise applications, cloud, data and AI, enhanced our Smart-shore delivery model and broaden our service portfolio. The business we operate today is very different from the company we were several years ago. Today, Alithya is a leading North American digital transformation platform operating at scale with deep expertise in the latest business technologies and in complex, highly regulated industries where precision and trust matter most. The numbers support that this statement. Revenues have grown 128% since we went public in 2018, reaching $477.4 million in fiscal 2026. And more importantly, the quality of those revenues has changed. Gross margin has moved from 25.9% in fiscal 2019 to 34% in fiscal 2026, the highest in our history. That is the direct result of reshaping our portfolio towards enterprise transformation and AI-led services and moving away from lower-margin commodity work. Over the years, we have decided to focus on specific industries and are committed to knowing them as well as our clients do. That takes patience because industry credibility cannot be bought in a quarter. It comes from delivering in the same sector often enough that the lessons get built into our own tools and methods, which is why clients come to us for their most critical projects. We concentrate on highly regulated sectors where the cost of getting it wrong is severe, manufacturing, financial services, health care, the public sector, energy and engineering and construction. What that depth produces is speed and certainty. In manufacturing, our Alithya Express accelerators allow clients to go live faster than building from scratch with regulatory readiness designed in rather than retrofitted. In health care, Alithya Vital connects clinical, financial and workforce data so leaders can see where staffing is drifting out of line with patient demand weeks ahead and where margin is holding once labor and supplies are accounted for. And in financial services, clients from the big 6 banks in Canada come back to us repeatedly for work on systems they cannot afford to get wrong. We are still adding to our capabilities. In August, we acquired certain assets of Project Technologies Group and welcome its team to Alithya, adding more than 40 years of Oracle Primavera expertise and strengthening our enterprise project portfolio management practice in engineering and construction. Industry depth also means having a point of view. And this year, our teams published proprietary research across our priority sectors. We reinforced the model at a leadership level as well with Benoit Godmaire aligning our consulting teams across Canada, the United States and France around industry-led offerings and Sasidhar Nayudu strengthening our go-to-market and cross-selling into larger multi-practice opportunities. Turning to our last completed fiscal year. Revenues were $477.4 million, up 0.8%. Gross margin rose 3.8% to $162.1 million, reaching 34% of revenues, the highest in our history and the clearest indicator that our higher-value services strategy is working. Adjusted EBITDA was $47.1 million and adjusted net earnings rose 2.2% to $28.8 million or $0.29 per share. Bookings reached $434.2 million, and our backlog represented roughly 14 months of revenue. In the United States, we kept growing steadily. Almost 50% of our revenue is now generated in this geography. That growth came from the momentum across other key industries we focus on and from the first full year of eVerge. A year after closing, that integration has gone well, and the combined capabilities are opening enterprise opportunities neither organizations could have pursued as effectively alone. The clearest example is Salesforce. eVerge gave us a fourth major platform alongside Microsoft, Oracle and AWS and is changing the scope of the conversations we can have. Adding Salesforce to an existing Microsoft Oracle relationship turns a single practice engagement into a multi-practice one. Those are larger, stickier and have the potential to generate more value. We also continue to build momentum in helping our clients adopt the latest AI tools. During the year, we earned the Microsoft Copilot specialization and expanded our work with clients moving from initial experimentation to enterprise scale adoption. These engagements increasingly combine Copilot, custom AI agents and the modernization of data applications and workflows that support them. In Canada, we are moving away from low-value work awarded solely on price, particularly in the Quebec public sector. That choice has impacted our revenue in the near term and replacement work has taken longer to ramp up than we would like, but we are convinced it is the right approach for long-term profitable growth. I'd like to highlight another milestone to our shareholders. In April, we achieved the AWS migration and modernization competency earned through a rigorous review of real implementation, and it places us amongst a select group of AWS partners recognized for advanced cloud and application transformation, and it matters because we believe that AI-enabled legacy modernization is the next major wave of enterprise transformation. In the first quarter of our current fiscal year, revenues were $105.1 million, down 15.4% year-over-year. Gross margin fell to 30.4% of revenues from 32.1% and adjusted EBITDA was $5.4 million or 5.2% of revenues against $11.6 million and 9.4% a year earlier. We recorded a net loss of $2.4 million. It was a soft quarter compared to last year. The primary driver was utilization. Several larger projects took longer to sign and start than anticipated, and we chose to retain highly qualified professionals through that gap rather than lose capability we will need. What did not change is the underlying demand. Client retention remained healthy at 77.4% of revenue. We signed 37 new clients and over 70% of bookings related to new business, including 28% from new customers. Late-stage opportunities continue to build. Our challenge is not a lack of opportunity. It is converting those opportunities more quickly. Of note, in the first quarter of fiscal 2027, we changed our reporting segments effective April 1, 2026. We now report under 2 segments: Enterprise Transformation and Industry Services and Solutions. These segments give investors greater visibility into our strategic growth areas and more accurately reflect where we create value for our clients. A few examples show the range of what we are winning. Our Oracle