Alithya Group inc.

Good morning, ladies and gentlemen. Welcome to Alethea's first quarter and fiscal 2024 results conference call. I would now like to turn the meeting over to Alethea's management. Please go ahead.

Good morning and thank you once again for joining us for Alethea's first quarter fiscal 2024 results conference call. The press release and NDNA with complete financial statements and related notes were issued this morning and are now posted on our website. A 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 anticipated. These statements include, without limitation, our estimates, plans, expectations, and other statements regarding the future growth, results of operations, performance, and business prospects of Aletheia that do not exclusively relate to History Gold Facts, or which refer to future events, including statements regarding our expectations of our clients' demand for our services, and our ability to take advantage of business opportunities that 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 statement and risk and uncertainty section of our MD&A, available on our website. All figures discussed on 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 and other financial measures section of our MD&A for more detail. Presenting this morning are Paul Raman, Alethea's President and Chief Executive Officer, and Claude Thibault, Chief Financial Officer. I will now turn the call over to Ben-Hur.

Thank you Benjamin, good morning everyone, bonjour. Thank you all for joining us to discuss Alethea's first quarter 2024 financial results. On the wings of a robust close to our 2023 fiscal year, we began fiscal 24 on a mixed note. Despite headwinds in certain sectors that have slowed our overall revenue growth rate in Q1, we continue to improve our business in most areas. I would like to begin by sharing some highlights with you from our first quarter of fiscal 2024, which ended on June 30, 2023. First off, despite headwinds in the global economic environment, particularly affecting our banking sector in Canada and our learning business in the U.S., Our bookings remain strong in the first quarter with record bookings in our U.S. operations. We also added 32 new clients across our global operations and we have a healthy number of new project starts from existing clients seeking to generate greater efficiencies. Secondly, we continue to improve our gross margins at a percentage of revenue year-over-year despite company-wide salary increases in Q1. Third, we have continued our momentum in generating healthy cash flows as we continue reducing our debt. Fourth, the quality of our global services, backed by the collective intelligence and skill sets of our people, continue to be recognized over the past few months with numerous nominations and prestigious awards bestowed upon Aletheia. And last, but certainly not least, we continue to leverage new and emerging technologies, including generative artificial intelligence, to enhance our products and services and maintain our position on the crest of the digital wave. Now let's dig deeper into some of those highlights. As mentioned, we experience a record quarter of bookings in our Oracle and Microsoft enterprise cloud biz practices. Globally, Q1 bookings reach $111 million, which translates into a book-to-bill ratio of 0.85. That said, if revenues from the two long-term contracts were excluded, Aletheia's book-to-bill ratio would be around 1. On a trailing 12-month basis, bookings were $491 million, which translates into a book-to-bill ratio of 0.93 and 1.08 when excluding the two aforementioned long-term contracts. Bookings were also particularly strong in respect to the healthcare sector, where there is a very strong demand for our services, which experience both quarter-over-quarter and year-over-year growth. That is a notable achievement in the context of the current economic climate, and we will continue to pursue deeper market penetrations in that area moving forward. Now, in terms of gross margins, we continue to hover around our minimum threshold of 30%. In Q1, gross margins as a percentage of revenue reached 28.9% compared to 26.9% in Q1 of last year. Improving our gross margins have been a focus of our current strategic plan and we've implemented multiple measures to continue that trend. As we pursue greater profitability, we know that the road to achieving that goal largely runs through the optimal utilization of our people and our focus on higher value services. That process includes ongoing reductions of subcontractors, as well as continuing efforts to grow our smart shoring operations. As we look at regional performance, I would first like to point out that salary increases for all of our employees across our global operations kicked in on the first day of our first quarter. And this happens every year, which is important to consider our results as it demonstrates our capacity to increase pricing of higher value services. Accordingly, our improved performance in Q1 of fiscal 2024 was largely driven by our global enterprise solutions business. The manufacturing sector is another important industry for Aletheia. Efficiency and productivity have remained top priorities for manufacturers, and their investments in new technology are driven by the promise of improved profit margins. That trend in the manufacturing sector, supported by Gartner Research, has fueled bookings and new projects for our Microsoft practice, particularly in alignment with Microsoft's advancement of technology solutions used specifically towards the manufacturing sector. Combine our Oracle and Microsoft enterprise practices contributed generously to positive