Alithya Group inc. (TSX: ALYA, OTCPK: ALYAF) Q4 2025 Earnings Call | 06/12/2025

This is a summary of Alithea's Fourth Quarter and Fiscal 2025 Results Conference Call.

Q4 and Fiscal 2025 Highlights

Alithea reported a strong close to fiscal year 2025, demonstrating ongoing improvements across key financial and operational metrics.

• Financial Performance:

  • Adjusted EBITDA: Showed sequential and year-over-year quarterly improvement, reaching a record 14.4% for Q4 and 10.1% for the full fiscal year. This was driven by a focus on higher-value business, operational efficiencies, and positive one-time events from successful project completions.
  • Gross Margin: Achieved a high of 36.8% of revenue in Q4, up significantly from previous periods, due to a focus on higher-value services, improved utilization, and leveraging IP and the SmartShore business model.
  • Revenue Growth: Sequential and year-over-year quarterly revenue growth was observed across all geographies, primarily from higher-value service offerings that leverage AI and proprietary IP.
  • Cash Flow: Strong cash flow resulted in a net debt to adjusted EBITDA ratio of less than two times at year-end, providing flexibility for future acquisitions.
  • Net Earnings: Positive net earnings were delivered for the full year.

• Operational Achievements:

  • Customer Satisfaction: Achieved an average rating of 9.0 out of 10 from 194 customer satisfaction surveys in fiscal year 2025.
  • SmartShore Expansion: Increased SmartShore employee base to 10.9% by Q4, now over 12% with the recent eVerge acquisition in India. This strategy aims to access new talent pools and drive efficiencies.
  • Talent Development: Invested over 30,000 hours in employee learning, with 75% dedicated to advancing technology skills like Microsoft's AI German co-pilot.
  • Industry Recognition: Recognized by Microsoft for the Business Applications Inner Circle Award (19th time) and celebrated client innovation achievements with Oracle Customer Excellence Awards.

Acquisitions and Strategic Growth

• eVerge Acquisition: Alithea recently acquired eVerge, a consultancy specializing in Oracle and Salesforce solutions. This acquisition adds:
  • A rich client portfolio and expanded industry presence.
  • Complementary geographic reach.
  • Multi-pillar capabilities in CRM (Microsoft Dynamics, Salesforce, Oracle CX).
  • Increased SmartShore capacity with operations in Bangalore, India.
  • New leadership, including Mike Burns (Salesforce business lead) and Chris Helig (VP of AI and innovation).
• XRM Vision Integration: Four months into the integration of XRM Vision (acquired in December), most activities are complete. The acquisition has added scale to Alithea's Microsoft CRM and SmartShore capabilities, as well as new capabilities for project operations, leading to larger, previously unattainable business opportunities.

Market Conditions and Bookings

• Market Uncertainty: While market uncertainty and economic conditions have caused some buyer hesitancy and longer sales cycles, Alithea's higher-value offerings, particularly in enterprise application modernization and AI, continue to resonate with clients.
• Q4 Bookings: Totaled $100.1 million (0.8 times revenue). Adjusted for a large commercial agreement from April 2021, the book-to-bill ratio was 0.9 times revenue for the quarter and 1.0 times on a trailing 12-month basis.
• Backlog: Approximately 16 months of revenue at the end of Q4.
• Key Wins:
  • U.S. Market: More than half of Q4 bookings, strong demand for Microsoft and Oracle Enterprise application and transformation. Notable wins include Oracle Enterprise Performance Management for Delta Dental of California and Microsoft M365 Full Pilot Tech Readiness for AI enablement.
  • Canada: Rebound in the banking and nuclear sectors, with new engagements for Microsoft Dynamics ERP and Field Service, including a multi-year digital transformation with Neutronor.
  • Europe: Contract renewals and extensions, and new opportunities through AWS for application modernization.
• Service Mix: Majority of Q4 bookings were for project services, software & IP, and managed services.

Financial Details and Outlook

• Q4 Revenue by Region:
  • Canada: $65.4 million (up 1.3% year-over-year), driven by banking sector recovery and XRM Vision contribution.
  • U.S.: $54.2 million (up 7.3%), due to organic growth in enterprise transformation and a favorable exchange rate.
  • International: Slightly higher revenue with improved gross margins.
• SG&A Expenses: $29.7 million (up 0.4% year-over-year), but decreased as a percentage of revenue (23.7% in Q4 vs. 24.6% last year).
• Cash Flow from Operations: Strong at $17.1 million, an increase of $7.4 million year-over-year.
• Deleveraging: Net debt reduced to $94 million, with a leverage ratio of 2.0x net debt to trailing 12-month adjusted EBITDA, the lowest reported level.
• Liquidity: Strong, with $131.1 million in cash and available credit.
• Future Guidance: Alithea has withdrawn its longer-term guidance due to market uncertainties and having already surpassed some internal targets (EBITDA and gross margin). However, the company maintains its vision of growing margins and doubling the company over the next three to five years.
• New CFO: Pierre Blanchet will join as CFO at the end of July.

Discussions on Margins and AI

• Margin Sustainability: Management believes the improved gross margin level, while influenced by one-time events and seasonal Q4 strength, is largely sustainable due to the shift towards higher-value business and increased efficiencies. Quarterly variations are expected (e.g., Q1 typically slower due to vacations and salary increases).
• AI Efficiencies: AI is providing significant internal efficiencies (e.g., legal team's contract review tool) and enabling the company to do more with the same headcount as it grows. AI is also being leveraged in client projects and proprietary IP.
• SmartShoring and Acquisitions: The increase in SmartShoring capacity (over 12% of workforce) through acquisitions like eVerge and XRM is a key driver of margin improvement, as these centers bring specialized expertise and higher gross margins.