Alithya Group Inc. (NASDAQ:ALYA) Q4 2023 Earnings Call Transcript

Alithya Group Inc. (NASDAQ:ALYA) Q4 2023 Earnings Call Transcript June 8, 2023

Alithya Group Inc. beats earnings expectations. Reported EPS is $0.03, expectations were $0.01.

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

Benjamin Cerantola: Good morning and thank you once again for joining us for Alithya’s fourth quarter and fiscal 2023 results conference call. The press release and MD&A with accompanying 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 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 Alithya 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 sections 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, Alithya’s President and Chief Executive Officer, and Claude Thibault, Chief Financial Officer. I will now turn the call over to Paul Raymond. Paul?

Paul Raymond: Merci Benjamin. Bonjour tout le monde. Good morning and thank you all for joining us on the call morning to discuss Alithya’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 consolidated 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 the 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 generated from existing clients we had at this time last year, and we started working with 32 new clients in the fourth quarter.

Those additions bring 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 point increase over last year. 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 of 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 conversations 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 U.S., 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 quarter of the fiscal year. Many of the clients requesting our help in implementing the Oracle suite of apps are in the healthcare sector, where Gardner 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 our 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 Datum acquisition in July 2022, we are well positioned in robotic process automation, modern VI platforms, and intelligence document processing which incorporates the latest AI developments. According to Gardner, 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 current 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. Subscription 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, or $10.5 million for the three months ended March 31, 2023.

Once again, contributions from our latest acquisitions were also incidental. 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 short term 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 fourth 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 Thibault, Alithya’s Chief Financial Officer, who will expand on the financial highlights that I have outlined. Claude?

Claude Thibault: 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 1 and July 1, 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 with growth in all areas.

In the U.S., revenues increased 22% to $49.3 million, due primarily to increased revenues from the acquisition of Vitalyst, 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 quarter in terms of growth, increasing 41.2% due to good organic growth and 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 1, 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 totaled $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 structure. Overall, as a result of increased revenues and gross margin partially offset by increased SG&A 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, Alithya 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 had in this fourth quarter two notable specific P&L charges which are also non-cash and non-recurring, namely the write-down in right-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 of last year.

The quarter-over-quarter increase in adjusted net earnings represents $1.8 million or 81.3%. For the whole fiscal year, Alithya 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 Alithya’s ongoing performance. Looking at long term trends on Slide 9, 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 from 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-months EBITDA performance, Q4 marks another quarter with declining leverage ratios. Now back to you, Paul.

Paul Raymond: Merci Claude. 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 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’re all witnessing.

As you can see by our rapid de-leveraging, 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. Alara?

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator instructions] Our first question comes from Gavin Fairweather at Cormark Securities. Please go ahead.

Gavin Fairweather: Good morning, congrats on your progress. Maybe to start out on the macro, it sounds like on balance, the demand picture remains pretty positive and the backlog is certainly quite healthy. But just given the evolving environment, maybe you can just touch on any segments of the business where you’re starting to see a bit more sluggishness. You touched on the financial sector, and I’m kind of curious how big of a vertical that is for you, and any other areas that maybe you would call out.

Paul Raymond : Good morning Gavin, and thanks for the question. It’s an ongoing concern of mine every day. I read the newspapers, like everybody, keep asking our team what they’re seeing, where our bookings keep getting solid. I think we expect to see some slowdowns in banking just because of everything that we’re seeing in the U.S. I think the banking crisis in the U.S. is not over. You saw with another increase in Canada yesterday, so me to it’s kind of inevitable that we’ll see some slowdown in banking at some point. But again, it’s a small portion of our business today. It’s more in Canada than the U.S. for us. We don’t have banking clients in the U.S. today, we have a few in Canada. Everybody that we talk to, and I talk to clients and senior executives there on a regular basis at these institutions, and they’re all committed to their long term plans.

I think they’re all kind of figuring out what they’re going to do short term and how to focus on more efficiency initiatives, like RPA – robotic process automation and things like that, so so far, so good, but I’m definitely keeping an eye on it.

Gavin Fairweather: Okay, great to hear. Then maybe just on your new backlog calculation, is that–that 16 months, is that just kind of the aggregate value of the backlog compared to your current production? Could you maybe just help us about how to think about that metric? Is some of that backlog longer term as part of the R3D contract? Maybe a bit of context there would be helpful.

