Alithya Group inc.

Good morning, ladies and gentlemen. Welcome to Aletheia's fourth quarter and fiscal 2023 results conference call. I would now like to turn the meeting over to Aletheia's management. Please go ahead.

Good morning and thank you once again for joining us for Alethea's fourth quarter and fiscal 2023 results conference call. The press release and MDMA with company financial statements and related notes as well as annual regulatory documents were issued this morning and are now posted 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 statements that are forward-looking and which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in this space. These statements include, without limitation, our estimates, plans, expectations, and other statements regarding the future growth, results of operations, performance, and business prospects of Alicia that do not exclusively relate to historical facts or which refer to the characterization of future events, including statements regarding our expectation of our clients' demand for our services and our ability to take advantage of business opportunities and meet our goals set in our three-year strategic plan. For more information, please refer to the cautionary note in our presentation and to the forward-looking statements and risks and uncertainties section of our MD&A, available on our website. All figures discussed in today's call are in Canadian dollars, unless otherwise stated, and we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary note in our presentation and to the non-IFRS measures section of our MD&A for more details. Presenting this morning are Paul Raymond, Alethea's President and Chief Executive Officer, and Claude Thibault, Chief Financial Officer. I will now turn the call over to Paul Raymond.

Paul. Merci Benjamin. Bonjour tout le monde. Good morning and thank you all for joining us on the call this morning to discuss Alethea's robust fourth quarter and fiscal 2023 financial performance. First off, I would just like to take a moment to mention our new recently launched brand platform. As part of our ongoing integration efforts, the new platform consolidates our vast competencies and collective intelligence behind a powerful, singular voice that will better resonate with our clients, employees, and shareholders. Years of sustained growth have led to a proliferation of knowledge and expertise. Our redesigned website now offers a more concise picture of who we are and what we can do for our clients as they navigate through a rapidly evolving digital world. The robust performance that we will be highlighting this morning demonstrates how the collective intelligence of our teams contributes to the continued health of relationships with our clients, which ultimately creates greater long-term value for our shareholders. That noted, let's start by highlighting a few milestones for this quarter that we are particularly proud of. First off, we passed a half-billion-dollar milestone in terms of annual revenues, which brings us closer to our strategic plan target and provides us with the scale we need to better accompany our clients in their largest, most critical initiatives. Secondly, our pipeline and bookings continue to grow, with Q4 bookings reaching $124 million. our clients have demonstrated unwavering loyalty and trust in our people. In fact, over 80% of our revenues were generating from existing clients we had at this time last year. And we started working with 32 new clients in the fourth quarter. Those additions brings our fiscal 2023 total to 144 new clients. Thirdly, we continue to improve our year-over-year gross margins as a percentage of revenue, which stands at 29.9%. This represents a 400 basis points increase over last year. And finally, our adjusted EBITDA grew from Q3 to end Q4 at $10.5 million. This represents a 73% increase compared to the same quarter last year. Now let's look at these achievements in some greater detail. Our fourth quarter revenues increased by 13.5% over Q4 fiscal 2022 and sequentially by 4.2% over Q3. raising our revenues to $136.2 million for the quarter. That achievement was largely driven by growth in all areas of our operations. Our Canadian Q4 revenues experienced a year-over-year increase of 7.5% or $5.7 million in Q4. And as predicted in previous meetings, we are starting to see pressure, especially in the banking sector, to focus on efficiency-driven projects and longer decision-making on larger projects. Based on conversation with senior leadership of those clients, we remain confident in long-term technology investment commitments. In the United States, our enterprise solutions implementation business unit had a great quarter. This, despite recent quarterly results from top cloud infrastructure providers indicating that businesses are looking for ways to trim cloud costs. April and May are also showing strong bookings as those are the year ends for both Microsoft and Oracle. It should also be noted that we are seeing some software providers getting out of the services business to focus on higher margin product sales. We see this as a very positive development for us. In the US, our clients across the board continue to grow their projects beyond enterprise cloud implementations with strong new demand for additional strategy and post-implementation services. Our Oracle practice