Mr. Paul Raymond reports

ALITHYA REPORTS SECOND QUARTER FISCAL 2024 RESULTS

Alithya Group Inc. has released its results for the second quarter fiscal 2024 ended Sept. 30, 2023. All amounts are in Canadian dollars unless otherwise stated.

Quote by Paul Raymond, president and chief executive officer, Alithya:

"Our second quarter fiscal 2024 results reflect progress on gross margin performance and a continued focus on reducing selling, general and administrative spending, both sequentially and year-over-year. Those achievements are largely attributable to a number of past initiatives that continue to bear fruit, including greater efficiency in project management, reducing our reliance on subcontractors and continued focus on growth in our higher-margin segments.

"We remain optimistic about the quarters ahead, despite lower revenues due to weaker conditions in our Canadian banking sector client base and start-up delays on certain client projects. Our second quarter also encompasses historically slower summer months but our continued strong bookings and growing sales funnel are encouraging. In line with our strong focus on cross-selling opportunities, we added 36 new clients in Q2.

"For a quarter showing lower sequential revenues, our performance, both in terms of gross margin improvement and selling, general and administrative expenses reduction, puts Alithya in a good position to increase profitability once the current economic cycle turns positive."

Second quarter results

Revenues

Revenues amounted to $118.5-million for the three months ended Sept. 30, 2023, representing a decrease of $10.4-million, or 8.1 per cent, from $128.9-million for the three months ended Sept. 30, 2022.

Revenues in Canada decreased by $7.1-million, or 9.5 per cent, to $68-million for the three months ended Sept. 30, 2023, from $75.1-million for the three months ended Sept. 30, 2022. The decrease in revenues was principally due to a reduction in information technology investments in the banking sector and one less billable day than in the same quarter last year, partially offset by increases in other areas of the business.

U.S. revenues decreased by $2.9-million, or 5.9 per cent, to $45.7-million for the three months ended Sept. 30, 2023, from $48.6-million for the three months ended Sept. 30, 2022, due primarily to weaker conditions in certain areas of the information technology services sector, notably in digital skilling and change enablement services, some slower project starts and one less billable day than in the same quarter last year. The decreased revenues were partially offset by a favourable U.S.-dollar exchange rate impact of $1.3-million between the two periods.

International revenues decreased by $400,000, or 8.3 per cent, to $4.8-million for the three months ended Sept. 30, 2023, from $5.2-million for the three months ended Sept. 30, 2022, mainly due to reduced activities in Australia, partially offset by a favourable foreign exchange rate impact of $500,000 between the two periods.

Gross margin

Gross margin decreased by $3-million, or 7.9 per cent, to $34.8-million for the three months ended Sept. 30, 2023, from $37.8-million for the three months ended Sept. 30, 2022. Gross margin as a percentage of revenues increased to 29.4 per cent for the three months ended Sept. 30, 2023, from 29.3 per cent for the three months ended Sept. 30, 2022. During the three months ended Sept. 30, 2023, a $1.1-million provision on tax credits receivable of previous periods, with a notable portion related to the activities of a previously acquired business, was recorded due to recoverability uncertainty. Excluding this provision relating to previous periods, gross margin as a percentage of revenues would have increased by 0.9 per cent compared with the same quarter last year to 30.3 per cent. On a sequential basis, gross margin as a percentage of revenues increased, compared with 28.9 per cent for the first quarter of this year, despite a sequential decrease in revenues naturally putting pressure on gross margin performance.

In Canada, gross margin as a percentage of revenues increased, compared with the same quarter last year, mainly due to higher-margin offerings and a proportionally larger decrease in the number of subcontractors compared with permanent employees, partially offset by the aforementioned $1.1-million provision on tax credits receivable related to previous periods. Gross margin as a percentage of revenues also increased on a sequential basis.

In the United States, gross margin as a percentage of revenues remained steady, compared with the same quarter last year, as a result of a positive margin impact from Datum's U.S. business and higher-margin offerings.

International gross margin as a percentage of revenues decreased compared with the same quarter last year, as certain projects have slower starts and the negative impact of the foreign exchange between the two periods.