EBITDA in the first quarter of 2024. And while we are also experiencing headwinds in our learning services business, we are confident that this resilient market will inevitably rebound. In the meantime, we are enhancing our offerings in that space as our teams integrate the latest generative AI tools into solutions that we will soon bring to market. In respect to our own internal training and development programs, in May, Alivia received a prestigious Mercurial Award in the Training and Workforce Development category for Alivia Leadership Academy. an initiative in partnership with McGill University's Faculty of Management to ensure continuity of leadership and a robust succession plan. Our people are our most valuable assets, and they are also the experts most coveted by our clients. The Aledia Leadership Academy is a source of pride, and we're pleased that it has been recognized by our peers. I would also like to take this moment to collectively thank members of our teams whose work was recognized in eight categories of the combined 2023 Microsoft Partner of the Year and Impact Awards. Now for our revenues. Year over year, our Q1 revenues increased 3.8% to $131.6 million, with 82% generated by existing clients that we had in Q1 of last year. However, while our enterprise services revenue increased in the US, they decreased in our learning services and in the banking sector in Canada. As a result, our Canadian revenues are slightly down year-over-year. On a positive note, we use this situation to significantly reduce subcontractor usage. This can be seen in our continued gross margin progression. We also experienced growth in Europe this past quarter while continuing to invest in our Morocco and Eastern Europe operations to expand our near shore delivery capabilities in Europe. These results and our healthy balance sheet allow us to remain focused on delivering the key components of our strategic plan, which ends on March 31st, 2024, and positions us well to move on potential accretive acquisitions. As expected by our clients, we diligently keep our finger on the pulse of emerging technologies, including exploring possibilities for leveraging the power of artificial intelligence. As we enter those conversations with clients who are looking to streamline their processes, our rapid suite software is already being deployed in our healthcare and insurance sectors. Our rapid suite solutions scan, extract, and transform unstructured data obtained from a multiple a multitude of sources from handwritten notes to digital files and then uses traditional AI to automatically normalize data from many disparate locations and systems. With the help of GPT-4, RapidSuite can now capture content that is not fully based on pre-existing keywords and rules created by a human expert. RapidSuite now has the capability to learn by itself and to adapt in real time. GPT-4 acts as a sort of subject matter expert in accompanying RapidSuite as it ingests millions of documents and medical terminology to make educated decisions. RapidSuite is thus a powerful tool for clients who turn to Adlevia for solutions offering cost savings, competitive advantages, minimal errors, increased agility, and better decision-making. And that is just one example of our innovation at work. I would now like to turn the meeting over to Claude Segoe, Aletia's Chief Financial Officer, who will expand on the financial highlights of the quarter. Claude. Merci Paul. Good morning. As Paul mentioned, revenues for the first quarter increased 3.8% compared to the first quarter of last year. Our datum acquisition, now referred to as data solutions, completed on July 1st, 2022, contributed revenues of $5.9 million during the first quarter. In Canada, revenues decreased organically by 2% to $77 million, mainly to temporary reductions of business activity in the banking sector. In the U.S., revenues increased 11.2% to $49.2 million, driven by increased revenues from data solutions and a favorable U.S. dollar exchange rate variation. As for our international operations, they reported a strong quarter in terms of organic growth, increasing 36.1%, also driven by international revenues from data solutions and favorable exchange rate impact. Now let's look at our Q1 gross margin, which overall increased by 11.8% or by $4 million to $38.1 million, up from $34.1 million last year. Again, as a percentage of revenues, our first quarter consolidated gross margin increased to 28.9% from 26.9% for the same period last year. The increase in gross margin percentage in Canada is derived from higher average revenue per employee, increased revenues from higher margin offerings, and finally, fewer subcontractors. In the U.S., gross margin as a percentage of revenues increased as a result of a positive margin impact from our data solutions U.S. business, higher average revenue per employee, and improved project performance in other areas of the business. On a sequential basis, gross margin as a percentage of revenues decreased only moderately compared to the 29.9% posted for the fourth quarter. despite the company-wide salary increases that came into effect at the beginning of this fiscal year on April 1st, 2020. Therefore, this would suggest notable improvements at various other levels, including segment and geography mix, labor mix, and project performance, which, despite the small apparent sequential decrease, points to ongoing and continued progression towards higher gross margins. Now, looking at SG&As, which represent one of our first quarter significant improvements, total gross SG&A expenses in the first quarter totaled $32.5 million, an increase of $3.6 million, or 12.3%, compared