Alithya Group inc 6-K, filed Feb 10, 2022
Alithya Group inc (ALYAF)
6-K
2022-02-10
For: 2021-12-31
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Added on
July 04, 2026
About this 6-K
Alithya Group inc filed this 6-K on February 10, 2022.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of: February 2022
Commission File Number: 001-38705
ALITHYA GROUP INC.
(Translation of Registrant’s name into English)
1100, Robert-Bourassa Boulevard, Suite 400
Montréal, Québec, Canada H3B 3A5
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
This Form 6-K shall be deemed incorporated by reference in the Registrant’s Registration Statement on Form S-8, Reg. No. 333-228487.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALITHYA GROUP INC. | ||
| /s/ Nathalie Forcier | ||
| Name: Nathalie Forcier | ||
| Title: Chief Legal Officer and Corporate Secretary | ||
Date: February 10, 2022 | ||
EXHIBIT INDEX
| 99.1 | |||||
| 99.2 | |||||
| 99.3 | |||||
| 99.4 | |||||
Exhibit 99.1
Interim Consolidated Financial Statements of Alithya Group inc. For the three and nine months ended December 31, 2021 and 2020 (unaudited) | ||
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TABLE OF CONTENTS
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INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||||||||
| (in thousands of Canadian dollars, except per share data) (unaudited) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||
| Notes | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Revenues | 109,713 | 70,606 | 317,911 | 209,672 | ||||||||||||||||||||||||||||
| Cost of revenues | 81,456 | 50,178 | 232,841 | 150,109 | ||||||||||||||||||||||||||||
| Gross margin | 28,257 | 20,428 | 85,070 | 59,563 | ||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 11 | 25,002 | 20,421 | 72,634 | 59,983 | |||||||||||||||||||||||||||
| Business acquisition and integration costs | 857 | 500 | 5,489 | 1,603 | ||||||||||||||||||||||||||||
| Depreciation | 11 | 1,400 | 900 | 4,200 | 2,709 | |||||||||||||||||||||||||||
| Amortization of intangibles | 5 | 3,438 | 2,703 | 10,268 | 9,249 | |||||||||||||||||||||||||||
| Foreign exchange loss (gain) | (27) | 47 | (1) | 399 | ||||||||||||||||||||||||||||
| 30,670 | 24,571 | 92,590 | 73,943 | |||||||||||||||||||||||||||||
| Operating loss | (2,413) | (4,143) | (7,520) | (14,380) | ||||||||||||||||||||||||||||
| Net financial expenses | 12 | 1,203 | 870 | 3,227 | 2,425 | |||||||||||||||||||||||||||
| Gain on recovery of note receivable | — | — | — | (660) | ||||||||||||||||||||||||||||
| Loss before income taxes | (3,616) | (5,013) | (10,747) | (16,145) | ||||||||||||||||||||||||||||
| Income tax expense (recovery) | ||||||||||||||||||||||||||||||||
| Current | 62 | (185) | (134) | 1,050 | ||||||||||||||||||||||||||||
| Deferred | (192) | (35) | (2,318) | (2,382) | ||||||||||||||||||||||||||||
| (130) | (220) | (2,452) | (1,332) | |||||||||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||||||||
| Basic and diluted loss per share | 10 | (0.04) | (0.08) | (0.10) | (0.25) | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 3 | ||||
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| As at | December 31, | March 31, | ||||||||||||||||||
| (in thousands of Canadian dollars) (unaudited) | 2021 | 2021 | ||||||||||||||||||
| Notes | $ | $ | ||||||||||||||||||
| Assets | ||||||||||||||||||||
| Current assets | ||||||||||||||||||||
| Cash | 8,679 | 6,903 | ||||||||||||||||||
| Restricted cash | 3,248 | — | ||||||||||||||||||
| Accounts receivable and other receivables | 93,168 | 69,363 | ||||||||||||||||||
| Income taxes receivable | — | 642 | ||||||||||||||||||
| Unbilled revenues | 13,916 | 9,924 | ||||||||||||||||||
| Tax credits receivable | 9,173 | 4,936 | ||||||||||||||||||
| Prepaids | 2,737 | 3,923 | ||||||||||||||||||
| 130,921 | 95,691 | |||||||||||||||||||
| Non-current assets | ||||||||||||||||||||
| Restricted cash | — | 3,233 | ||||||||||||||||||
| Tax credits receivable | 9,370 | 7,809 | ||||||||||||||||||
| Property and equipment | 9,962 | 8,449 | ||||||||||||||||||
| Right-of-use assets | 4 | 13,238 | 11,118 | |||||||||||||||||
| Intangibles | 5 | 79,204 | 36,590 | |||||||||||||||||
| Deferred tax assets | 7,977 | 7,465 | ||||||||||||||||||
