Q2 2021 Alithya Group Inc Earnings Call
Taken we will conduct a question and answer session and instructions will be provided at that time for you to keep up for questions. If anyone has any difficulty hearing the conference. Please press star followed by zero for operator assistance at any time.
Before turning the meeting over to management. Please be advised that this conference call will contain statements that are.
Forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated I would like to now remind everyone that this conference call is being recorded on Thursday November 12, Twentytwenty I will now turn the conference over to Rachel Andrews, Vice President Communications and marketing please.
Go ahead.
Good morning, everyone and thank you for joining us for lithium second quarter fiscal Twentytwenty. One results conference call. The press release and Mdna with complete financial statements and related notes were issued earlier today and are posted on our website. The webcast presentation can also be found on our way.
Seems like in the investors section presenting this morning are called Ramin, <unk>, President and Chief Executive Officer, and no Siebel Chief Financial Officer. Following their comments, we will open the call for questions.
Before we begin I would like to specify that this conference call is intended for the financial community also please be advised.
This call will contain statements that are forward looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Please refer to the risks and uncertainties section of our Mdna available on our website for more details. Let me remind you that all figures expressed on today's call are in.
Canadian dollars, unless otherwise stated and be aware that that we will refer to certain indicators that are non IRS measures. Please refer to our mdna for more detailed now I would like to turn the call over to Paul Raymond.
Thank you Rachel good morning, everyone modules.
Before I begin I would like to say that despite the daily challenges faced by our employees in the wake of this pandemic.
They continue to show passion and dedication for a lead and our clients and I sincerely want to thank all of our 2200 professionals across North America and in Europe for their hard work.
So we're very.
With our second quarter results and our growth, yes growth. Despite the impacts of the pandemic in certain geographies. They demonstrate the resiliency of our business model as well as the VAT in the growing demand for our digital transformation services.
So that three key points in the quarter, our first we generated year over year revenue.
We wrote second our Canadian operations reported their best gross margins on record and generated double digit growth and finally, our third quarter, which is historically stronger than the second quarter. So we are expecting this to materialize as we started benefiting from the new contracts and improvements in our us operations.
Revenues for the quarter increased 1.5% to $68.4 million driven by our Canadian operations, which was partially offset by our us and European businesses, which continued to be impacted Beethoven 19.
What is important to highlight is that compared to the first quarter, although our consolidated revenues decrease since Q.
Brian as they historically do in the summertime. They did so at a much lesser extent than usual from Q1 to Q2 on a constant currency basis consolidated decrease would have been only 1.8%.
This should be a strong indicator for the sustained demand for our services. In addition.
We are proud that in three acquisitions, we completed last year, continuing it continued to generate organic growth both year over year and sequentially as well as superior margin. This is a testament to our strategy successful cross selling our activities and synergy generation.
Furthermore, some large resonating.
We finance, which we've talked about at length, which has started to stabilize in the first quarter have now begun to ramp up which is also a very positive sign for the future.
Despite solid top line results, our profitability is less than last year due to the lower utilization rate in the us. This.
This is the result of.
The pandemic coupled with our strategy. This strategic decision. This was our decision to support our employees and protect our expertise during this temporary downturn we.
We believe this is in the company's best medium and long term interests.
We finished the quarter in a solid financial position, which will be further improve.
I think we received a BBB loan forgiveness.
In the quarter, our bookings totaled $62.3 million, while our book to Bill ratio was just under one or 0.91. It is normal to have a small dip.
From our superior first quarter as our second quarter is seasonally softer when vein.
It appears being a slower time for business our year to date book to Bill ratio stood at over one or 1.03.
As I've said before I would like to remind everyone. However that we believe a 12 month trailing book to Bill ratio is a better indicator of our future perspectives as noble notable variations can occur when looking at quarterly numbers.
As long as we can see in the second quarter having.
Having started reporting this new metric from April Onest, we will be providing annual measures by the end of this fiscal quarter.
In the quarter. We also added 12, new clients and signed several other agreements to implement enterprise cloud solutions, including a recent one for the floor.
Word of municipal power agency.
