Alithya Group Inc. (ALYA:CA) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals. Financial performance shows improved net earnings and cash flow, but there's a decrease in adjusted net earnings and increased net debt. The Q&A reveals management's reluctance to provide specific guidance and details, causing some uncertainty. However, the company's strategic moves, such as migration to higher-value work and a healthy acquisition pipeline, balance the negatives. Without market cap information, it's challenging to predict strong movements, leading to a neutral sentiment.
Key Financial Performance
Consolidated Revenue $115.2 million, down $0.6 million or 0.5% year-over-year. The decrease was due to reduced revenues from public sector contracts and certain client projects reaching maturity, partially offset by revenues from the acquisition of XRM Vision.
Gross Margin (Consolidated) 31.7% of revenue, down from 32.3% last year. The decline was attributed to lower utilization rates and changes in revenue mix.
Revenue (Canada) $54 million, down $7.7 million or 12.5% year-over-year. The decrease was primarily due to reduced revenues from public sector contracts and certain client projects reaching maturity, partially offset by revenues from the acquisition of XRM Vision.
Gross Margin (Canada) Increased compared to the same quarter last year. This was due to a larger decrease in the use of subcontractors compared to permanent employees, positive margin contribution from XRM Vision, and a reduction in revenues from lower gross margin clients in favor of value offerings, partially offset by a slight decrease in utilization rates.
Revenue (U.S.) $55 million, up $6.2 million or 12.7% year-over-year. The increase was driven by revenues from the acquisition of eVerge and organic growth in Enterprise Transformation Services, partially offset by an unfavorable U.S. dollar exchange rate.
Gross Margin (U.S.) Decreased compared to the same quarter last year. The decline was due to lower utilization rates, partially offset by increased use of smart shoring capabilities and a larger decrease in the use of subcontractors compared to permanent employees.
Revenue (International) $6.2 million, up $1 million or 19.2% year-over-year. The increase was due to organic growth in Enterprise Transformation Services and a favorable foreign exchange rate.
Gross Margin (International) Decreased year-over-year due to one client project coming to maturity, which historically had a higher gross margin.
SG&A Expenses $28.5 million, down $0.3 million or 1% year-over-year. The decrease was attributed to optimization of the cost structure and reduced variable compensation.
Adjusted EBITDA $10 million or 8.7% of revenues, compared to $10.3 million or 8.9% of revenues last year. The slight drop was due to decreased gross margin driven by lower revenues, partially offset by decreased SG&A expenses.
Net Earnings $0.7 million, an increase of $4.4 million year-over-year. The increase was primarily due to decreased impairment of goodwill recorded in Q3 last year.
Adjusted Net Earnings $5.1 million or $0.05 per share, compared to $5.7 million or $0.06 per share last year. The decrease was due to lower revenues and gross margin.
Net Cash from Operating Activities $25.5 million, an increase of $13.8 million year-over-year. The increase was driven by $17.4 million in favorable changes in noncash working capital items and $7.4 million of other noncash adjustments and net financial expenses.
Net Debt $101.9 million as of December 31, 2025, compared to $94 million as of March 31, 2025. The increase was due to long-term debt from the acquisition of eVerge, offset by the repayment of $21 million in the third quarter.
Leverage Ratio 1.9x net debt over trailing 12-month adjusted EBITDA, compared to 2.3x in the second quarter. The improvement was due to debt reduction and positive cash flow generation.
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Operating Highlights
AI-driven capabilities: Bookings of over $130 million in Q3 included new engagements in strategic areas such as AI-driven capabilities.
Datum Consulting Group spin-off: Alithya announced the spin-off of its equity interest in Datum Consulting Group to focus on AI-based solutions for the healthcare industry.
Generative AI and Agentic AI: Alithya is helping companies modernize and connect core systems to unlock the value of generative and agentic AI, as seen in projects like Gorilla Glue's contact center modernization.
U.S. market growth: Revenues in the U.S. increased by 12.7% year-over-year, driven by the acquisition of eVerge and organic growth in Enterprise Transformation Services.
International market growth: Revenues in the International segment grew by 19.2%, primarily due to organic growth in Enterprise Transformation Services and favorable foreign exchange rates.
Smart Shore operations: 13.9% of professionals are now located in Smart Shore centers, providing access to top talent with an attractive cost structure.
Financial discipline: Net cash from operating activities increased by $13.8 million year-over-year, and the leverage ratio improved to 1.9x net debt over trailing 12-month adjusted EBITDA.
