Alithya Group inc.

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Good morning. Welcome to Alicia's third quarter of fiscal 2026 results conference call. I would now like to turn the meeting over to Alicia's management team. Please go ahead.

Thank you, Sylvie. Good morning, everyone, and thank you for joining us today for Alicia's third quarter of fiscal 2026 results conference call. The press release, along with the MD&A containing condensed financial statements and a related note, was published this morning and is now accessible on our website. The webcast presentation can also be found on our website in the Investors section. Please be advised that this call will contain forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially from those anticipated. These statements include our estimates, plan, expectations, and statements regarding future growth, operational results, performance, and business prospects that do not solely relate to historical fact. These statements may also refer to future events, including expectations around client demand, business opportunities, leveraging our services, IP, AI, and expertise to meet clients' needs, excelling in a competitive market, achieving our three-year strategic plan, and deploying our smart shortage capabilities. For more information, please refer to the cautionary notes included in our presentation and the forward-looking statements and risk and uncertainty section of RMDNA, which are accessible on our website. All figures discussed on today's call are in Canadian dollars, unless stated otherwise, and we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary note included in our presentation and to the non-IFRS and other financials measures section of RMD&A for more details. Presenting this morning are Paul Rehman, Elicious President and Chief Executive Officer, Bernard Dockrell, Chief Operating Officer, and Tiago Blanchet, Chief Financial Officer. I'll now turn the call over to Paul Rabin. Paul?

Thank you, Dominic. Good morning, everyone, and thank you for joining us today. Before diving into the results, I want to begin by thanking our team for their continued discipline and commitment to our client's success. Their focus and resilience are core to our ability to deliver mission-critical projects for our clients as we advance our long-term strategy. We remain fully committed to our transformation towards higher-value services, and this shift is underway and continues to be in demand by our clients. While our third quarter faced some headwinds, the team has stayed focused on our long-term goals of enhancing key areas of the business, improving execution, and building the foundation for sustained profitable growth. So here are my three key takeaways from the quarter. First, the bookings. An important leading indicator, our bookings were over 130 million in Q3. with several key renewals as well as new engagements in strategic areas that include our AI-driven capabilities. This was accomplished while maintaining a healthy pipeline of opportunities and growing our U.S. business. Second, financial discipline. We generated positive net earnings and strong cash flow and maintain a trailing 12-month adjusted EBITDA of $52.6 million. Our adjusted EBITDA to debt ratio now sits at 1.9 as we continue to reduce our debt. Our capital allocation priorities remain focused on long-term value creation for our shareholders, and we continue to execute in alignment with that mindset. And third, our spinoff. We're announcing the signature of an agreement, the spinoff of our equity interests related to the Datum Consulting Group in consideration for a minority stake in a venture which will be led by Ammar Boukessagham, Senior Vice President, Data Solutions of Aletheia. This strategic partnership will be focused on bringing specialized AI-based solutions to the healthcare industry. This initiative reflects our assessment that these assets will reach their full potential with a dedicated structure and greater operational focus, enabling them to scale more rapidly and generate stronger returns. We see this as the best path to unlock value while staying aligned with our strategic roadmap. And with that, I'll now turn it over to Pierre for financial highlights of the quarter, followed by Bernard with an update on operations.