At the end of the quarter. We also renewed our historic agreement with dish I think one of our major historical clients for the provision of services and the delivery of technology projects starting October one 2020, we.
We are delighted that the Java has reiterated its.
Its competence in the lithia, particularly knowing their rigorous process that it applies to the selection of its suppliers. This will appear in our Q3 bookings.
Finally, since going public two years ago, we had been on a journey to diversify our business by industry by geography and by client today our revenues.
As our well diversified and as a result, our exposure to the hardest hit industries by the pandemic is much smaller.
Hello will now review, our second quarter results and our financial position goat.
Thank you Paul and good morning.
Please turn to slide eight where certain Q2 numbers.
Right.
Sales for the quarter increased 1.5% to $68.4 million, mainly driven by our Canadian operations, and partially offset by our us and European activities.
More specifically revenues in Canada increased 13.6% to $38.9 million due to the country.
Revenues from our Mrs and Thats due to acquisitions completed last year.
And growth of certain key clients, partially offset by the negative impact of Goldman.
Conversely revenues in the U.S. decreased 9.8%.
$27.1 million.
Primarily to the negative impact of Govan 19.
Partially offset by the contribution of our Conversant acquisition completed last year.
Similarly, Europe revenues decreased 24.4% to $2.4 million.
Mainly due to the impact of COVID-19 impacting mostly.
Only one important client.
On a positive note on a sequential basis, our consolidated revenues decreased only 1.8% on a constant currency basis, which.
Which is much smaller so the much smaller sequential decrease than usual going into our seasonally softest quarter of the year.
Gross margin amounted to $18.7 million or 27.4% down from $20.7 million or 30.7% last year.
This variation was driven primarily by reduced gross margin from the us and Europe due to the negative impact of Golden Ninetyth Unutilized.
Leasing rates.
Partially offset by increased gross margin in Canada.
Due to the changing mix of revenues and some governmental wage subsidies.
Of note our Canadian operations reported their best gross margin on record.
Selecting the progress of our long term strategy and very high.
Our utilization rates, especially in the latter part of the quarter.
Certain Canadian subsidiaries obtained $2.5 million through the Canada emergency wage subsidy program since the beginning of the embedded.
Of which $1 billion was recorded in the second quarter me.
I mean, we accounted for in cost of revenues.
As Ginny expenses amounted to $20.2 million up $1.6 million or 8.5%.
From $18.6 million last year.
This increase was primarily driven.
Additional expenses related to our three acquisitions last year.
This was partially offset by decreased pre acquisition expenses.
Mainly from cost saving measures implemented in response to government team.
As well as synergies.
In addition, if we look at is.
By any expenses after adjustments.
Including noncash share based compensation as further explained in RMB any.
The increase from last year is only zero point $4 million.
Again, despite the three acquisitions completed after Q2 of last year.
Adjusted EBITDA amounted to zero point $8 million or 1.2% of revenues.
Versus $3.2 million or 4.8% for the same period last year.
This variation can be attributed to reduced gross margin of our us operations, partially offset by the contribution from acquisitions.
It's increased.
Increased margins from higher value added business and reduced pre acquisition is doing.
As a result net loss during the quarter amounted to $5.5 million or 90 cents per share compared to a net loss of $2.3 million or four cents per share for the same period last year.
Bill, reflecting as in previous quarters high amounts of depreciation and amortization.
Now turning to our liquidity and financial position on slide 11.
Net cash flow used in operating activities amounted to $6.1 million in the second quarter compared to.
The zero point $6 million used in the same period last year.
This variation was mainly attributable to unfavorable cyclical changes in working capital.
And decreased net income.
For the six month period, we generated a positive $1.3 million of cash flow from operations.
Compared to $3.6 million for the same period last year.
We ended the quarter in a solid financial position at the end of September we at $50.6 million of net bank borrowing.
Which is net of our $11.9 million in cash and restricted cash.
An improvement of $11.3 million compared to a net bank debt of $26.9 million at the end of March.
Remember that these numbers are net of the PPP monies received this past may.
We are currently in the process of applying for the forgiveness of our.
VP loans.
We believe we have used the funds for qualifying expenses.
And otherwise comply with all relevant rules and regulations of the program.