| Goodwill | 6 | 113,785 | 72,906 | |||||||||||||||||
| 364,457 | 243,261 | |||||||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||
| Current liabilities | ||||||||||||||||||||
| Accounts payable and accrued liabilities | 74,559 | 51,571 | ||||||||||||||||||
| Deferred revenues | 15,047 | 10,288 | ||||||||||||||||||
| Income taxes payable | 337 | — | ||||||||||||||||||
| Current portion of lease liabilities | 4 | 2,792 | 1,923 | |||||||||||||||||
| Current portion of long-term debt | 7 | 22,249 | 35,134 | |||||||||||||||||
| 114,984 | 98,916 | |||||||||||||||||||
| Non-current liabilities | ||||||||||||||||||||
| Long-term debt | 7 | 39,304 | 19,817 | |||||||||||||||||
| Lease liabilities | 4 | 15,259 | 13,536 | |||||||||||||||||
| Deferred tax liabilities | 12,223 | 2,980 | ||||||||||||||||||
| 181,770 | 135,249 | |||||||||||||||||||
| Shareholders' equity | ||||||||||||||||||||
| Share capital | 8 | 279,216 | 197,537 | |||||||||||||||||
| Deficit | (104,491) | (96,190) | ||||||||||||||||||
| Accumulated other comprehensive income (loss) | (52) | (508) | ||||||||||||||||||
| Contributed surplus | 8,014 | 7,173 | ||||||||||||||||||
| 182,687 | 108,012 | |||||||||||||||||||
| 364,457 | 243,261 | |||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 4 | ||||
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the nine months ended December 31, (in thousands of Canadian dollars, except share data) (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
| Notes | Shares outstanding | Share capital | Deficit | Accumulated other comprehensive income (loss) | Contributed surplus | Total | ||||||||||||||||||||||||||||||||||||||
| Number | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 58,695,438 | 197,537 | (96,190) | (508) | 7,173 | 108,012 | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | (8,295) | — | — | (8,295) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 456 | — | 456 | ||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | — | — | (8,295) | 456 | — | (7,839) | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | 1,349 | 1,349 | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation granted on business acquisition | 8 | — | — | — | — | 1,343 | 1,343 | |||||||||||||||||||||||||||||||||||||
| Issuance of Subordinate Voting Shares in consideration of the acquisition of R3D Consulting Inc. | 8 | 25,182,676 | 80,585 | — | — | — | 80,585 | |||||||||||||||||||||||||||||||||||||
| Shares repurchased for cancellation | 8 | (230,600) | (761) | (6) | — | — | (767) | |||||||||||||||||||||||||||||||||||||
| Issuance of Subordinate Voting Shares pursuant to vesting of share-based compensation granted on business acquisitions | 8 | 534,132 | 1,849 | — | — | (1,849) | — | |||||||||||||||||||||||||||||||||||||
| Issuance of Subordinate Voting Shares from exercise of stock options | 8 | 1,500 | 6 | — | — | (2) | 4 | |||||||||||||||||||||||||||||||||||||
| Total contributions by, and distributions to, shareholders | 25,487,708 | 81,679 | (6) | — | 841 | 82,514 | ||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2021 | 84,183,146 | 279,216 | (104,491) | (52) | 8,014 | 182,687 | ||||||||||||||||||||||||||||||||||||||
| Balance as at March 31, 2020 | 58,073,517 | 195,335 | (78,780) | 6,123 | 4,691 | 127,369 | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | (14,813) | — | — | (14,813) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (5,714) | — | (5,714) | ||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | — | — | (14,813) | (5,714) | — | (20,527) | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | 1,154 | 1,154 | ||||||||||||||||||||||||||||||||||||||
| Issuance of Subordinate Voting Shares pursuant to vesting of share-based compensation granted on business acquisitions | 157,882 | 600 | — | — | 2,876 | 3,476 | ||||||||||||||||||||||||||||||||||||||
| Repurchase of equity interests issued on business acquisitions | — | — | (72) | — | (1,204) | (1,276) | ||||||||||||||||||||||||||||||||||||||
| Issuance of Subordinate Voting Shares from settlement of DSU | 7,718 | 32 | — | — | (32) | — | ||||||||||||||||||||||||||||||||||||||
