Alithya(US:ALYA)2023-11-15 04:20Financial Data and Key Metrics Changes - Revenue for Q2 2024 amounted to CAD 118.5 million, a decrease of 8.1% compared to CAD 128.9 million in Q2 2023 [14] - Gross margin dollars decreased by CAD 2 million or 8% to CAD 34.8 million, but gross margin as a percentage of revenues increased to 29.4%, up from 29.3% year-over-year [16][18] - Adjusted EBITDA for Q2 was CAD 6.5 million, down CAD 2.9 million from CAD 9.4 million in the same quarter last year [20] - Adjusted net loss for Q2 was CAD 0.2 million, a decrease of CAD 3.6 million from adjusted net earnings of CAD 3.4 million in Q2 2023 [21] Business Line Data and Key Metrics Changes - Canadian revenues decreased by 9.5% to CAD 68 million, primarily due to reduced IT investments in the banking services sector [14] - U.S. revenues decreased by 6% to CAD 45.7 million, mainly due to weaker demand for digital skilling and change enablement services [15] - International operations reported an 8.3% revenue decrease, mainly due to reduced activities in Australia [15] Market Data and Key Metrics Changes - The financial services market in Canada remains tight but steady, with some large clients reducing volume while market share is maintained [12] - The U.S. healthcare sector is expected to grow, with increased demand for services [12][62] - The manufacturing sector, particularly process manufacturing, is also seeing high demand [62] Company Strategy and Development Direction - The company is focused on increasing gross margins through project efficiencies, improved utilization, and a reduction in subcontractors [5][8] - There is a strong emphasis on AI-enabled solutions and higher-margin offerings, particularly in data and automation [10][56] - The company aims to maintain discipline in SG&A spending while exploring new projects with existing clients and engaging new clients [6][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future profitability as the company continues to reduce SG&A spending and improve gross margins [6][26] - The company anticipates a return to higher spending in the financial services sector within a year, driven by AI and automation projects [32][62] - Management noted that while current conditions are challenging, the focus on efficiency and higher-margin services positions the company well for future growth [10][26] Other Important Information - The company added 36 new clients in the quarter, reflecting its growing reputation and ability to provide comprehensive solutions [6][7] - The gross margin percentage is expected to improve further as the company shifts more projects to higher-margin offerings [18][56] Q&A Session Summary Question: Utilization rate and margins - Management confirmed that they have reduced subcontractors significantly and are focusing on maximizing utilization rates in response to market conditions [28][29] Question: Normal state of spending for financial services - Management indicated that spending in the financial services sector is currently at a bare minimum but is expected to resume higher levels in about a year [32] Question: AI pilots with clients - The company is actively working on AI projects, not just pilots, and has seen strong demand for data-driven solutions [34] Question: Increased demand for offshore services - Management acknowledged the need to accelerate offshore services to improve margins and competitiveness [36] Question: Current subcontractor ratio - The subcontractor ratio is at its lowest in over two years, with plans to continue reducing it [38] Question: Impact of Canadian revenue streams - Management noted that the decrease in Canadian revenues is primarily due to a few large clients in the banking sector, but other areas are showing positive growth [40][42] Question: Further efficiency benefits in utilization - Management sees room for improvement in utilization and fixed-price projects, particularly through better resource allocation [44] Question: Long-term gross margin goals - Management aims for gross margins in the high 30s to 40% range, focusing on smart shoring and AI-driven efficiencies [48][50] Question: Cash flow expectations - Management does not provide specific guidance but expects to recover from current working capital challenges in upcoming quarters [52] Question: High-margin offerings - The highest margin business is in AI and data-driven solutions, with gross margins in the 50% range [56] Question: Growth sectors - Management highlighted growth in healthcare and manufacturing sectors, while the financial services sector is expected to remain slow for the next year [62]