Shift to higher-value services: Alithya is transitioning towards higher-value services, stepping away from lower-margin contracts and focusing on specialized transformational services.
Microsoft Copilot Specialization: Alithya achieved Microsoft Copilot Specialization, validating its expertise in delivering complex AI-driven solutions.
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Risk or Challenges
Revenue Decline in Canada: Revenues in Canada decreased by $7.7 million or 12.5% year-over-year, primarily due to reduced revenues from public sector contracts and certain client projects reaching maturity. This decline is partially offset by revenues from the acquisition of XRM Vision.
Gross Margin Decline: Gross margin as a percentage of revenue decreased in both Canada and the U.S. due to lower utilization rates and the maturity of certain high-margin projects.
Shift to Higher-Value Services: The transition to higher-value services in Canada is impacting revenue growth, as the company steps away from lower-margin contracts that compete primarily on price.
Currency Exchange Impact: Unfavorable U.S. dollar exchange rates negatively impacted revenues in the U.S. segment.
Debt Levels: Net debt increased to $101.9 million, primarily due to the acquisition of eVerge, although the leverage ratio has improved.
Utilization Rates: Lower utilization rates in both Canada and the U.S. have negatively impacted gross margins.
Client Project Maturity: Several client projects reaching maturity have led to reduced revenues and gross margins, particularly in Canada and the International segment.
Economic and Market Conditions: The company faces challenges in maintaining revenue growth amidst economic uncertainties and competitive pressures, particularly in the Canadian market.
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Guidance & Outlook
Client Demand and Business Opportunities: The company expects to leverage its services, intellectual property (IP), artificial intelligence (AI), and expertise to meet client needs and excel in a competitive market.
3-Year Strategic Plan: The company is focused on achieving its 3-year strategic plan, which includes deploying smart shoring capabilities and transitioning towards higher-value services.
AI-Based Solutions in Healthcare: The company announced a spin-off agreement to focus on specialized AI-based solutions for the healthcare industry, aiming for rapid scaling and stronger returns.
Bookings and Pipeline: Bookings for Q3 were over $130 million, with a healthy pipeline of opportunities and growth in the U.S. business. The book-to-bill ratio for the quarter was 1.14.
U.S. Market Growth: The U.S. segment now accounts for 48% of total revenue, up from 39% at the start of the 3-year strategic cycle, driven by acquisitions and organic growth.
Generative AI and Agentic AI: The company is seeing new revenue streams as businesses modernize and connect core systems to unlock the value of generative and agentic AI.
Smart Shore Operations: 13.9% of professionals are now located in Smart Shore centers, providing access to top talent with an attractive cost structure.
Microsoft Copilot Specialization: The company achieved Microsoft Copilot Specialization, validating its expertise in delivering complex AI-driven solutions.
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Shareholder Return Plan
normal course issuer bid: As part of our capital allocation strategy, we pursue our normal course issuer bid, which allows us to purchase our shares under certain conditions set by the TSX. As at December 31, 2025, 347,000 shares were repurchased for cancellation.
Datum transaction share repurchase: In connection with the Datum transaction, we will be repurchasing close to 2.5 million Class A shares from Amar. The proceeds from this repurchase will be used to fund the working capital needs of Dayton.
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Key Q&A
Q:What caused the softer organic growth in the U.S. this quarter compared to previous quarters?
A:The softer growth was attributed to timing issues. Last year, there was a record number of go-lives in January, which required significant work in Q3. This year, without such events, utilization was lower, impacting revenues. Management believes this is a timing issue and not a concern.
Q:Why was there a step down in eVerge performance from $8.6 million in Q2 to $7 million in Q3?
A:Management did not highlight any specific issues. They emphasized that eVerge's integration is progressing well and delivering to expectations. The business focuses on Oracle and Salesforce implementations, and its capabilities in industries like construction and engineering are generating positive results.
Q:Can you provide parameters on the Datum transaction, including revenue growth, gross margin, and EBITDA margin?
A:Management did not share specific financial details but mentioned that Datum had very good gross margins. They explained that the spin-off was to unlock growth potential by placing Datum in a software-focused organization, as it was underleveraged within the company.
Q:What is the status of the migration to higher-value work in Canada, particularly in Quebec?
A:The migration is in the middle stages. Management is focused on changing the profile of work, especially with government contracts, to ensure acceptable margin profiles. Transitioning to higher-value projects takes time, but progress aligns with their 3-year strategy.