| Total contributions by, and distributions to, shareholders | 165,600 | 632 | (72) | — | 2,794 | 3,354 | ||||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2020 | 58,239,117 | 195,967 | (93,665) | 409 | 7,485 | 110,196 | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 5 | ||||
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in thousands of Canadian dollars) (unaudited) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||
| Other comprehensive loss | ||||||||||||||||||||||||||
| Items that may be classified subsequently to profit or loss | ||||||||||||||||||||||||||
| Cumulative translation adjustment on consolidation of foreign subsidiaries | (171) | (2,316) | 456 | (5,714) | ||||||||||||||||||||||
| (171) | (2,316) | 456 | (5,714) | |||||||||||||||||||||||
| Comprehensive loss | (3,657) | (7,109) | (7,839) | (20,527) | ||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 6 | ||||
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||||||||
| (in thousands of Canadian dollars) (unaudited) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||
| Notes | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Operating activities | ||||||||||||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||||||||
| Items not affecting cash | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 4,838 | 3,603 | 14,468 | 11,958 | ||||||||||||||||||||||||||||
| Amortization of finance costs | 12 | 82 | 63 | 211 | 179 | |||||||||||||||||||||||||||
| Share-based compensation | 841 | 1,406 | 2,692 | 4,629 | ||||||||||||||||||||||||||||
| Unrealized foreign exchange loss (gain) | (17) | (124) | 131 | (430) | ||||||||||||||||||||||||||||
| Foreign exchange gain on repayment of long-term debt | (4) | — | (26) | (610) | ||||||||||||||||||||||||||||
| Forgiveness of PPP loan | — | (609) | (5,868) | (609) | ||||||||||||||||||||||||||||
| Interest accretion on balances of purchase payable | 12 | 216 | 208 | 635 | 627 | |||||||||||||||||||||||||||
| Loss on disposal of property and equipment | — | — | — | 204 | ||||||||||||||||||||||||||||
| Other | 28 | (6) | 88 | (128) | ||||||||||||||||||||||||||||
| Deferred taxes | (192) | (35) | (2,318) | (2,382) | ||||||||||||||||||||||||||||
| Changes in non-cash working capital items | 13 | 7,842 | 1,176 | 1,433 | 2,940 | |||||||||||||||||||||||||||
| 13,634 | 5,682 | 11,446 | 16,378 | |||||||||||||||||||||||||||||
| Net cash from operating activities | 10,148 | 889 | 3,151 | 1,565 | ||||||||||||||||||||||||||||
| Investing activities | ||||||||||||||||||||||||||||||||
| Additions to property and equipment | (450) | (985) | (1,186) | (1,744) | ||||||||||||||||||||||||||||
| Additions to intangibles | — | (160) | — | (166) | ||||||||||||||||||||||||||||
| Restricted cash | (5) | (5) | (15) | (1,016) | ||||||||||||||||||||||||||||
| Business acquisition, net of cash acquired | 3 | — | — | (401) | — | |||||||||||||||||||||||||||
| Repurchase of equity interests issued on business acquisitions | — | (1,276) | — | (1,276) | ||||||||||||||||||||||||||||
| Net cash used in investing activities | (455) | (2,426) | (1,602) | (4,202) | ||||||||||||||||||||||||||||
| Financing activities | ||||||||||||||||||||||||||||||||
| Increase in long-term debt, net of related transaction costs | 8,353 | 9,298 | 61,644 | 44,519 | ||||||||||||||||||||||||||||
| Repayment of long-term debt | (31,550) | (6,607) | (58,791) | (41,127) | ||||||||||||||||||||||||||||
| Exercise of stock options | 8 | 4 | — | 4 | — | |||||||||||||||||||||||||||
| Repayment of lease liabilities | (696) | (332) | (1,834) | (886) | ||||||||||||||||||||||||||||
| Shares repurchased for cancellation | 8 | (677) | — | (767) | — | |||||||||||||||||||||||||||
| Lease incentives | — | — | — | 917 | ||||||||||||||||||||||||||||
| Net cash (used in) from financing activities | (24,566) | 2,359 | 256 | 3,423 | ||||||||||||||||||||||||||||
| Effect of exchange rate changes on cash | (10) | (66) | (29) | (167) | ||||||||||||||||||||||||||||
| Net change in cash | (14,883) | 756 | 1,776 | 619 | ||||||||||||||||||||||||||||
| Cash, beginning of period | 23,562 | 8,673 | 6,903 | 8,810 | ||||||||||||||||||||||||||||
| Cash, end of period | 8,679 | 9,429 | 8,679 | 9,429 | ||||||||||||||||||||||||||||
| Cash paid (included in cash flow (used in) from operating activities) | ||||||||||||||||||||||||||||||||
| Interest paid | 822 | 334 | 2,188 | 1,216 | ||||||||||||||||||||||||||||