had a strong finish in terms of revenue, with Q4 being the highest grossing order of the fiscal year. Many of the clients requesting our help in implementing the Oracle suite of apps are in the healthcare sector, where Gartner is forecasting a 9.5% increase in spending in the coming year. That positions us very nicely for further growth. As for our Microsoft practice, our strong Q4 revenue performance includes fresh revenue generated by the integration of our two most recent acquisitions, both completed during the 2022 calendar year. That said, we are also seeing growing demand for hyper automation services, which is a disciplined approach that clients use to rapidly identify, vet, and automate as many business and IT processes as possible. Thanks to our data acquisition in July 2022, we are well positioned in robotic process automation, modern BI platforms, and intelligence document processing, which incorporates the latest AI developments. According to Gartner, the process agnostic technologies enabling hyper-automation will experience a 15% to 30% increase in terms of worldwide revenues between 2021 and 2026. It should also be noted that the last two acquisitions contributed $45.9 million to our fiscal 2023 year, or approximately 50% of our growth. The U.S. now represents over 36% of our overall business. Our performance continues to advance towards the realization of the milestone established by our strategic plan. In fiscal 2023, our revenues increased by an industry leading 19.5% to $522.7 million compared to $437.9 million last year. Now looking at gross margins, we experienced a 31% year-over-year increase in Q4. Gross margin as a percentage of revenue increased to 29.9% and those achievements were driven by continued increases in revenues from permanent employees versus subcontractors and an ongoing focus on higher value business. This has also resulted in higher average revenue per employee. Another contributor to gross margin improvement is our push to increase sales of subscription-based services. Subscriptions, software, and other revenues now represent 12% of our total revenues compared to 6.7% a year ago for the same period. In terms of adjusted EBITDA, we are proud to report a 73% increase over our Q4 2022 performance, our $10.5 million for the three months ended March 31st, 2023. Once again, contributions from our latest acquisitions were also incremental. Our business continues to be fueled by strong bookings in all of our geographies. During the last quarter of our fiscal year, we continued to fill our healthy pipeline with projects for the quarters to come. Fiscal 2023 bookings reached $525.4 million, which translates into a book-to-bill ratio of 1.15 when we exclude the two large 10-year contracts signed in April 2021. And we now have a backlog which represents over 16 months of revenue. We also took great strides towards the fulfillment of objectives outlined in our long-term strategic plan. As we continue to implement measures designed to move us up the value chain and to improve efficiencies, we see continued opportunities ahead to increase our profitability profile. We continue to closely monitor global economic factors and potential shorting variations across our markets, and we remain focused on a disciplined approach to our long-term plan of building a trusted global digital transformation advisory firm. With 32 new clients added in the forward quarter and 144 added this past fiscal year, we believe that our mission, vision, and business approach are conducive to achieving that long-term goal. I would now like to turn the meeting over to Claude Snow, an ECS Chief Financial Officer, who will expand on the financial highlights that I have outlined. Claude? Thank you, Paul. Good morning. Revenues for the quarter amounted to $136.2 million, an increase of 13.5%, or $6.2 million, compared to revenues of $120 million for the fourth quarter of last year. Our last two acquisitions, completed respectively on February 1st and July 1st, 2022, contributed revenues of $11.9 million during this fourth quarter. Excluding the impact of the two acquisitions, organic growth in Q4 was 8.1%. For the full fiscal year, revenues amounted to $522.7 million, including $45.9 million from the two latest acquisitions, representing an increase of 19.4% year-over-year and passing the half-billion dollar mark for the first time. Back to the fourth quarter, in Canada, revenues increased organically by 7.5% to $81.2 million due to growth in all areas. In the U.S., revenues increased 22% to $49.3 million due primarily to increased revenues from the acquisition of Vitalist, which contributed one additional month of revenues in the fourth quarter compared to the prior year. Revenues from Datum's U.S. business organic growth in all areas, and a favorable U.S. dollar exchange rate impact of $3.1 million between the two periods. As for our international operations, they also reported a strong order in terms of growth, increasing 41.2%, due to good organic growth in activity levels and revenues from the acquisition of Datum's international businesses. Now let's look at our Q4 gross margin, which overall increased by 31% or by $9.6 million to $40.7 million, up from $31.1 million last year. As a percentage of revenues, our fourth quarter consolidated gross margin increased to 29.9% from 25.9% for the same