Paul Raymond: Yes, so this is what I would qualify as hard backlog – these are signed contracts with confirmed commitments. It does not include what I would call an MSA or a blanket contract, where we renew every year, very large engagements. This is really committed hard backlog that we have contracts with committed revenue for, and we believe it’s a bit understated. This was the first time we did it so we tried to be on the conservative side, so as we integrate the new acquisitions and get a better handle on it, we think it’s conservative for now.

Gavin Fairweather: Okay, that’s great. Then maybe just on smart shoring, can you just provide an update on your proportion of resources which were kind of offshore exiting fiscal ’23, kind of your hiring efforts year to date, and maybe if you have a target you could share for the next fiscal year on where you can move that to?

Paul Raymond: Yes, it’s just over 6% today. Our objective is to be at 10% by the end of the fiscal year.

Gavin Fairweather: Great, and then maybe just before I pass the line, Claude, you mentioned the health and benefit and payroll taxes that reset in the first calendar quarter, which provides a headwind to sequential gross margins. Can you just quantify that impact so we can get a sense of the underlying margin trend?

Claude Thibault: Sorry, I missed the beginning of the question.

Gavin Fairweather: Just the reset of the health and benefit factors, maybe for Claude, can you quantify that so when we look at the sequential gross margin, [indiscernible] the underlying trend?

Claude Thibault: Well, my calculations are Q3 to Q4 of Alithya, which is calendar Q4 to calendar Q1, so the reset occurs on January 1. We’re easily talking a couple percentage points on gross margin, so anywhere–you know, 1.5% to 2.5%, depending on mix of revenues and geographies, but it’s in that ballpark, then it eases off. We have new employees being hired all the time, so those are not affected, so it’s a partial impact as you go into the year. It depends on the salary of the employees – higher paid employees hit the ceiling before and vice versa, so there’s probably not much really occurring from Q4 to Q1 – a little bit, but not much. It’s mainly then into Q2 and Q3.

Operator: Thank you. The next question comes from Deepak Kaushal at BMO Capital Markets. Please go ahead.

Deepak Kaushal: Hi, good morning guys. Thanks for taking my questions. Paul, you mentioned you still feel comfortable about your strategic targets. I think in the past, you have mentioned a $600 million target for fiscal ’24. Can you give us a sense of how much you’re expecting that to come from organic, M&A, and maybe just a bit of an update on the M&A environment as you see it?

Paul Raymond: Sure, thanks for the question, Deepak. Historically we have been 50/50, so that’s kind of the ballpark we look at. It varies because some years, we’ve done more acquisitions and right now we haven’t done any in the past 12 months, so we usually target 50/50. We’ve been very patient. As you can see, we’re generating a lot of cash. We’re de-leveraging fast. There is some nice targets out there and the environment right now, we find is getting extremely favorable to us because in the past, there were a lot of private equities, very aggressive in our industry in acquiring some targets that we might have looked at in the past, that we passed because the multiples were kind of crazy. We’re actually seeing that kind of reverse and come around, so we’re seeing a lot of funds de-leveraging and then a little bit like what you’re seeing in the commercial real estate market right now.

We’re seeing some interesting opportunities coming to the table that people want to move fast on. I think we’re in a great position. We’ve demonstrated, and Claude showed the chart, that we can do very accretive acquisitions that de-leverage very fast. We’re very disciplined, so I kind of like the environment out there right now for us to find some interesting targets. We have the balance sheet to be patient, so I kind of like where we are right now.

Deepak Kaushal: Okay, fantastic. That’s helpful. Then just on the margin target, I think your target was 9% to 13% EBITDA margin. You still have a ways to go there, but it sounds like you have some improvements in gross margin and your target to get to 10% of–target to go from 6% to 10%, that’s versus contract employees, is that right?

Claude Thibault: Yes, so we’re close to 80% right now, so we think we’re within striking distance to getting there, Deepak.