| Income taxes paid (recovered) | 224 | 136 | (446) | 327 | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 7 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
1. GOVERNING STATUTES AND NATURE OF OPERATIONS
Alithya Group inc. (“Alithya” or the “Company”) and its subsidiaries (collectively with Alithya, the “Group”) are leaders in strategy and digital transformation. Alithya's integrated offer is based on four pillars of expertise: business strategies, enterprise cloud solutions, application services, and data and analytics. The Group deploys leading-edge solutions, services, and skills to develop tools designed to meet the unique needs of customers in a variety of sectors, including financial services, manufacturing, renewable energy, telecommunications, transportation and logistics, professional services, healthcare, and government.
The Company’s Class A subordinate voting shares (the “Subordinate Voting Shares”) trade on the Toronto Stock Exchange (“TSX”) and on the NASDAQ Capital Market (“NASDAQ”) under the symbol “ALYA”.
The Company is the Group’s ultimate parent company and its head office is located at 1100, Robert-Bourassa Boulevard, Suite 400, Montréal, Québec, Canada, H3B 3A5.
2. BASIS OF PREPARATION
Statement of Compliance
These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards ("IFRS"), and should be read in conjunction with the annual audited consolidated financial statements for the year ended March 31, 2021. The Company applied the accounting policies adopted in the most recent annual audited consolidated financial statements for the year ended March 31, 2021, except for changes as detailed below.
The Company’s revenues are subject to seasonal variations. Revenues have historically been lower during the second quarter, however in the current year, revenues did not follow historical patterns due to revenues from an acquired business (note 3).
These interim consolidated financial statements were approved and authorized for issue by the Board of Directors (the “Board”) on February 9, 2022.
Basis of Measurement
The interim consolidated financial statements have been prepared on an accrual basis and under the historical cost basis except for:
•Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination which are generally measured initially at their fair values at the acquisition date;
•Lease obligations, which are initially measured at the present value of the lease payments that are not paid at the lease commencement date; and
•Equity classified share-based payment arrangements which are measured at fair value at grant date pursuant to IFRS 2, Share-Based Payment.
INTANGIBLES
Intangible assets consist mainly of customer relationships, non-compete agreements, internal-use business solutions and software licenses and tradenames. Internal use business solutions and software licenses (“Software”) are recorded at cost. In addition, internal-use business solutions developed internally are capitalized when they meet specific capitalization criteria related to technical and financial feasibility and when the Group demonstrates its ability and intention to use them. Amortization of internal-use business solutions commences once the solution is available for use. Customer relationships, internal-use business solutions and software licenses acquired through business combinations are initially recorded at their fair value. The Group amortizes its intangible assets using the straight-line method, or a method that reflects the pattern in which the asset's future economic benefits are expected to be consumed, over their estimated useful lives, as follows:
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 8 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
2. BASIS OF PREPARATION (CONT'D)
| Method | Period | |||||||||||||
| Customer relationships | Straight line/ Economic consumption | 3 - 10 years or based on the term of the underlying contracts | ||||||||||||
| Non-compete agreements | Straight line | 3 - 10 years | ||||||||||||
| Software | Straight line | 3 years | ||||||||||||
| Tradenames | - | Indefinite | ||||||||||||
The residual value, depreciation method and useful life of each asset are reviewed at least once a year, at the reporting date.