practice signed an $11.7 million contract with a global leader in engineering and construction to modernize its global workforce operations through a transformative Oracle HCM initiative. That contract brought together the Oracle expertise we gained through eVerge with our broader ERP and EPM capabilities. In manufacturing, Shamrock Technologies, a global leader in specialty additives, extended its collaboration with us. After a successful deployment of Microsoft Dynamics 365 finance and Supply Chain Management across its U.S. operations, we are now leading the implementation of their European headquarters in Belgium. In our Microsoft Frontier practice, we have supported the deployment of more than 300,000 Microsoft 365 Copilot licenses globally. For a leading global development bank, our Copilot adoption program achieved 90% active daily usage with measurable productivity gains. Demand is shifting from pilots to enterprise scale adoption, and we are developing custom AI agents built on our clients' own data where we believe the greatest value lies. The AWS competency I mentioned earlier was earned on real client outcomes. As an example, with Beneva, we use our cloud migration factory methodology to migrate over 70 of their applications across two phases on time and on budget with no disruption to operations, delivering lower hyperscaler costs, faster deployment cycles and respecting their 99.95% uptime requirement. None of this would be possible without our professionals around the world, and I want to thank them sincerely. Our vision is to be recognized as the trusted technology adviser and our mission is to advise, guide and support our clients in their pursuit of innovation and excellence through the optimal use of technologies. Technology evolves quickly, and we have to stay ahead of it. Whether it was e-commerce 30 years ago, cloud a decade ago or Agentic AI today, we have consistently adapted. During fiscal 2026, we launched our employee value proposition, which defines the experience Alithya commits to offering its people. We build it with our employees rather than for them, and they identified what differentiates working here, a collaborative and respectful workplace, work-life flexibility, interesting work and human-centric managers. We measure our progress by asking our people directly, and we have been doing it long enough now to see the trend rather than the snapshot. When we ran our first Officevibe survey in May 2018, our overall engagement score was 7.4 out of 10. At the end of fiscal 2026, it stood at 8.2, the highest in our history, alongside an employee Net Promoter Score of 43, up 5 points over the year. The measure I'm proudest of is the relationship our people have with their direct managers. That score has moved from 7.2 in 2018 to 8.7 at the end of Q1. In the services business, where the most -- where most of the experience of working here is shaped by one manager and one team, that is the number that tells you where the culture is real. It is the product of years of deliberate investment in leadership development, and it does not move by accident. Employees point consistently to the same strength, a people-first culture, support of managers, collaboration, flexibility, opportunities to grow and pride in the impact we have on clients. Let me turn to the strategic review launched by the Board on July 27. The Board initiated this review from a position of confidence in our strategy and in the business we have built. Our view is that the transformation in recent years has created a stronger and more valuable company, and the Board concluded that the current public market valuation may not fully reflect the intrinsic value of the company nor adequately support its next phase of growth. The review is evaluating a broad range of alternatives, including, but not limited to, a merger or other business combination, a privatization, a sale of the company, a recapitalization, strategic investments or partnerships are continuing to operate as a publicly listed company. Scotiabank is acting as our financial adviser. As you would expect, we will not comment on specific parties, alternatives or process developments, and we will not take questions on the process today. There can be no assurance that any transaction will occur, and the company does not intend to make any additional comments until the Board of Directors has approved a specific transaction or otherwise determines that disclosure is appropriate or required by applicable securities laws. What I can tell you is that our client commitments are unchanged. Our teams remain focused on quality delivery and management is fully engaged in running the business as the review proceeds. We have built a stronger business supported by recurring clients, healthy pipeline and sustained demand in our priority markets. In the meantime, we continue to run the business focused on converting our pipeline faster, aligning our cost structure with current revenue levels while preserving our capacity to invest and pursuing the areas where demand is the strongest. We do not manage this business for quality optics. We manage it to build long-term value. In closing, I want to thank you, our shareholders, for your confidence in Alithya and our employees around the world for their dedication through a demanding year. What will not change is our focus on our clients, on our people and on the business we run every day. [Interpreted] In closing, I'd like to thank you, shareholders, for the trust that you have shown in Alithya. I would also like to highlight the commitment and the dedication of all of our employees throughout this challenging year. One thing will never change, and that is that we will maintain our priorities. We will stay prioritized, and we will remain very fully focused on all of our management on a daily basis. Thank you very much, and have a great day.

[Interpreted] Thank you, Paul. It is now a question period. [Operator Instruction] Ask your questions and submit them, we will now take a short 1-minute break to allow you to submit any questions. [Break]

[Interpreted] David, have we received any questions?

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

[Interpreted] Ladies and gentlemen, therefore, dear shareholders, this concludes the question period and our Annual Meeting of Shareholders for 2026. Thank you for having been with us here today, and we wish you a great day to all. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]