Pierre? Merci, Paul. Good morning, everyone. I will now address our financial results for the third quarter of fiscal 2026. Consolidated revenue came in at $115.2 million, down 0.6 million or 0.5% on a year-over-year basis. Gross margin as a percentage of revenue reached 31.7% in the quarter, down from 32.3% last year. Let's look at our performance by segment, starting with Canada. Revenues in Canada reached 54 million in the third quarter, down 7.7 million, or 12.5% on a year-over-year basis. The decrease in revenues was due primarily to reduced revenues from public sector contracts, certain clients' projects reaching maturity, partially offset by revenues from the acquisition of XRM Vision. Our gross margin in Canada as a percentage of revenues increased compared to the same quarter last year, mainly due to a proportionally larger decrease in the use of subcontractor compared to permanent employees. A positive margin contribution from XRM Vision and a reduction in revenues from lower gross margin clients in favor of value value offerings, partially offset by a slight decrease in utilization rates. In the U.S., revenues increased by 6.2 million, or 12.7%, to 55 million. This increase is due to revenues from the acquisition of eVerge and organic growth in enterprise transformation services, partially offset by an unfavorable U.S. dollar exchange rate. Gross margin as a percentage of revenue for our U.S. operation decreased compared to the same quarter last year, primarily due to lower utilization rates, partially upset by the increase of use of smart shoring capabilities, and a proportionally larger decrease in the use of subcontractor compared to permanent employees. Last year, it is important to know that our utilization rate was higher due to a larger number of projects reaching their go-light phase. In our international segment, revenues increased by 1 million or 19.2% to 6.2 million. This was primarily due to organic growth in enterprise transformation services and a favorable foreign exchange rate. The gross margin as a percentage of revenue decreased year over year, mainly due to one client's project coming to maturity, which wished historically at a higher gross margin. Now looking at SG&E expenses, we are continuing to focus on optimizing our cost structure to ensure greater efficiency and long-term performance. In the third quarter, SG&E totaled $28.5 million, a decrease of $0.3 million, or 1% year-over-year. This sets our SG&E as a percentage of revenue at 24.7% for the quarter, compared to 24.9% last year. On a sequential basis, SG&E expenses decreased by 2.8 million from 31.3 million, mainly stemming from variable compensation. Looking at our adjusted EBITDA, we are reporting 10 million or 8.7% of revenues in Q3 compared to 10.3 million or 8.9% of revenues last year. This slight drop is due primarily to a decreased gross margin driven by lower revenues, partially offset by decreased SG&E. Net earnings for the third quarter was 0.7 million, an increase of 4.4 million compared to the same period last year. This variance was primarily due to the decreased impairment of goodwill recorded in Q3 last year. To conclude on our profit and loss, our adjusted net earnings came in at $5.1 million or $0.05 per share compared to $5.7 million or $0.06 per share for the same quarter last year. Finally, turning to our cash flow and financial position, net cash from operating activities was $25.5 million, a year-over-year increase of $13.8 million. This resulted primarily from $17.4 million in favorable changes in non-cash working capital items and $7.4 million of other non-cash adjustment and net financial expenses. As part of our capital allocation strategy, we pursue our normal course issuer bid, which allows us to purchase our shares under certain conditions set by the TSX. As of December 31st, 2025, 347,000 shares were repurchased for cancellation. In connection with the Datum transaction that Paul alluded to earlier, we will be repurchasing close to 2.5 million Class A shares from MR. The proceeds from this repurchase will be used to fund the working capital needs of Datum. As of December 31st, net debt was $101.9 million compared to $94 million as of March 31st, 2025. This is primarily due to an increase in long-term debt related to the acquisition of leverage offset by the repayment of $21 million in the third quarter. Our leverage ratio stands at 1.9 net debt over our trailing 12 months adjusted EBITDA, compared to 2.3 times for the second quarter. We are comfortable with this leverage position. Even with the acquisition of eVERGE in June 2025, we were able to reduce our leverage ratio, demonstrating our ability to generate positive cash flow and deleverage following an acquisition. I will now turn things to Bernard for our operational highlights.