CAPITAL STOCK
Share repurchase plan
When the Company repurchases its own shares, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. When the shares are cancelled, the excess of the consideration paid over the average stated value of the shares purchased for cancellation is charged to the deficit.
SHARE-BASED COMPENSATION PLANS
Long-term incentive plan (the "Plan")
The Company operates a Plan for eligible employees and directors of the Company and its subsidiaries which provides for various types of awards, including equity-settled stock options, deferred share units (“DSUs”), restricted share units (“RSUs”) and performance share units (“PSUs”). The Board, at its discretion, may elect to settle the RSUs and PSUs in the form of a cash payment. The Company accounts for the RSUs and PSUs as equity-settled awards as the Board intends to settle these awards through the issuance of capital stock.
The fair value of the share-based expense is based on the grant date fair value of the award expected to vest over the vesting period with a corresponding adjustment through contributed surplus. Forfeitures are estimated at the time of the grant and are included in the measurement of the expense and are subsequently adjusted to reflect actual events. For awards with graded vesting, the fair value of each tranche is recognized on a straight-line basis over its vesting period.
Any consideration paid by participants on exercise of stock options is credited to capital stock together with any related share-based compensation expense originally recorded in contributed surplus.
When DSUs, RSUs and PSUs are settled, the recorded fair value of the award is removed from contributed surplus and credited to capital stock.
Performance share units
Under the Plan, the Board, subject to the provisions of the Plan and such other terms and conditions, may grant PSUs to obtain Subordinate Voting Shares to qualified employees and directors of the Company and its subsidiaries. The terms and conditions of each PSU grant, including market and non-market performance goals, are determined by the Board. For the portion of PSUs that are issuable based on market performance conditions, the amount of PSUs recognized as an expense is adjusted based on an estimate of fair value measured using a Monte Carlo model considering market performance conditions at grant date. For the portion of the PSUs that are issuable based on non-market conditions, the amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 9 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
2. BASIS OF PREPARATION (CONT'D)
NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE
IAS 1 - Presentation of Financial Statements
On January 23, 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. In July 2020, the IASB issued final amendments to defer the effective date to annual periods beginning on or after January 1, 2023. Early adoption is permitted. For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period. The amendments also clarify how a company classifies a liability that includes a counterparty conversion option. The amendments state that: settlement of a liability includes transferring a company’s own equity instruments to the counterparty; and when classifying liabilities as current or non-current, a company can ignore only those conversion options that are recognized as equity. Management is currently assessing, but has not yet determined, the impact of this new standard on the Group’s consolidated financial statements.
Amendments to IAS 37 - Onerous Contracts, Cost of Fulfilling a Contract
On May 14, 2020, the IASB published Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37), which specifies which costs a company includes when assessing whether a contract will be loss-making. The amendments are effective for annual periods beginning on or after January 1, 2022 and applicable to contracts existing at the date when the amendments are first applied. At the date of the initial application, the cumulative effect of applying the amendments is recognized as an opening balance adjustment to retained earnings or other components of equity as appropriate. The comparatives are not restated. Management is currently assessing, but has not yet determined, the impact on the Group’s consolidated financial statements.
Amendments to IAS 12 - Income Taxes
On May 7, 2021, the IASB issued amendments to IAS 12 - Income Taxes to narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will be required to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments apply for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. Management is currently evaluating the impact of this standard on its consolidated financial statements.
3. BUSINESS COMBINATION
Alithya IT Services Inc.
Overview
On April 1, 2021, the Company acquired all of the outstanding shares of R3D Consulting Inc. (now Alithya IT Services Inc.) ("Alithya IT" or "R3D") (the “R3D Acquisition”), a private Québec firm that specializes in digital solutions.
The purchase price was paid by the issuance of 25,182,676 Subordinate Voting Shares of the Company, at a value of $3.20 per share, which was the closing share price on the TSX on April 1, 2021, cash of $978,000 and assumption of accounts payable and accrued liabilities and long-term debt of $45,000 and $8,887,000, respectively, on the closing date. The accounting for this acquisition and the purchase price allocation have been measured on a provisional basis as the fair value of the intangible assets and right-of-use assets are pending completion of an independent valuation.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 10 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
3. BUSINESS COMBINATION (CONT'D)
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the R3D Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the R3D Acquisition, the fair value will then be revised. The R3D Acquisition is being accounted for using the acquisition method of accounting.