However, there is still can be no assurance that the company will obtain forgiveness in whole or in part.
If approved our financial position would be.
Improved.
And we would be able to recognize the 6.3 million us dollars against our cost of revenues in the U.S.
As Paul explained that ERP has been an important to implementing our decision to maintain.
The bulk of our valuable workforce, despite the temporary coal.
EBITDA decline in the U.S.
We are also continuing to benefit from the Canadian emergency wage subsidy program and are monitoring the new rules to be confirmed over the coming weeks and months.
As it stands today, we are using a small portion of our available senior credit facility on a net basis.
And we believe we are in a good financial position to navigate the current going uncertainty.
And keep pursuing our business plan and objectives.
I will turn it back to Paul Thank you clone.
In summary, our second quarter results demonstrated revenue growth and very strong growth in our Canadian revenues.
And margins this was tempered by a short term investment to support our us operations.
Our revenue growth in this context demonstrates the resiliency of our business model as well as sustained demand for our digital transformation services.
Given the ongoing pandemic and the impacts on the second wave around.
Around the World, we continue to implement our business continuity plan, including managing our operating expenses prudently taking advantage of government programs and monitoring all developments very closely.
We will take proactive steps to continue to protect our employees our clients and the company as required.
Our bookings and pipeline remain healthy and we are currently engaged in a comprehensive hiring campaign to pursue our shift to a higher value permanent employee base.
Enterprise and to support our growth.
Our third quarter is expected to benefit from major contracts. We sign for example, the deal.
Ill with digital Bank group is expected to generate significant revenues for at least over the course of the next quarters. Therefore, you should anticipate a good book to bill ratio in Q3.
Also of note our recent second quarter.
Revenues were better than our third quarter revenues last year, and Q3 is historically better than Q.
You too.
In sum, we believe we have a strong foundation to support future growth, even as we face potential headwinds from the cold in 19 crisis finally.
We finished the quarter in a solid financial position, which will allow us to continue to focus on the execution of our strategic plan, which is to increase our scale through organic.
Growth and acquisitions and deliver on our long term plan of becoming a north American leader in strategy and digital transformation.
We will now be pleased to answer any questions you may have joanne.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question.
Perhaps.
Please standby, we compile the chemo nave roster.
Your first question comes from the line of Paul steep from Scotia Capital. Your line is now open.
Great. Good morning, Paul could you maybe talk just a little bit about the M&A environment and what you're seeing there.
Yes, thanks for the question Paul.
So we.
At the beginning and Q1 at the beginning of the pandemic, we kind of saw a call out.
Out there everybody was kind of wondering what was going to happen.
We definitely saw that turnaround in Q2 and.
I wouldn't say everything is back to normal, but I'd say a lot of very high quality.
He gets out.
There.
And the people are much more serious so the people we talked to.
That are actually more serious other people out there aren't just going on fishing expeditions to try to get the get an offer but we we noticed that there is a level of seriousness in the in the target that we talked to that is.
I'd say hi to higher degree than before does that help.
That does thanks.
Maybe talk about how the business, how we should think about the mix of business from the U.S. should continue to have success in the Microsoft practice.
The balance maybe Microsoft Oracle within the mix at the moment and then I've got one last fall.
Thanks.
Sure so so.
I would say that we're very we're very encouraged because if we look at our backlog.
Backlog has never been higher in the us and Thats why Wouldnt you know when we said we wanted to support our people. They are still at very high demand for qualified labor in our.
Street, there isn't that there isn't a big a big overflow of people out there waiting for job. So it's a very.
It's very difficult in this industry to find good people. So we have good people and we wanted to hang onto them, we havent very strong backlog for our both Oracle and Microsoft.
And practices so for us when we saw the the slowdown in the summer a lot of that is for deals that we've already signed that are ramping up in Q3. So.
For us it was a no brainer to invest in hanging onto those people I know that a lot of our competitors out there whenever that somebody who is available to them.
Hire them and you will massive layoffs, we we have very high qualified labor finding them and keeping them is very important to us and thats why we invested in the quarter and hanging onto those people and we believe it's going to pay off in Q3 and Q4, So history will tell whether it was the right decision or not.