period last year. The increase in gross margin percentage in Canada is derived from increased revenues from permanent employees relative to subcontractors and from higher margin offerings. In the U.S., gross margin as a percentage of revenues increased as a result of positive margin impact from the acquisition of Datum's U.S. business, higher average revenue per employee, and improved project performance in other areas of the business. Gross margin as a percentage of revenues also increased on a sequential basis compared to the third quarter, mainly due to improved project performance in certain areas of the business. Our consolidated gross margin percentage on a sequential basis remains very close to the third quarter, despite the fact that employer benefits reset on January 1st. which always weighs notably on margins in Q4, and which means we had compensating improvements at different other levels. Now, looking at SG&A, total gross SG&A expenses in the fourth quarter total $36 million, an increase of $9.8 million, or 37.3%, compared to $26.2 million in the same quarter last year. The increase is mainly explained by our latest acquisitions for $1.5 million, the special non-cash impairment charge of $2.8 million stemming from our reduced real estate footprint, an increase in share-based compensation of $2 million, and an unfavorable U.S. dollar impact of $0.9 million. We also had increases in certain discretionary elements, partially offset by ongoing reductions to our cost structures. Overall, as a result of increased revenues and gross margin, partially offset by increased SG&E expenses, our fourth quarter adjusted EBITDA amounted to $10.5 million, an increase of 73%, or $4.5 million, compared to an adjusted EBITDA of $6 million during the same quarter last year. We are introducing a new financial metric with our Q4 reporting. In recent years, mainly due to our strategy of growth by acquisitions, Aletheia has been reporting net losses on an accounting basis. This accounting net loss is mainly created by amortization of intangibles, by acquisition integration and reorganization costs, and by share-based compensation, most of which are non-cash and non-recurring expenses directly attributable to past individual acquisitions. In addition, we have in this fourth quarter two notable specific P&L charges. which are also non-cash and non-recurring, namely the write-down and write-of-use assets and the recording of an earn-out consideration payable related to the datum acquisition, totaling $13 million. Adjusting our accounting net loss for the above, we are reporting in Q4 of fiscal 2023 an adjusted net earnings of positive $4.1 million, or $0.04 per share, compared to an adjusted net earnings of $2.2 million, or $0.02 per share, for Q4 last year. The quarter-over-quarter increase in adjusted net earnings represents $1.8 million, or 81.3%. For the whole fiscal year, Aletheia is reporting an adjusted net earnings per share of $0.16, up from $0.12 per share last year. We will be going forward reporting this number, which we believe provides a better appreciation of Aletheia's ongoing performance. Looking at long-term trends on slide nine, we can see the impact of our acquisitions and more importantly of our sustained organic growth achieved over the past several quarters. We can also see an even stronger progression in terms of gross margin dollars. Our long-term adjusted EBITDA trend also reflects our growth and gross margin improvements. With sustained organic and acquisition growth, our continuing long-term initiatives to generate higher gross margins and a steady focus on SG&A, we believe that we remain on target to achieving our three-year financial objectives. Now turning to liquidity and financial position on page 11. Net cash generated from operating activities was $4.4 million, an $8.1 million improvement from $3.7 million used during the same period last year. Also, cash flow for operations before working capital variations amounted in Q4 to $8 million, out of $10.5 million of adjusted EBITDA, which represents a notable cash flow conversion percentage. With the corresponding overall debt reduction and considering our improved trailing 12-month EBITDA performance, Q4 marks another quarter with declining leverage ratios. Now back to you, Paul. Merci, Claude. So Q4 takeaways, continued revenue growth, margins growing faster than revenues, solid bookings and backlog, improving revenue per employee, strong DSO and cash flow, We have a solid client base with over 80% repeat business, and we are adding important strategic clients every quarter. We are very happy with our long-term perspective, but also always keeping an eye on possible temporary slowdowns and delayed projects we are seeing in the banking sector. We are entering the new fiscal year with many efficiency opportunities ourselves, and with a strong cash generation profile that positions us well to be patient. More importantly, we are maintaining our focus and efforts on gradually improving gross margin and SG&A performance, which should lead to an improved bottom line, even in the current economic context we are witnessing. As you can see by our rapid deleveraging, we are very well positioned to execute on the last year of our strategic plan and to continue our disciplined approach to quality acquisitions. We will now take questions. Lara?