Thank you, Pierre, and good morning to everyone with us today. I would like to begin by thanking the Alithea team for their continued commitment to executing on our three-year strategic priorities. As Pierre just shared, the results of these efforts have generated improvements in many of our key metrics in most segments of our operations. Bookings for the quarter were $130.9 million. This translates into a book-to-bill ratio of 1.14 for the quarter and 0.9 on a trailing 12-month basis. The book-to-bill ratio for the quarter is 1.26 when revenues from the two long-term contracts signed as part of an acquisition in the first quarter of fiscal year 2022 are excluded and 1.0 on a trailing 12-month basis. Bookings in the Canadian operating segment were $62.1 million $56.6 million in the U.S. operating segment, and $12.2 million in the international segment. New bookings include a $9 million U.S. engagement with University Hospital in Newark, New Jersey, under which Alithea will implement Oracle Cloud, inclusive of ERP, HCM payroll, supply chain, and EPM. UHNJ is a public academic health center, which is a first for Alithea in the U.S. public healthcare space. We also secured additional Oracle Cloud work with a large international organization. Our teams are delivering advisory and project services to drive a global HCM implementation across a highly complex, multi-country, multi-currency environment as part of a transformation with multiple integration partners. This win underscores the depth of our expertise and our ability to execute in some of the most challenging settings. Bookings also included over $52 million in renewals, as we continue to extend our work within our key long-term accounts, specifically in Canada and international. These renewals span industries in which we have a strong footprint and a proven track record, including financial services and energy. From a pipeline perspective, the volume of new opportunities remains healthy as we continue to drive cross-selling activities focusing on our core industries. We are witnessing positive momentum in commercial and business services from our increased focus in this sector and our recent acquisition of eVerge, which added relevant capabilities, including Salesforce. And now I'd like to take you through our performance for the quarter within our two key operating segments. Starting with our US segment, where we continue to grow our revenues, achieving 12.7% year-over-year growth as a result of our acquisition of eVerge. Our integration continues to go well, and we delivered our most significant Salesforce project since announcing the acquisition. implementing manufacturing cloud for more than 600 sale users in North America for a global manufacturer. We're also seeing our industry-first model generate positive momentum. Alithea is being called upon as a trusted advisor for complex engagements where our deep industry expertise, our collaboration with market-leading partners, and our proprietary accelerators enable us to create value for our clients. For instance, for a global manufacturer of wax-based products, we successfully migrated their finance and supply chain operations to the cloud, leveraging our proprietary Food Express accelerator from Microsoft D365. The project included the introduction of co-pilot AI agents, as well as enhanced business intelligence capabilities. We began with the U.S. deployment, and Alithea is now kicking off the implementation in Belgium. Additionally, we continue to see new revenue streams as companies recognize that unlocking the full value of generative AI and agentic AI starts with modernizing and connecting their core systems. One example is our work with Gorilla Glue, where we have led modernization of their contact center by combining the latest Microsoft technologies with our customer experience capabilities, creating a flexible platform that helps them to adopt agentic AI and elevate the customer experience. In summary, our U.S. segment now accounts for 48% of our total revenue, up from 39% when we began our current three-year strategic cycle. as we take advantage of the opportunities available in this larger market. Turning to Canada, and more specifically the Quebec market, we continue to shift our activities, stepping away from lower margin contracts that compete primarily on price and redirecting our efforts toward more specialized, transformational services where we provide greater value to our clients and differentiate based on our expertise, partnerships, accelerators, and leverage our smart tour delivery network. During the third quarter, We deepened our collaboration with AWS as we see opportunities for organizations transitioning to cloud-based solutions. Our successful cloud migration project with Beneba that I've discussed on prior calls is one example of this shift and serves as a launchpad to unlock new opportunities for Lithia. This project is also a great example of how we use GenAI to increase our productivity and elevate our output quality. Our migration factory offering harnesses AWS AI-powered tools speed up problem resolution, ensure consistent application structures, and accelerate our delivery timelines. Leveraging AI increases our efficiency, differentiates our services, and delivers greater value to our clients. As with many transformations, we are experiencing an adjustment period with our shift to more profitable services that is impacting revenue in Canada. This is being partially offset by steady performance outside of Quebec in the nuclear and financial services sectors, We have a strong presence and continue to expand our work with key clients. Although revenue growth in Canada is taking time to materialize, we are seeing positive signs as gross margin as a percentage of revenue improved compared to the same quarter last year. Turning to our SmartShore operations, we now have 13.9% of our professionals located in our SmartShore centers, where we have access to top talent with an attractive cost structure. The acquisition of eVerge not only added critical mass in these geographies, it also brought a strong leadership team in India, further strengthening our global execution capabilities. Before turning things to Paul for closing remarks, I would like to highlight our recent recognition from Microsoft Copilot Specialization, validating our expertise across Microsoft 365 Copilot. This achievement reflects our ongoing investment in key partnerships that enable us to deliver complex solutions for our clients, and how our teams are driving effective AI adoption across our portfolio. We are encouraged by the momentum we're building, and we remain confident in the resilience of our business over time. Paul.