Deepak Kaushal: Okay, so where is the other improvement coming from? Is there any coming from SG&A or is it all on the permanent versus [indiscernible]–

Paul Raymond: Yes, three main things: the SG&A portion, there’s a lot of one-time stuff in this past quarter that kind of creates a little bit of disturbance, but we see some significant upside there. We’ve said our target is to get to 20% and lower of SG&A, so we have a few points–a couple of points right there. We think that we have a big upside on gross margins by moving more of our work to smart shoring – we’re at 6% right now, the objective is to get to 10% by the end of the fiscal year. Also in the change of the business mix, you’ve seen we’re doing more and more of the higher value stuff as we reduce, again, the subcontractors, focus on our people and high value projects. Those things combined, we think we can get there.

If you look at the cash generation that we have right now, even if revenues were flat, let’s say the whole industry melted down for everybody and revenues were flat, we would still be generating $30 million of cash, which means we’d be de-leveraging really fast, and at some point if I look at the stock of our company, we’re probably the best deal out there. I think we have all the tools to get to where we want to be on the strat plan. We’re still looking at the 50/50 M&A and organic growth, we still have some–we see some very interesting improvement opportunities from an efficiency perspective, given our scale that we have today, so we like the position we’re in right now.

Deepak Kaushal: Okay, that’s fantastic. If I may ask one last question, pretty strong growth in Europe. Maybe if you can unpack that a bit, what’s organic, what’s inorganic, and what are the segments in Europe you’re seeing and the opportunities there going forward?

Paul Raymond: Maybe Claude, just what’s organic versus M&A in Europe?

Claude Thibault: In Europe?

Paul Raymond: Yes.

Claude Thibault: Oh, it’s very small. The acquisition part, Datum’s revenue base was largely in the U.S., so they have a few customers in the U.K. and a few customers in Australia. It’s really minimal. The bulk of the increase is really our French operation really turning the corner and doing well. It’s probably 4 to 1 or something like that, if you split up the increase.

Deepak Kaushal: Okay, and how do you see opportunities to expand in Europe? This is all–a lot of this the aviation industry. Are you looking at more verticals or geographies beyond France? How should we think of that?

Paul Raymond: I think we’re–you know, we have a good foothold in Europe. I think there are opportunities to expand that significantly. We would look to expand Europe if it could come with an expansion of our smart shoring operations at the same time, right, so we see significant opportunities for growth in Europe and in North America. Each time we grow that, we have the opportunity to grow our smart shoring capability at the same time, so we’re looking–the sweet spot would be acquisitions that do both, right, that complete our offering at high margin, that add to both our onsite and smart shoring capabilities, and there are some of those in Europe as well. They’re going through the exact same economic cycle we’re seeing in North America, so we’re seeing some nice opportunities there as well.

Deepak Kaushal: Okay, fantastic. Thanks for taking my questions. I’ll leave it at that.

Paul Raymond: Thank you.

Operator: Thank you. The next question comes from Jérôme Dubreuil at Desjardins. Please go ahead.

Jérôme Dubreuil: Bon matin. Thanks for taking my questions. Thanks for the color on backlog. We’re asking on this in this macro–with this macro uncertainty at this time, so good to hear that backlog is rather firm. Just checking another point, how easy is it for clients to defer the orders that are in the backlog at this time?

Paul Raymond: Thanks Jérôme for the question. It’s not as much the orders in the backlog that are easy to defer, because most of those are already booked, are projects undergoing and things that are already on the go. The new bookings, we had one client that we signed recently, they committed to a multi-million dollar ERP project, it’s signed but they want to start in September, so it’s that type of–so it’s the newer contracts that we’re signing, we’re seeing some of them saying, I’m ready to book right now and sign, but I want to start in a couple of months. I think it’s going to be more newer bookings of large projects that you’re going to see those types of things, Jérôme, and that’s anecdotal, it’s one project, but still.

Jérôme Dubreuil: Yes, interesting. Thanks. Then a bit of a clean-up item here, were there particular costs related to the rebranding in the quarter, and is it material at all?

Paul Raymond: It was not material. It was all done internally by our own people.

Jérôme Dubreuil: Okay, thank you. Then just to clarify your point on the pressure in banking, you point pressure is mostly in the U.S. but then you’re mostly exposed to Canada. I just want to clarify how exposed you think you are to this trend.

