Mr. Paul Raymond reports

ALITHYA REPORTS NOTABLE PERFORMANCE IMPROVEMENT WITH RECORD GROSS MARGIN AS A PERCENTAGE OF REVENUES AND ADJUSTED EBITDA MARGIN

Alithya Group Inc. has released its results for the third quarter fiscal 2024 ended Dec. 31, 2023.

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

"I am pleased with the performance of our team in Q3. In a challenging economic environment, we are reporting sequential growth in both revenues and margins, as well as a quarter of notable operational performance. Our gross margin and our adjusted EBITDA [earnings before interest, taxes, depreciation and amortization], as a percentage of revenues, both represent the highest percentages to date in Alithya's history as a publicly traded company.

"Our continued progress on greater delivery efficiency, and expense reductions, is the result of the team's hard work. This solid financial performance also produced notable positive cash flow, and corresponding reduction in debt. This reduction, coupled with the recently announced increase in our available credit facility, enhances our capability to continue our growth path, both organically and through acquisitions. On the revenues front, we experienced sequential growth, in all geographies, in the third quarter, while generating strong bookings in most areas.

"Alithya has been in business for over 30 years and has grown from a niche regional player to a global trusted advisory since going public in 2018. We understand the challenges and opportunities in building a company for the long term in our industry. Our operational improvements accelerated in Q3, and prove the maturity of the Alithya team and the organization's agile mindset to rapidly adapt to our clients' changing needs, regardless of the economic environment.

"It is with this in mind that we continue to lay the groundwork for the implementation of our next three-year plan, which we will look forward to sharing at the start of fiscal 2025."

Third quarter results

Revenues

Revenues amounted to $120.5-million for the three months ended Dec. 31, 2023, representing a decrease of $10.3-million, or 7.9 per cent, from $130.8-million for the three months ended Dec. 31, 2022. On a sequential basis, revenues increased by $2-million, from $118.5-million for the second quarter of this year.

Revenues in Canada decreased by $9.5-million, or 12.3 per cent, to $68-million for the three months ended Dec. 31, 2023, from $77.5-million for the three months ended Dec. 31, 2022. The decrease in revenues was principally due to a reduction in information technology investments in the banking sector and certain client projects reaching maturity compared with the same quarter last year.

United States revenues decreased by $600,000, or 1.4 per cent, to $47.1-million for the three months ended Dec. 31, 2023, from $47.7-million for the three months ended Dec. 31, 2022, due primarily to weaker conditions in certain areas of the information technology services sector, notably in digital skilling and change enablement services. The decreased revenues were partially offset by a favourable U.S.-dollar exchange rate impact of $100,000 between the two periods. On a sequential basis, revenues in the U.S. increased by $1.4-million, from $45.7-million for the second quarter of this year.

International revenues decreased by $100,000, or 1.7 per cent, to $5.4-million for the three months ended Dec. 31, 2023, from $5.5-million for the three months ended Dec. 31, 2022, mainly due to reduced activities in Australia, partially offset by a favourable foreign exchange rate impact of $300,000 between the two periods. On a sequential basis, revenues increased by $600,000, from $4.8-million for the second quarter of this year.

Gross margin

Gross margin decreased by $1.5-million, or 3.9 per cent, to $37.7-million for the three months ended Dec. 31, 2023, from $39.2-million for the three months ended Dec. 31, 2022. Gross margin as a percentage of revenues increased to 31.3 per cent for the three months ended Dec. 31, 2023, from 30 per cent for the three months ended Dec. 31, 2022. On a sequential basis, gross margin as a percentage of revenues increased notably, compared with 29.4 per cent for the second quarter of this year.

In Canada, gross margin as a percentage of revenues increased, compared with the same quarter last year, mainly due to higher margin offerings and utilization, and a proportionally larger decrease in the use of subcontractors compared with permanent employees. Gross margin as a percentage of revenues also increased on a sequential basis compared with the second quarter of this year.

In the U.S., gross margin as a percentage of revenues increased, compared with the same quarter last year, as a result of higher utilization and improved project performance. On a sequential basis, gross margin as a percentage of revenues also increased, compared with the second quarter of this year.

International gross margin as a percentage of revenues decreased slightly compared with the same quarter last year, mainly due to reduced activities in Australia. On a sequential basis, gross margin as a percentage of revenues increased compared with the second quarter of this year.

Selling, general and administrative expenses

Selling, general and administrative expenses totalled $29.5-million for the three months ended Dec. 31, 2023, representing a decrease of $1.7-million, or 5.4 per cent, from $31.2-million for the three months ended Dec. 31, 2022, driven mostly by decreases of $2.4-million in employee compensation costs and $600,000 in non-cash share-based compensation, partially offset by increases of $800,000 in professional fees, and $300,000 in internal information technology (IT) projects and support costs. On a sequential basis, selling, general and administrative expenses decreased by $400,000, compared with $29.9-million for the second quarter, driven mainly by a reduction in employee compensation costs due to a continuing review of Alithya's cost structure, in response to the current economic environment, since the beginning of the year, partially offset by certain seasonal, timing and initiatives driven increases.

Adjusted EBITDA

Adjusted EBITDA amounted to $9.5-million for the three months ended Dec. 31, 2023, representing a decrease of $500,000, or 5.6 per cent, from $10-million for the three months ended Dec. 31, 2022. As explained above, decreased gross margin caused primarily by revenues decline was partially offset by decreased selling, general and administrative expenses. Adjusted EBITDA margin was 7.8 per cent for the three months ended Dec. 31, 2023, compared with 7.7 per cent for the three months ended Dec. 31, 2022.