Thank you, Bernard. So again, a defining theme of our third quarter was financial discipline. The past period was marked by strong bookings, improved cash flow generation, debt reduction, and growth in our US operations. All these strengthen our flexibility to pursue strategic growth opportunities. So we remain focused on creating long-term value and actively pursuing a range of opportunities to drive meaningful outcomes. And among those opportunities is the announcement to spin off certain of our AI-based IP assets, along with the associated support professionals, into a new strategic partnership. Before heading into question, I'd also like to comment on the impact of Gen AI in our industry, as this seems to be an area of concern for some. The early promise of major efficiency gain hasn't fully materialized for many companies as organizations look to maximize return on their technology investment. They're recognizing that strong foundations, particularly around data quality and security, are essential to unlocking the value of AI. And that's where we step in. Aletia is increasingly recognized as a trusted partner for complex digital transformations, particularly those leveraging the latest technologies from our market-leading partners. And this recognition is a direct result of the strategic focus that we put in place several years ago and our continued shift towards services that differentiate us in a global market. We're building a stronger, more focused Aletheia, one that competes on differentiated values, trusted advisory, and the ability to help our clients leverage AI-enabled, mission-critical tools across their organizations. So thank you for your attention. And with that, we'll go to questions. Sylvie? Thank you, sir.

Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And if you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. Thank you. First, we will hear from Kevin Krishnaratne at Scotiabank. Please go ahead, Kevin.

Hey there, good morning. A couple questions on the US. So it looks like, you know, after a couple of quarters of pretty decent organic growth there, it kind of came in softer this quarter. I know in your press release, you talk about, you know, a slower 3Q versus last year. Can you just click into what's going on there? Was there some deals that are getting pushed out? Are you following NDC trends, anything on the competitive front? Just curious, because you did have some good momentum heading into this quarter, and then it kind of got a little bit softer this quarter.

Yeah, sure. Thank you for the question, Kevin. Good morning. A very, very simple answer. Last year, if you remember, we had a record number of go-lives in January. Basically, When people roll out ERP systems, very often the go-live date is January 1 because it's the beginning of a calendar year and fiscal year. So we had a record number of go-lives in Q4 last year, January. So basically, leading up to that, that means a lot of work in Q3. So many of our people worked through the holidays, and so utilization was significantly higher last year. So without that, we're able to come out at about the same level in terms of revenue. that the issue was more timing. All right, so just difference in timing on project deliveries impacted utilization in Q3, which meant that revenues are down a bit, but again, we're not concerned. We believe it's a timing issue.

Okay, thanks for that color there. Maybe switching to the M&A, on your eVERGE performance, it looked like relative to Q2, there was a step down there. $7 million this quarter, $8.6 million in the previous quarter. Is that typical of that business? What was happening there? I would have thought that you would have seen a bit of a pickup sequentially.

I'll let Ed Bernard comment on that one, but we're not seeing it. Maybe Bernard, do you want to?

No, nothing specific to highlight there. The type of work we're doing there with eBridge is just projects. It's Oracle implementations, Salesforce implementations. but nothing to highlight that happened in Q3. As I mentioned in my comments, we're really happy with the integration. We're seeing some very strong capabilities. One of our strategies in our three-year plan was to diversify some of our Oracle capabilities into other industries, and they have done that. I mentioned commercial and business services, really, and more specifically, construction and engineering. some of the capabilities they had and some investments we've made are generating some very positive results. So all in all, the eVIRG integration is going to our expectations.

Maybe just to add on that, one of the reasons why eVIRG was very interesting was just what Bernard was saying. One of the industries that we're seeing as growing significantly that will not be displaced by AI is engineering. The infrastructure replacement globally is drawing a lot of investments as countries are trying to replace aging infrastructure and build new infrastructure. And we're now positioned very well in that industry for these large engineering and construction firms.