Paul Raymond: That’s what I’m saying – I’m kind of cautiously optimistic, because right now we have little exposure in the U.S., but as you all saw the quarterly reporting from the Canadian banks, they’re all taking massive write-downs and they’re all being very cautious, so I’m being very cautious as well. I’m following this, so I think there is some collateral damage in Canada from what we’re seeing in the U.S. Interest rates are still rising in Canada, so at some point I think there’s going to be some impacts on the real estate industry in Canada, which–and that’s going to have an impact on the banks. We’re keeping a really close eye on it. I think everybody is being very cautious right now on the Canadian banking side.

Jérôme Dubreuil: Great, thanks for the clarification, and thanks for answering the questions.

Paul Raymond: Thank you.

Operator: Thank you. Next question comes from Vincent Colicchio at Barrington Research. Please go ahead.

Vincent Colicchio: Yes, good morning Paul. A few for me. What higher margin areas in Canada–hello?

Paul Raymond: Yes, we hear you, Vince.

Vincent Colicchio: What higher margin areas in Canada had the strongest growth in the quarter? Can you give us some color there?

Paul Raymond: Good question. We had growth kind of across the board last quarter in Canada. I’d say that the highest growth was probably in our government business, which from a gross margin perspective isn’t the highest, but from a net margin perspective is actually very good, so that was a strong area of growth. Another strong area of growth was our multi-year–our very large multi-year contract that we signed a year and a half ago, that’s still growing. Both those clients are going through some significant integration. QMI recently announced the acquisition of Freedom Mobile, so there’s going to be some significant integration projects coming from that, and it’s starting. Beneva is still going through the integration of the insurance company, the merger there, so that’s also generating some interesting projects. It’s really a combination of many things, and it’s tough to single out one thing.

Vincent Colicchio: Regarding Datum and Vitalyst, are your cross-selling synergies meeting your expectations?

Paul Raymond: On the Datum side, absolutely. On the Vitalyst side, it’s a bit slower just because that’s one–and I mentioned this in the past, one of the areas where clients are reducing spend is on training right now, so we did a lot of that. However, we have two–there are two parts of the business in that acquisition. One is the e-learning, and the other one is where we’re going to be integrating–I mean, you’re hearing a lot about generative AI right now. One of the big tools that Microsoft is going to be launching is called Copilot – that’s an area that we see significant growth for us with all of our clients, and the rollout and leveraging of Copilot in the Microsoft environment that uses generative AI for everything from Word to PowerPoint to coding, to anything to do with the dynamics and office suite, so we see a lot of potential upside in that.

Vincent Colicchio: Claude, one for you. You did mention the organic growth in the quarter. I’m curious if you have that in constant currency.

Claude Thibault: Yes, it’s around a couple percentage points of positive impact from currency in Q4, Q4 over Q4.

Vincent Colicchio: Okay, thank you. Nice quarter, guys.

Paul Raymond: Thank you very much, Vince.

Operator: Thank you. The next question comes from John Shao at National Bank. Please go ahead.

John Shao: Good morning guys. Thanks for taking my questions. I understand the macro environment looks tough and a lot of enterprises today are talking about cost reductions and efficiency improvements. I’m just curious if Alithya could actually monetize from this opportunity, given there’s such a rush?

Paul Raymond: Thanks for the question, John. Yes, like I was saying earlier, we do a lot of that in the robotic process automation portion. We kind of have a convergence right now that we see as very positive, in that there is a shortage of qualified labor and there’s a need for efficiencies, so a lot of these automation projects, which in the past weren’t a very high priority, are now becoming a very high priority, so that’s something that we see as very positive for us, everything to do with hyper-automation. The other piece, of course, is outsourcing more stuff, right, so outsourcing projects, reducing costs, transforming some capex into opex, so there’s all these things that we can offer our clients, that we see as very positive for us.

John Shao: Okay, thank you Paul. I think you also mentioned labor, so my question is actually on the labor market and whether it has any impact on your hire activity so far. It seems like it’s been a while since people have talked about this topic.