Great last.
Last one for me just on the new premium with Taser, Dan. It's good to see could you talk about any differences or anything you'd want us to note that might be different sort of a further evolution of this partnership thanks.
Sure. So I would say I understand what's interesting is when we've been working.
Working together since the beginning of the company. So it's a very long lasting and trusted relationship on both sides.
We have a company done in their transformation and they've they've also encouraged us in our transformation. So if I look at the revenue we have today versus what we had maybe 2345 years ago.
The value of the type of services that we do today are very different than what we did several years ago. So whereas several years ago was mostly staffing type work today, we do projects digital transformation and very high percentage of permanent employee base type project. So much.
For value type business, and that's increasing going forward and it's true for there is Albania is true for all of our customers, but given the size of their job they its a.
It's a very positive trend.
Thank you.
Thank you. Your next your next question comes from the line of deep.
Cost of sales from Stifel GMP. Your line is now open.
Hi, Good morning, Paul encode. Thank you for taking my question.
Just to follow up on Paul's questions regarding Internet I mean, Paul can you give us a little bit more color on the revenues come down quite substantially several years for data that are you expecting it to stabilize here or inquiry.
Okay.
And what would be the commensurate trend on the gross profit assuming.
Assuming that with more value added services the margins will go up.
Hi, Good morning, Deepak Thanks for the question so.
I'll try to to go through that question first our revenues did grow year over year.
Significant growth in Canada, so double digit growth in Canada as a cloud was explaining which is the result of our strategy to generate strong organic growth and cross selling from our acquisitions. So knowing that we generate double digit growth in Canada, but it's also growth in better business, our gross margins were.
Unethically higher as well in Canada.
In France, which is a very small piece of our business right. The decline is basically one customer weve talked about it before was air France, we're replacing that business in France, but given the context in France.
The social programs they have for companies.
Over there, it's less of an impact its a bit of an impact on revenue, but it's not significant and it's less of an impact on margin our biggest impact on revenue growth was really the low utilization rate in the us in Q2. So it's very it's very narrow and very.
Focus we know where it is and it was it's.
Microsoft Oracle this that it's really across the board in the us.
And it's temporary and it was a significant if you look at the year over year. It's a couple of million dollars us the change there that in the topline so when we have that.
Basically ever that differences.
Non top line is when it's tied to utilization rates basically it's straight bottom line impact so its topline and bottom line because we have the same people. We have the same cost. We just don't have the revenue that goes with it. So we're confident based on the backlog that we have now and what Weve sign that's going to come back so just adjusting the.
The U.S., we wouldn't be showing significant growth year over year. So that's why we're confident for the quarters. The quarters ahead, Deepak does that answer your question.
Yes, Thank you I actually I'm, sorry for misunderstanding. The question was related to that nature down.
Not that renewal.
Oh, yeah, yeah, sorry about that yes, I mean I.
As for the for the review I I understand the different moving partying EPS in Canada prediction on in particular.
Clearly, you're not going to get the past revenue levels.
But how do you look in terms of revenue versus over the last 12 months for that contract.
And when do you expect gross profit for that business stabilize.
And we'll return to a quick.
So so last quarter, we had mentioned that we had seen over the last year.
A decline in some of our larger Canadian customers last quarter, we mentioned that we saw that stabilizing this quarter, we're actually seeing growth in those customers.
I think were so that's why when you look at our growth in Canada, which was double digit. This this this quarter year over year. Some of that's from the acquisitions. Some of that's from the cross selling and some of that is from.
New customers and existing large customers so it really across the board.
Okay, and then when I when I.
I think of the longer term.
We're still focused on on recovery from Covance, but when you look out a year or two years from now can you give US a reminder of what your sense is for the stable organic growth based on the acquisitions, you've made today and where you are targeting EBITDA margins to Canada.
Sure. So we've been we've been very transparent about our long term strategy at.
We gave ourselves a three to five year plan, which we have communicated as well.
We believe by changing the mix of our business overtime to higher value services as we're seeing now the gross margin is going to increase as we are seeing and.
And then we have seen in the us as well in the company as a whole and covert notwithstanding which I believe is temporary as the as this crisis, how did beginning and it will have a NIM.