Selling, general and administrative expenses

Selling, general and administrative expenses totalled $29.9-million for the three months ended Sept. 30, 2023, representing a decrease of $500,000, or 1.6 per cent, from $30.4-million for the three months ended Sept. 30, 2022, driven mostly by a $1.3-million decrease in variable compensation, a $500,000 decrease in non-cash share-based compensation and $300,000 decrease in recruiting fees, partially offset by a $500,000 increase in professional fees, a $500,000 increase in business development costs, a $300,000 increase in travel expenses and a $400,000 increase related to specific discretionary internal projects. On a sequential basis, selling, general and administrative expenses decreased by $2.6-million compared with $32.5-million, for the first quarter, driven mainly by the impairment of property and equipment and right-of-use assets recorded in the first quarter and reduction in employee compensation costs and other expense categories.

Adjusted EBITDA

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) amounted to $6.5-million for the three months ended Sept. 30, 2023, representing a decrease of $2.9-million, or 31.6 per cent, from $9.4-million for the three months ended Sept. 30, 2022. As explained above, decreased revenues and gross margin, including a $1.1-million provision on tax credits receivable related to previous periods, partially offset by decreased selling, general and administrative expenses. Adjusted EBITDA margin was 5.4 per cent for the three months ended Sept. 30, 2023, compared with 7.3 per cent for the three months ended Sept. 30, 2022.

Net loss

Net loss for the three months ended Sept. 30, 2023, was $9.2-million representing an increase of $8.8-million, from $400,000 for the three months ended Sept. 30, 2022. The increased loss was driven by decreased gross margin, which was impacted by a $1.1-million provision on tax credits receivable of previous periods, with a notable portion related to the activities of a previously acquired business, increased net financial expenses and decreased income tax recovery due primarily to a deferred tax asset recognized pursuant to the Datum acquisition in the same quarter last year, partially offset by decreased selling, general and administrative expenses, decreased business acquisition, integration and reorganization costs, and decreased depreciation and amortization in the three months ended Sept. 30, 2023, compared with the three months ended Sept. 30, 2022. On a per-share basis, this translated into a basic and diluted net loss per share of 10 cents for the three months ended Sept. 30, 2023, compared with a net loss of nil on a per-share basis for the three months ended Sept. 30, 2022.

Adjusted net (loss) earnings

Adjusted net loss amounted to $200,000 for the three months ended Sept. 30, 2023, representing an increase of $3.6-million, from $3.4-million of adjusted net earnings for the three months ended Sept. 30, 2022. As explained above, decreased income tax recovery, decreased gross margin, including a $1.1-million provision on tax credits receivable of previous periods, with a notable portion related to the activities of a previously acquired business, and increased net financial expenses were partially offset by decreased selling, general and administrative expenses and decreased depreciation of property and equipment and right-of-use assets. This translated into adjusted net loss per share of nil for the three months ended Sept. 30, 2023, compared with four cents of adjusted net earnings per share for the three months ended Sept. 30, 2022.

Liquidity and capital resources

For the three months ended Sept. 30, 2023, net cash used in operating activities was $17.3-million, representing an increase of $16.7-million, from $700,000 of cash used in operating activities for the three months ended Sept. 30, 2022. The cash flows for the three months ended Sept. 30, 2023, resulted primarily from the net loss of $9.2-million, plus $12.8-million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization, net financial expenses, share-based compensation, deferred taxes, and unrealized foreign exchange loss, partially offset by $20.9-million in unfavourable changes in non-cash working capital items. In comparison, the cash flows for the three months ended Sept. 30, 2022, resulted primarily from the net loss of $400,000, plus $6.1-million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization, net financial expenses, and share-based compensation, partially offset by deferred taxes and unrealized foreign exchange gain, and $6.3-million in unfavourable changes in non-cash working capital items.

Unfavourable changes in non-cash working capital items of $20.9-million during the three months ended Sept. 30, 2023, consisted primarily of a $12.2-million decrease in accounts payable and accrued liabilities, $6.2-million increase in accounts receivable and other receivables, a $3.1-million increase in unbilled revenues, a $1-million increase in tax credits receivable, and a $600,000 increase in other assets, partially offset by a $1.5-million decrease in prepaids and a $600,000 increase in deferred revenues. The accounts payable and accrued liabilities decrease consisted primarily of decreases in employee compensation, subcontractor cost and vacation accruals, related to timing of the quarter-end relative to the last pay cycle of the quarter, and a reduced head count. The accounts receivable and other receivables increase consisted primarily of an increase in DSO, largely timing-related. For the three months ended Sept. 30, 2022, unfavourable changes in non-cash working capital items of $6.3-million consisted primarily of a $5.7-million decrease in accounts payable and accrued liabilities, a $1.5-million increase in tax credits receivable, and a $400,000 increase in unbilled revenues, partially offset by a $600,000 decrease in accounts receivable and other receivables and a $600,000 decrease in prepaids.