Paul Raymond: You know, I think there’s a lot of noise around many things right now out there. It’s still–for qualified technology people, it’s still a high demand environment. I don’t think people realize that now. We have the advantage now that we can leverage our smart shoring, so that’s taken a bit of the pressure off so we can hire people remotely now to fill some of the gaps. The other piece that’s also helping us right now is, as I was saying, we’re reducing the subcontractors and moving that more to permanent employees. The other thing that we’re doing, which comes back to how we’re improving gross margin, is we’re being very selective on profitable growth. We’re being very selective on the projects that we bid on, which puts less pressure on the hiring on the people side and brings us more benefit in terms of the type of projects we do and the value they generate.

We’re trying to combine all those things to make the situation more manageable.

John Shao: That’s great color, thank you so much. I’ll pass the line.

Paul Raymond: Thanks John.

Operator: Thank you. The next question comes from Divya Goyal at Scotiabank. Please go ahead.

Divya Goyal: Good morning guys. I wanted to get some color on some of the industries where you think Alithya is currently not servicing and untapped from that side, so are there certain industries where you’re looking to grow and expand? You did provide quite a lot of color in some of the previous questions, so if you could elaborate on that.

Paul Raymond: Yes, thanks Divya. There’s a few sectors right now that we see where we’re already there but we see tremendous opportunity for growth. One is healthcare and health insurance, so in Canada and the U.S., it’s a little bit different, but we see significant opportunity for growth in the healthcare industry both on the provider side and the payor side. It’s an industry that’s going through tremendous transformation right now. We’re very well positioned – as you know, we’re the top player in healthcare at Oracle on that side. We also are involved on the Microsoft side with some of these hospitals, and with the Datum acquisition that we did, we’re very involved on the payor side and the modernization side, and this is an area where we actually use artificial intelligence to accelerate the modernization of a transformation and where we provide it as a subscription-based service.

Again, we see a big upside for that, and as you saw from the growth in our subscription-based revenue, it’s also a very hard margin, repeatable solution that we like. Healthcare is definitely–healthcare, both payor and provider, is an area that we see tremendous growth for us going forward. This might sound counterintuitive, but I think there is going to be some growth opportunities in banking as well. I think the RPA offering that we have is going to become extremely popular in the next 12 to 24 months in the banking industry, so we’re staying very close to that one. The telecom industry is also not finished with its consolidation. We’re seeing some significant projects happening there, so I think that’s an area that we can do a lot more.

Finally manufacturing, our Microsoft business just had a stellar few months of bookings, so we think the whole process manufacturing side of the house is also another area we can–even though we’re number one in Microsoft in that area in North America, we think we can do better there as well.

Divya Goyal: That’s definitely good color, and definitely good improvement there. You briefly mentioned, Paul, about the Quebecor Freedom Mobile acquisition and the potential projects that could come out of that. Are those potentially baked into your bookings numbers right now, and could you quantify them at all, or would that come later as they start to integrate?

Paul Raymond: Some are in already, Divya, but some we’re still–we want to make sure before we put them into the backlog that it follows our definition of hard backlog. I think we’re conservative right now, but it’s not going to differ materially.

Divya Goyal: That’s helpful. One last one here on the integration, so for the Datum and the Vitalyst, have those acquisitions, or any of the other previous acquisitions, have they all now been integrated or are you still in the process of completing the integration?

Paul Raymond: We track integrations on multiple different levels – the administrative stuff, the benefits, the email infrastructure, the tools, the financials, the sales operations, so there’s a lot of different levels of integration. All of the operational stuff, so how we go to clients and integrate it, the management team, the emails, the access to the tools, that’s done. There’s always some stuff to do especially around our financial systems, because you want to make sure that the employees who are coming onboard aren’t penalized in the change, in the transition, and as you know, depending on which time of the year you transition into the systems, the resets with the IRS and the Canadian equivalent can mess up somebody’s paycheck pretty bad, so we try to avoid that.

Typically we do those on January 1 or April 1, when we have our systems at the end of the fiscal year, so we usually do those once a year based on the calendar. No, the integrations are going according to plan.

Divya Goyal: That’s perfect. Thanks a lot for taking my questions. I’ll pass the line.

Paul Raymond: Thanks Divya.

Operator: Thank you. There are no further questions. I will now turn the call back over to Paul Raymond for closing remarks.

Paul Raymond: Thank you Alara. Thank you everybody for joining us today – merci beaucoup. Looking forward to talking to you soon.