Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alithya Group Inc (ALYAF, Financial) reported a significant improvement in profitability with a $5 million year-over-year increase in adjusted net earnings, reaching $5.3 million in Q2.
- The company achieved a year-over-year increase in gross margin as a percentage of revenue, driven by higher demand for higher-margin services and improved workforce utilization.
- Alithya Group Inc (ALYAF) saw continued share gains in the Canadian renewable energy sector and in Oracle and Microsoft implementations, indicating strong market positioning.
- The company has a robust pipeline of opportunities in mainframe modernization, particularly in Canada, supported by its partnership with AWS and Blu Age technology.
- Alithya Group Inc (ALYAF) has successfully reduced SG&A expenses by 13.6% year-over-year, contributing to a 44% increase in adjusted EBITDA, showcasing effective cost management.
Negative Points
- Alithya Group Inc (ALYAF) experienced a 5.9% year-over-year decrease in consolidated revenues, primarily due to spending reductions in Quebec, particularly in the financial services and public sectors.
- The company faced challenges with slower project kick-offs in the current economic environment, impacting quarterly bookings and delaying the start of new large projects.
- Revenues in Canada decreased by 12.2% year-over-year, reflecting challenges in the Quebec market and the need to backfill revenue from completed large transformation projects.
- Gross margin as a percentage of revenues in the US decreased slightly due to a reduction in software revenue, which typically has higher margins.
- The company is experiencing delays in closing deals in Quebec, particularly in the banking sector, due to the complexity and size of the projects, affecting revenue recovery.
Q & A Highlights
Q: Can you provide more color on the Quebec pipeline for Q4?
A: Paul Raymond, President and CEO, mentioned that while there are slow bookings in Quebec, the pipeline remains as expected. Deals, particularly larger transformation projects, are taking longer to close.
Q: How is the offshore mix progressing, and what is the outlook?
A: Paul Raymond noted that smart shoring remains a key focus. Despite limited growth, they continue to find opportunities to move efforts offshore, with significant smart shore components in proposals, expecting growth in future quarters.
Q: Can you discuss the gross margin dip in the quarter and utilization targets?
A: Paul Raymond attributed the dip to lower utilization during summer months due to vacations. They see opportunities to improve utilization targets in the upcoming quarters despite holiday periods.
Q: What is the outlook for US revenue momentum?
A: Bernard Dockrill, COO, highlighted a focus on higher-margin work and business transformation, with strong partnerships and industry diversification strategies. They expect growth as discretionary spending increases, particularly in Microsoft Dynamics and Oracle Cloud services.
Q: Is there a link between lower SG&A and slower bookings?
A: Bernard Dockrill clarified that SG&A improvements are not from reductions in sales and business development but from operational efficiencies in other areas.
Q: Can you elaborate on the nuclear business and its growth prospects?
A: Bernard Dockrill mentioned growth in the nuclear sector, particularly in Ontario, Canada, with a strong pipeline. They see opportunities in other geographies, especially with investments in SMR technology.
Q: How does the US election impact your business, particularly in government verticals?
A: Paul Raymond stated that they have minimal exposure to the US government vertical, with most business in the commercial sector, so they do not expect significant impact from government spending cuts.
Q: Can you quantify the reduction in variable compensation this quarter?
A: Paul Raymond explained that reductions are tied to share-based compensation and commissions, adjusted quarterly based on company performance.
Q: What is the nature of discretionary work, and what visibility do you have for future quarters?
A: Paul Raymond explained that most work is discretionary, with clients having flexibility on project start times. Larger projects are taking longer to start, impacting bookings.
Q: How is the acquisition pipeline, and what are current valuations?
A: Paul Raymond noted a healthy acquisition funnel, focusing on niche, profitable companies. They have a strong balance sheet to support M&A activities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