Q:What is the minority stake retained in Datum, and how was the business valued?
A:The company retained a minority stake of under 25% in Datum. They are not receiving cash but are contributing assets in exchange for equity. Additional details will be made public once finalized.
Q:How is the company addressing U.S. utilization and demand for Q4 and Q1?
A:Management did not provide specific guidance but noted that utilization in Q3 was impacted by fewer go-lives and vacation periods. They expect a more normalized state moving forward and highlighted strong bookings and a robust funnel.
Q:How are bookings trending in early Q4, and are there challenges in meeting AI-related labor demand?
A:Management did not provide specific guidance on bookings but mentioned a strong funnel and opportunities. They are not facing challenges in AI-related labor demand, as AI is increasing productivity and reducing labor needs. The company is investing in training and certifications to enhance capabilities.
Q:What are the company's acquisition priorities and pipeline status?
A:The acquisition pipeline remains healthy. The company has demonstrated the ability to leverage and pay down debt quickly, with a current debt ratio below 2x EBITDA. They are well-positioned to execute acquisitions.
Q:How does Q4 fiscal '25 compare to Q3 fiscal '25 in terms of benchmarks?
A:Q4 fiscal '25 is expected to be a tough comparison due to the strong performance in Q3 fiscal '25, which included significant go-lives and positive impacts from reversing contingencies.
Q:What is the health of the pipeline and backlog outside of the backlog?
A:The pipeline is aligned with the company's strategic vision of higher-value transformational projects. The backlog remains consistent at 14 months, and new opportunities are progressing as expected.
Q:Review of Unclear Management Responses
A:Management avoided providing specific financial details for the Datum transaction, including revenue growth, gross margin, and EBITDA margin. They also did not provide guidance on U.S. utilization, Q4 bookings, or specific benchmarks for Q4 fiscal '25.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AWS
Bookings
Canada Quebec
Datum
Enterprise Transformation
HCM
MDA
Microsoft Copilot
SGA
Salesforce
Smart Shore
Transformation Services
Vision
accelerator
acquisition eVerge
activity
booking
cloud
debt
decrease
engagement
expertise
health
industry
margin percentage
note
ratio
renewal
revenue acquisition
segment
shift
structure
transformation
use
utilization rate
value client
TRP Transcript
Alithya Group Inc. (ALYA:CA) Q3 2026 Earnings Call Transcript
Unknown2-13
The earnings call presents mixed signals. Financial performance shows improved net earnings and cash flow, but there's a decrease in adjusted net earnings and increased net debt. The Q&A reveals management's reluctance to provide specific guidance and details, causing some uncertainty. However, the company's strategic moves, such as migration to higher-value work and a healthy acquisition pipeline, balance the negatives. Without market cap information, it's challenging to predict strong movements, leading to a neutral sentiment.
TC Energy Corporation (TRP:CA) Q4 2025 Earnings Call Transcript
Positive2-13
The earnings call summary and Q&A indicate strong financial performance with a focus on growth and expansion. Management's confident outlook on EBITDA growth, natural gas demand, and strategic projects like Crossroads and Columbia system expansion suggest positive market sentiment. The company's emphasis on maintaining a strong balance sheet and investment-grade credit rating further supports a positive sentiment. While some uncertainties exist, the overall strategic direction and growth potential are promising, leading to a positive stock price prediction.
TC Energy Corporation (TRP:CA) Q3 2025 Earnings Call Transcript
Positive11-8
The earnings call summary and Q&A session reflect positive sentiment. The company has strong financial metrics, with increased EBITDA outlook and robust project returns. While guidance is cautious, the management is optimistic about sustaining growth and maintaining leverage targets. The focus on strategic partnerships and capital efficiency, along with steady project returns, adds to the positive outlook. Despite some uncertainties, the overall sentiment is positive, with potential for stock price appreciation.
TC Energy Corporation (TRP) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call highlights strong financial metrics and optimistic guidance, including a reaffirmed EBITDA outlook and significant project developments. The Q&A section indicates confidence in market positioning and strategic expansions, particularly in high-demand areas like data centers and natural gas. No major negative trends or risks were emphasized, and the company is on track with its deleveraging target. While specific details on certain settlements were withheld, overall sentiment remains positive, suggesting a likely stock price increase in the near term.
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Frequently Asked Questions
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