Net loss

Net loss for the three months ended Dec. 31, 2023, was $2.5-million, representing a decrease of $3-million, from $5.5-million for the three months ended Dec. 31, 2022. The decreased loss was driven by decreased amortization of intangibles, and depreciation of property and equipment, decreased business acquisition, integration and reorganization costs, decreased selling, general and administrative expenses, and increased income tax recovery, partially offset by decreased gross margin and increased net financial expenses for the three months ended Dec. 31, 2023, compared with the three months ended Dec. 31, 2022. On a per share basis, this translated into a basic and diluted net loss per share of three cents for the three months ended Dec. 31, 2023, compared with a net loss of six cents per share for the three months ended Dec. 31, 2022.

Adjusted net earnings

Adjusted net earnings amounted to $3.9-million for the three months ended Dec. 31, 2023, representing an increase of $300,000, or 8.5 per cent, from $3.6-million for the three months ended Dec. 31, 2022. As explained above, decreased selling, general and administrative expenses, decreased depreciation of property and equipment and right-of-use assets, increased foreign exchange gain, and increased income tax recovery were partially offset by decreased gross margin and increased net financial expenses. This translated into adjusted net earnings per share of four cents for the three months ended Dec. 31, 2023, and 2022.

Liquidity and capital resources

For the three months ended Dec. 31, 2023, net cash from operating activities was $15.6-million, representing a decrease of $19.3-million, from $34.9-million of cash from operating activities for the three months ended Dec. 31, 2022. The cash flows for the three months ended Dec. 31, 2023, resulted primarily from the net loss of $2.5-million, plus $9.9-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, gain on lease termination, net of impairment of property and equipment and right-of-use assets, and unrealized foreign exchange gain, and $8.2-million in favourable changes in non-cash working capital items. In comparison, the cash flows for the three months ended Dec. 31, 2022, resulted primarily from the net loss of $5.5-million, plus $14.3-million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization, net financial expenses, share-based compensation, realized foreign exchange loss on repayment of long-term debt, deferred taxes, and unrealized foreign exchange loss, and $26.1-million in favourable changes in non-cash working capital items.

Favourable changes in non-cash working capital items of $8.2-million during the three months ended Dec. 31, 2023, consisted primarily of a $4.9-million decrease in unbilled revenues, a $2.9-million decrease in accounts receivable and other receivables, a $1.4-million increase in deferred revenues, and a $1-million decrease in prepaids, partially offset by a $1.4-million increase in tax credits receivable, and a $500,000 decrease in accounts payable and accrued liabilities. The accounts receivable and other receivables decrease consisted primarily of a decrease in DSO (direct shipping operation), largely timing related. For the three months ended Dec. 31, 2022, favourable changes in non-cash working capital items of $26.1-million consisted primarily of a $12.6-million decrease in unbilled revenues, a $7.2-million decrease in accounts receivable and other receivables, a $3.2-million decrease in tax credits receivable, a $1.6-million increase in accounts payable and accrued liabilities, a $1.3-million increase in deferred revenues, and a $200,000 decrease in prepaids.

Nine-month results

Revenues amounted to $370.6-million for the nine months ended Dec. 31, 2023, representing a decrease of $15.9-million, or 4.1 per cent, from $386.5-million for the nine months ended Dec. 31, 2022. Gross margin decreased by $400,000, or 0.4 per cent, to $110.6-million for the nine months ended Dec. 31, 2023, from $111-million for the nine months ended Dec. 31, 2022. Gross margin as a percentage of revenues increased to 29.8 per cent for the nine months ended Dec. 31, 2023, from 28.7 per cent for the nine months ended Dec. 31, 2022, despite annual salary increases which came into effect in the first quarter of this year and a $1.1-million provision on tax credits receivable related to previous periods recorded in the second quarter of this year. Adjusted EBITDA amounted to $25-million for the nine months ended Dec. 31, 2023, representing a decrease of $700,000, or 2.7 per cent, from $25.7-million for the nine months ended Dec. 31, 2022. Net loss for the nine months ended Dec. 31, 2023, was $19-million, representing an increase of $8.9-million, from $10.1-million for the nine months ended Dec. 31, 2022. On a per-share basis, this translated into a basic and diluted net loss per share of 20 cents for the nine months ended Dec. 31, 2023, compared with a net loss of 11 cents per share for the nine months ended Dec. 31, 2022. Adjusted net earnings amounted to $6.4-million for the nine months ended Dec. 31, 2023, representing a decrease of $3.4-million, or 34.6 per cent, from $9.7-million for the nine months ended Dec. 31, 2022.

Conference call

Alithya will hold a conference call to discuss these results on Feb. 14, 2024, at 9 a.m. ET. Interested parties can join the call by dialling 1-800-717-1738, conference ID 72305, or via webcast on-line. The conference call recording can be accessed on-line until March 14, 2024.

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 (information technology) solutions tailored to complex business challenges. As a shared steward of its clients' success, Alithya accompanies them through the full cycle of their digital evolutions, paving new roads to the future of their businesses.

Living up to its name, meaning truth, Alithya embraces a business model that avoids industry buzzwords and technical jargon to deliver straight talk provided by collaborative teams focused on three main pillars: strategic consulting, enterprise transformation and business enablement.

With two gender-parity certifications obtained in Canada and the United States, and in pursuit of indigenous relations and carbon-neutral certifications, Alithya strives to balance its desire to do the right thing with its commitment to doing things right.

Note to readers: Management's discussion and analysis (MD&A), and the interim consolidated financial statements and notes, for the three and nine months ended Dec. 31, 2023, are available on SEDAR+, on EDGAR and on the company's website. Shareholders may, upon request, receive a hard copy of these documents free of charge.

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