For the three and nine months ended December 31, 2021, the Company incurred acquisition-related costs of approximately nil and $1,646,000. These costs have been recorded in the consolidated statement of operations in business acquisition and integration costs.
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| Acquisition of Alithya IT Services Inc. | $ | |||||||
| Current assets | ||||||||
| Cash | 577 | |||||||
| Accounts receivable and other receivables | 10,165 | |||||||
| Unbilled revenues | 7,169 | |||||||
| Prepaids | 91 | |||||||
| 18,002 | ||||||||
| Non-current assets | ||||||||
| Tax credits receivable | 3,234 | |||||||
| Property and equipment | 2,207 | |||||||
| Right-of-use assets | 4,212 | |||||||
| Intangibles | 52,777 | |||||||
| Deferred tax assets | 763 | |||||||
| Goodwill | 40,627 | |||||||
| Total assets acquired | 121,822 | |||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 15,070 | |||||||
| Income taxes payable | 155 | |||||||
| Deferred revenues | 125 | |||||||
| Current portion of lease liabilities | 592 | |||||||
| Current portion of long-term debt | 8,887 | |||||||
| 24,829 | ||||||||
| Non-current liabilities | ||||||||
| Lease liabilities | 3,620 | |||||||
| Deferred tax liabilities | 11,810 | |||||||
| Total liabilities assumed | 40,259 | |||||||
| Net assets acquired | 81,563 | |||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 11 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
3. BUSINESS COMBINATION (CONT'D)
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce and expected synergies from the integration of Alithya IT into the Group's existing business. The Company does not expect the goodwill to be deductible for income tax purposes.
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration as follows:
| Acquisition of Alithya IT Services Inc. | $ | |||||||
| Cash paid | 978 | |||||||
| Issuance of 25,182,676 Subordinate Voting Shares | 80,585 | |||||||
| Total consideration transferred | 81,563 | |||||||
Alithya IT 's contribution to the Group results
For the three and nine months ended December 31, 2021, the Alithya IT business contributed revenues of approximately $15,441,000 and $51,002,000, respectively. For the three and nine months ended December 31, 2021, the Alithya IT business contributed to the consolidated net loss of the Group, a loss in the amount of $775,000 and $4,595,000, respectively, including amortization, primarily related to the acquired customer relationships, of $1,267,000 and $3,805,000, respectively, and acquisition and integration costs of $201,000 and $3,683,000, respectively. Since the R3D Acquisition, all new contracts and all new employees related to the acquired business are being recorded in other Canadian entities of the Group, in preparation for its administrative integration which has resulted in a gradual transition of the activity levels within the acquired legal entity.
4. LEASES
Right-of-use assets
The following right-of-use assets relate to right-of-use real estate:
| As at | December 31, 2021 | March 31, 2021 | ||||||||||||
| $ | $ | |||||||||||||
| Beginning balance as at April 1, 2021 and 2020 | 11,118 | 11,492 | ||||||||||||
| Additions | 4,439 | 2,611 | ||||||||||||
| Depreciation | (2,309) | (1,906) | ||||||||||||
| Reassessment | — | (830) | ||||||||||||
| Lease inducement allowance | — | 28 | ||||||||||||
| Exchange rate effect | (10) | (277) | ||||||||||||
| Ending balance | 13,238 | 11,118 | ||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 12 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
4. LEASES (CONT'D)
Lease liabilities
| As at | December 31, 2021 | March 31, 2021 | ||||||||||||
| $ | $ | |||||||||||||
| Beginning balance as at April 1, 2021 and 2020 | 15,459 | 13,232 | ||||||||||||
| Additions | 4,439 | 2,611 | ||||||||||||
| Lease payments | (2,351) | (1,992) | ||||||||||||
| Lease incentives | — | 2,243 | ||||||||||||
| Lease interest | 517 | 595 | ||||||||||||
| Reassessment | — | (830) | ||||||||||||
| Concession | — | (110) | ||||||||||||
| Exchange rate effect | (13) | (290) | ||||||||||||
| Ending balance | 18,051 | 15,459 | ||||||||||||
| Current portion | 2,792 | 1,923 | ||||||||||||
| 15,259 | 13,536 | |||||||||||||