Six-month results

Revenues amounted to $250.1-million for the six months ended Sept. 30, 2023, representing a decrease of $5.6-million, or 2.2 per cent, from $255.7-million for the six months ended Sept. 30, 2022. Gross margin increased by $1.1-million, or 1.5 per cent, to $72.9-million for the six months ended Sept. 30, 2023, from $71.8-million for the six months ended Sept. 30, 2022. Gross margin as a percentage of revenues increased to 29.1 per cent for the six months ended Sept. 30, 2023, from 28.1 per cent for the six months ended Sept. 30, 2022, despite annual salary increases which came into effect in the first quarter of this year and the $1.1-million provision on tax credits receivable related to previous periods recorded in the current quarter of this year. Adjusted EBITDA amounted to $15.5-million for the six months ended Sept. 30, 2023, representing a decrease of $100,000, from $15.6-million for the six months ended Sept. 30, 2022. Net loss for the six months ended Sept. 30, 2023, was $16.4-million representing an increase of $11.8-million, from $4.6-million for the six months ended Sept. 30, 2022. On a per-share basis, this translated into a basic and diluted net loss per share of 17 cents for the six months ended Sept. 30, 2023, compared with a net loss of five cents per share for the six months ended Sept. 30, 2022. Adjusted net earnings amounted to $2.4-million for the six months ended Sept. 30, 2023, representing a decrease of $3.7-million, or 60.3 per cent, from $6.1-million for the six months ended Sept. 30, 2022

Normal course issuer bid program (NCIB)

On Sept. 13, 2023, the company's board of directors authorized and subsequently the Toronto Stock Exchange approved the renewal of the company's normal course issuer bid. Under the NCIB, the company is allowed to purchase for cancellation up to 2,411,570 subordinate voting shares, representing 5 per cent of the company's public float as of the close of markets on Sept. 7, 2023.

The NCIB commenced on Sept. 20, 2023, and will end on the earlier of Sept. 19, 2024, and the date on which the company will have acquired the maximum number of subordinate voting shares allowable under the NCIB or will otherwise have decided not to make any further purchases. All purchases of subordinate voting shares are made by means of open market transactions at their market price at the time of acquisition.

Concurrently, the company entered into an automatic share purchase plan (ASPP) with a designated broker in connection with its NCIB. The ASPP allows for the designated broker to purchase for cancellation subordinate voting shares, on behalf of the company, subject to certain trading parameters established, from time to time, by the company.

Outlook

Notwithstanding the continuing global uncertainties, the company maintains focus on its long-term strategic plan, which sets as a goal to consolidate its position to become a trusted leader in digital transformation.

According to this plan, Alithya's consolidated scale and scope should allow it to leverage its geographies, expertise, integrated offerings and position on the value chain to target the fastest-growing information technology services segments. Alithya's specialization in digital technologies and the flexibility to deploy enterprise solutions and deliver solutions tailored to specific business objectives responds directly to client expectations. More specifically, Alithya has established a three-pronged plan focusing on:

• Increasing scale through organic growth and complementary acquisitions;
• Achieving best-in-class employee engagement;
• Providing its investors, partners and stakeholders with long-term growing return on investment.

Conference call

Alithya will hold a conference call to discuss these results on Nov. 14, 2023, at 9 a.m. Eastern Time. Interested parties can join the call by dialling 1-888-396-8049, conference ID 04097325, or via webcast. The conference call recording can be accessed until Dec. 14, 2023.

About Alithya Group Inc.

Empowered by the passion and enthusiasm of a talented global work force, Alithya is positioned on the crest of the digital wave as a trusted adviser in strategy and digital technology services. Transforming the world one digital step at a time, Alithya leverages collective intelligence and expertise to develop practical IT solutions tailored to complex business challenges. As shared stewards of its clients' success, Alithya accompanies them through the full cycle of their digital evolutions, paving new roads to the future of their businesses.

We seek Safe Harbor.