I think we're making the right decisions when we say we want to protect our people and protect the business.
I think we haven't very high quality.
Quality business that can generate superior gross margins today compared to what it was before which I believe will be back after the pandemic.
And we're seeing at the model generating growth now so again that post pandemic I see strong organic growth and M&A activities.
The M&A, we're going to keep doing in the higher margin businesses that are complement.
Entry as we've said in the past.
We believe that those things combined together.
Okay.
Okay.
Hello.
And these things will.
Will go down as a percentage of our costs over time so that.
We can reach much higher EBITDA margins in line with some of the larger players in the industry.
Okay, Okay well.
You for taking my question about possible.
All right, thanks, Andy but.
Again, if youd like to ask a question. Please star one on your telephone.
Your next question comes from the line of Jones Day finish up Bank. Your line is now open.
Definitely doable got good said thanks for.
Taking my question everybody speaks about the other day I understand great firm.
So maybe.
May be regarding the loan forgiveness.
The in the U.S. this would obviously be very material injury.
And just to clarify and maybe I missed it but when do you expect an answer on that.
They can't then how would you quantify your odds of of getting it.
Thank you I will take this question this is called so.
I mean, we've as I said, we spent the monies for qualifying expenses, we followed all the rules and regulation.
Friends that we.
We were able to.
To get and understand we were getting professional advice from the south of the border.
The only I guess hesitation is.
The rules change I mean, there's political.
Action down there and the rules change remains.
Hi, James.
We do not expect you know rules to become more stringent or.
No forward eligibility to be made more difficult, we're not expecting that there is some uncertainty that we need to be aware of.
So.
If you ask.
He took me is I mean I have to see its fairly probable that that's going to happen based on the current rules.
Regarding timing there has been also issues the forgiveness the initial forgiveness.
Decision has been delegated to the actual banks.
Yes that have been administrating.
And.
Funding these loans.
So.
There's been some there's been some delays getting those platform, it's all electronic with the web interfaces.
It is now ready to go.
By law, we were.
Gonna be filing over the coming weeks few weeks.
And bylaw the banks need to provide an answer within 60 days now you can imagine there is a bit of a mad dash to the door not sure if that's going to be even possible.
So hopefully as you know our next quarter recording it will.
We'll be mid February I would like.
Like very much to to be able to provide more definitive answers by that time, but it remains to be confirmed.
Okay. Thank you that's helpful and regarding the second wave or seeing in certain geographies are you seeing an initial.
In fact that could be similar to what we've seen in the spring or maybe virtual Devry offsets most of that now.
Thanks Anastasia at home.
Well given that we've been working in this environment for since March now that people are kind of used to it.
Yes.
All of our folks were still working from home anyway. So we haven't and all the industries were in our our essential services. So we haven't seen any impacts on our customers.
We keep delivering the stuff that we've always delivered we still in Q2 implemented new.
ERP projects and Thats going to keep keep ongoing I think my concern personally as a CEO and as an executive and as a as a father and a leader in whatever it is more the the mental health issues across the board for people in isolation. We I mean, we saw we see it we have operations.
Sales and friends. So we see in Europe, whats happening I mean people now need to get a permit to leave their houses, whether it's for work or groceries or whatever they need a piece of paper.
We're seeing more and more confinements in Canada.
And in the US the numbers are just.
Unbelievable right now so.
I'm more concerned with the impact on the population as a whole and mental health issue from a business perspective honestly, it or Fortunately it hasnt changed much for us right now.
Thank you.
Thank you.
There are no further questions at this time I will turn.
Now back over to the presenters.
Thank you. Thank you Joanne so to conclude I'd, just like to reiterate my sincere gratitude to our professionals, our clients and our shareholders for their unwavering support and trust in the U.S.
Unprecedented times, we can't we can't say it enough.
And also to thank all of the frontline workers out there putting themselves at risks everyday to help manage this global health crisis, and I wouldn't really encourage everyone to follow their guidelines.
And respect that the what we're getting from the health authorities, it's only going to help us get out of this faster. So thank you very much everybody for being on the call today and Thats.
Stay safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].