Got it. Good to hear. Maybe just the last one for me, just on the Datum transaction. I know it's less than 5% of revenue, but can you give us any parameters on that? What was the revenue growth, the growth margin, and EBITDA margin profile on that asset?

Sure. So Datum, we acquired back several years ago. was very good for us from a revenue and margin perspective for several years. What we're seeing is that we were developing many IP assets and under leveraging them. We're a services company first, so we use AI accelerators to help us provide our services better, faster, more efficiently. But some of these assets, we believe, have a lot of potential value in a more of a software focused, structured organization, like many of the startups that we're seeing that are focused on AI products. And we think there's more value for us to spin that off in that context and to be part of that. So this is new for us as a first. We'll see how it goes. But we think that was the best way that we think we were stifling growth of that company within the organization. So we see this as an opportunity for growth.

To be clear, so like very high gross margin, is it like a software margin or what did it kind of look like, at least in a gross margin perspective?

We didn't share that, Kevin. We haven't shared that information. But yes, very good gross margins.

Okay, no, appreciate that. I'll pass the line. Thank you.

Thank you. Next question will be from Jerome Dubreuil at Desjardins Capital Markets.

Please go ahead, Jerome.

Thanks for taking my questions. First, thanks for the update on AI. Good to see that it's still on track despite what we're seeing in the public markets. I want to focus a bit on Canada. I want to know where we are in terms of your migration to the focus on higher value. What inning are we in? Are we kind of second inning there? We're mostly through it. I know there's challenges with some of the government levels as well. If you can just comment on that to help us understand when the tide can turn. Thank you.

Thanks, Jérôme, for the question. And yeah, it remains focused as part of our three-year strategy here is to change the profile of our work specifically in Quebec. And these are some of these, especially the government contracts or longer term contracts. So as they come up for renewals, our strategy is to approach them differently and make sure they have a margin profile that's acceptable to us. So it's not an exact science. Does it go away? Does it renew on that? So I'd say we're kind of in the middle of the process here. I'm happy with the results we're seeing on the gross margin side as we're really more focused. The other thing is, The ramp up of the, you know, as we transition and shift to some of this higher value work, you know, landing these projects and then ramping the skill sets up takes a little bit of time as well. So even as we, you know, land the new projects, it's a quarter or two before they take impact on the results. But overall, we're executing through our strategy. I'd say we're somewhere in the middle of kind of where we started and progressing to what we had set forth in our three year plan.

That's great. Thank you.

Thank you. Next question will be from Gavin Fairweather at ATB Cornmark.

Please go ahead, Gavin.

Oh, hey, good morning. Thanks for taking my questions. Maybe just to close the loop on Datum, can you elaborate on the minority stake that you've retained in that business and talk about the size of that and also talk about how you came up with presumably the cash amount that you're going to receive on the close of that acquisition, how you value that business?

It's a minority state, Gavin. It's under 25%. Okay, and presumably you're receiving cash for that sale? Can you repeat the question, please?

Presumably you're receiving cash for this. I don't think I saw it in the press release. Can you talk about how you valued the business and the cash that you're going to receive?

We're not receiving cash, Gavin.

We're contributing some of our assets to that new company. And in exchange for that, we're getting just under 25% of the equity.

Oh, I see. Okay, maybe for Bernard.

Sorry, and as part of that, we're also purchasing 2.5-ish million shares from Amar. are going to be used for cash for the company to operate.

And then on that Medivh Holdings, are there other assets in that company or is that just to hold down? Correct.

Yes, there are other assets in that company and other partners as well. I see. And when everything's finalized, that's going to be made public. It's just we're not completely finalized yet.

I see. Okay, thanks for that. That's helpful. And then maybe for Bernard, can you just discuss kind of, you did talk about U.S. utilization in the quarter and some of the puts and takes there, but maybe just looking forward into your key four and key one, how are you thinking about utilization? Do you see kind of demand and billings coming back given recent bookings? Are you thinking about doing some work on capacity to improve utilization there?