to $28.9 million in the same quarter last year. However, it must be noted that this increase is due to four elements. First, a $1.4 million impairment of property and equipment and right of use assets pursuant to vacated real estate. Second, a $1 million increase in non-cash share-based compensation, mainly related to the datum acquisition. Third, approximately $800,000 of expenses from data solutions, which we did not own in Q1 of last year. And finally, an unfavorable U.S. dollar impact of $700,000. The above four elements, totaling approximately $4 million, indicate that on a comparable basis, total SG&As actually decreased year-over-year in absolute dollars. This, despite the same overall salary increases that occurred on April the 1st, which equally impacted our SG&As. Coincidentally, on the sequential basis, gross SG&A expenses decreased by $3.5 million. Also, on the net comparable basis, after adjusting for the same elements as above, we see a similar sequential SG&A decrease and that, again, despite the annual April 1st salary increases. We are pleased to see our efforts on that front starting to show, and we are looking to maintain the same continued discipline on SG&E spend going forward. Overall, as a result of increased revenues and gross margin dollars, partially offset by increased SG&E expenses on a gross basis, our first quarter adjusted amounted to $9.1 million, an increase of 46.1%, or $2.9 million, compared to an adjusted EBITDA of $6.2 million during the same quarter last year. As the previous quarter, we introduced a new financial metric to our reporting, namely adjusted net earnings. In recent years, mainly due to our strategy of growth through acquisitions, and despite the fact that Aletheia is generating positive cash flows from operations, we have been reporting debt losses on an accounting basis. These accounting debt losses have been mainly created by amortization of intangibles, by acquisition and integration costs, and by share-based compensation, most of which are non-cash and non-recurring expenses directly attributable to past individual acquisitions. Adjusting our accounting net loss, we are reporting in Q1 of fiscal 2024 adjusted net earnings of positive $1.7 million compared to adjusted net earnings of $2.7 million for Q1 of last year. However, I would like to take a moment to provide some additional insight on this measure. If we look at the subtotal line on page 8, We can see that before taking into consideration a notional tax effect on adjustments, we would instead be looking at an increase of adjusted net earnings of close to 20%. Indeed, considering the different tax pools which Aletheia currently has, the company will not be significantly taxable for a few years to come. Therefore, this alternate calculation is also relevant to point out. Also, as in previous quarters, our accounting net loss of $7.2 million must be viewed in relation to our $8.5 million of non-cash depreciation and amortization, which is on top of our Q1 non-recurring and non-cash impairment charge from leases of $1.4 million mentioned before. Together, this explains why we generated strong cash flow from operations despite this accounting net loss. We are also reporting $1.1 million of non-recurring business acquisitions, integration and reorganization costs in Q1, which will keep decreasing sequentially until we acquire new businesses. Despite our year-over-year progression in revenues and gross margin dollars, we see on page 9 that after many quarters of continued growth on both funds, Our Q1 is facing similar challenges as many of our competitors, having recently reported. Our long-term adjusted EBITDA trend, despite a strong year-over-year growth, also reflects a sequential reduction in Q1. However, because of our good SG&A performance and the scale which we have now reached, the decrease in adjusted EBITDA is relatively small. Of note, this points to enhance EBITDA performance going forward just as soon as revenues return to a sequential growth pattern. Turning to liquidity and financial position on page 11. Net cash generated from operating activities was $7.6 million, a significant improvement from negative $9.8 million used during the same period last year after working capital variations. Also, cash flow from operations before working capital variations amounted to $6.8 million in Q1 out of $9.1 million of adjusted EBITDA, which represents a notable cash flow conversion percentage, as I mentioned before. With the corresponding overall debt reduction and considering our improved trailing 12-month EBITDA performance, Q1 marks another quarter with declining leverage ratios. Back to you, Paul. Thank you, Claude. So as we move into our second quarter of fiscal 2024, we will continue to drive gross margin improvements as G&A reductions and cash generation as we focus on greater profitability in the face of the current headwinds in the banking sector and our learning division. On September 13th, Aletheia will publish its second ESG report on the same day as our virtual annual shareholder meeting, and we look forward to discussing Aletheia's progress in pursuit of its commitments. Our second ESG report will disclose our greenhouse gas emissions for the first time, and we will discuss how our ESG initiatives have benchmarked against metrics identified by the Sustainability Accounting Standards Board, or SASB, an organization working to bridge the gap between companies and investors through the disclosure of relevant sustainability information. To access the annual shareholder meeting circular, please visit the investor section on the Aledia website. We will now take questions. Isabelle?