Yeah, but thanks for the question. And as you know, we don't provide guidance looking forward on that. The utilization, as Paul mentioned, in Q3, we had a really hot December last year in January with those go-lives. And it's also a typical vacation period. So do you think in Q3 of fiscal 25, our folks were not only going, they weren't taking the vacation. So that kind of It was a double whammy that we hit in this quarter with fewer goal lines at this time. We were kind of more in a normalized state for that, but that was really the impact that you saw this quarter.

Thanks so much for the past one.

Thank you. Next question will be from Vincent Calicchio at Barrington Research.

Please go ahead, Vincent.

Yes, Paul. I'm curious, how are bookings trending in early Q4?

Hey Vince, thanks for the question. Again, we're not providing guidance. All I can say is that we have a strong funnel. We've mentioned in the past that things are taking longer from a cycle, but as you saw from Q3, we had very strong bookings and a lot of those were annual renewals as well. So we have clients where we know we're going to have work for the next year. So, you know, I think I keep coming back to this, but I think the concern about AI replacing our business are understandable, but I think it's oversimplified. If I look at AI, it's eliminating tasks, not outcomes. It automates research, drafting, analysis, some coding. But clients don't hire us for that. They hire us for accountability, for owning complex transformations and integrating AI into mission critical systems, managing risk, security, regulatory stuff, change. So that doesn't disappear. That accountability doesn't disappear with AI. It actually becomes more valuable. We like the bookings that we had in Q3. We like our funnel, the opportunities that we have, and we love the business that we're in.

Are you on the labor side for AI skill sets? Are you seeing any challenges in terms of meeting demand?

Not so far. Actually, if anything, AI is reducing labor, right? So I think many organizations are still experimenting with AI. Very few are successful at really scaling it in a way that delivers real financial impact. But when you look at what we do, like coding now, a person can do 10 times what they used to do. And instead of coding, it's reviewing code and validating that it's okay. and doing integration work analysis work so all these things i think our people are becoming more productive which means we need less people we just need different different folks but we're spending a lot of time on training and developing our folks to be able to use those tools like bernard mentioned our new uh our new certification from microsoft on copilot i mean we're we're uh we're leading the pack there so well we like the position we're in

And last question, could you update us on your acquisition priorities and what your pipeline looks like?

Pipeline is still very healthy. As you saw from Pierre's presentation, we've shown that we can leverage up, use our cash and leverage down real fast after. So we completed two acquisitions last year. They've been paid off. Our debt is below where it was. So we're under two times from our debt ratio, so we're in a great position to execute on that, but no, we like our position. Okay, thanks for answering my questions. Okay, no problem. Thank you for the questions.

Once again, ladies and gentlemen, a reminder to please press star 1 if you have any questions. Next, we will hear from Rob Goss at Ventum. Please go ahead, Rob.

Thank you, and good morning, guys. Thank you for taking the question.

Thanks, Rob.

Welcome. So I understand where Q3 of 25 was like a really, really tough comparison for you. How would you describe Q4 of 25? So in terms of looking forward, should we be considering that Q4 of 25 was equally difficult as a benchmark or a bogey?

Yeah, so thanks for the question, Robin. It's a good pickup. There's, as I mentioned, the go-lives, they went live January 1. Of course, these projects go into a hypercare state after they go live. So some of that effect that you saw in Q3, naturally, it's a bit of a headwind there as we look at Q4 fiscal 25.

It's a tough comparison. Especially when they go live, you always recognize the contingencies because we delivered the projects on time, on budget. So you reverse contingencies, though, all hit as a positive hits on the P&L. So, yeah.

Was a good quarter last year. Very good quarter last year.

In terms of things outside of the backlog, could you talk about the health of your pipeline or any proof of concepts?

Thanks, Rob.

As I mentioned in the script there, I think we're seeing new opportunities come into the pipeline that are aligned to the strategic vision that we have of higher value transformational projects, so we're happy what we're seeing there. The backlog has stayed at relatively consistent at 14 months there, so that is leading us to where we are, but the pipeline of new opportunities is

is executing as we expected. Thank you. Good luck.

Thank you.

Ladies and gentlemen, at this time, we have no other questions registered, which concludes our conference call for today. We would like to thank you for attending and ask that you please disconnect your lines. Have a good weekend.