Contractual lease payments under the lease liabilities as at December 31, 2021 are as follows:
| As at | December 31, 2021 | |||||||
| $ | ||||||||
| Less than one year | 3,403 | |||||||
| One to two years | 3,369 | |||||||
| Two to five years | 8,704 | |||||||
| More than five years | 4,828 | |||||||
| Total undiscounted lease payments at period end | 20,304 | |||||||
Amounts recognized in net loss
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Interest on lease liabilities | 167 | 155 | 517 | 445 | ||||||||||||||||||||||
| Variable lease payments | 635 | 573 | 2,118 | 1,981 | ||||||||||||||||||||||
| 802 | 728 | 2,635 | 2,426 | |||||||||||||||||||||||
Total cash outflow for leases for the three and nine months ended December 31, 2021 was $1,498,000 and $4,469,000, respectively, and $1,060,000 and $3,312,000 for the three and nine months ended December 31, 2020, respectively.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 13 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
5. INTANGIBLES
| As at | December 31, 2021 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||
| Customer relationships | Software | Non-Compete Agreements | Total | Customer relationships | Software | Non- compete agreements | Total | ||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| Cost | 67,720 | 4,334 | 6,902 | 78,956 | 73,722 | 4,377 | 7,530 | 85,629 | |||||||||||||||||||||||||||||||||||||||
| Additions, purchased | — | 2 | — | 2 | — | 7 | — | 7 | |||||||||||||||||||||||||||||||||||||||
| Additions through business acquisition (note 3) | 52,777 | — | — | 52,777 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Additions, internally generated | — | — | — | — | — | 159 | — | 159 | |||||||||||||||||||||||||||||||||||||||
| Disposals / retirements | — | — | — | — | (2,933) | (29) | (237) | (3,199) | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | 90 | 1 | 12 | 103 | (3,069) | (180) | (391) | (3,640) | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 120,587 | 4,337 | 6,914 | 131,838 | 67,720 | 4,334 | 6,902 | 78,956 | |||||||||||||||||||||||||||||||||||||||
| Accumulated amortization | 38,033 | 2,471 | 1,862 | 42,366 | 31,970 | 1,242 | 613 | 33,825 | |||||||||||||||||||||||||||||||||||||||
| Amortization | 8,501 | 755 | 1,012 | 10,268 | 8,996 | 1,258 | 1,485 | 11,739 | |||||||||||||||||||||||||||||||||||||||
| Disposals / retirements | — | — | — | — | (2,933) | (29) | (236) | (3,198) | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 46,534 | 3,226 | 2,874 | 52,634 | 38,033 | 2,471 | 1,862 | 42,366 | |||||||||||||||||||||||||||||||||||||||
| Net carrying amount | 74,053 | 1,111 | 4,040 | 79,204 | 29,687 | 1,863 | 5,040 | 36,590 | |||||||||||||||||||||||||||||||||||||||
6. GOODWILL
| As at | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Canada | ADT | France | EPM US | ERP US | Total | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Beginning balance as at April 1, 2021 | 26,950 | 7,694 | 137 | 8,915 | 29,210 | 72,906 | ||||||||||||||||||||||||||||||||
| Business acquisition (note 3) | 40,627 | — | — | — | — | 40,627 | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | (4) | 60 | 196 | 252 | ||||||||||||||||||||||||||||||||
| Net carrying amount | 67,577 | 7,694 | 133 | 8,975 | 29,406 | 113,785 | ||||||||||||||||||||||||||||||||
| As at | March 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Canada | ADT | France | EPM US | ERP US | Total | |||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Beginning balance as at April 1, 2020 | 26,950 | 7,694 | 150 | 10,012 | 32,802 | 77,608 | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | (13) | (1,097) | (3,592) | (4,702) | ||||||||||||||||||||||||||||||||
| Net carrying amount | 26,950 | 7,694 | 137 | 8,915 | 29,210 | 72,906 | ||||||||||||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 14 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
7. LONG-TERM DEBT
The following table summarizes the Group’s long-term debt:
| As at | December 31, | March 31, | ||||||||||||
| 2021 | 2021 | |||||||||||||
| $ | $ | |||||||||||||
Senior secured revolving credit facility (the "Credit Facility") (a) | 25,773 | 31,023 | ||||||||||||
Secured loans (b) | 8,596 | — | ||||||||||||
Subordinated unsecured loan (c) | 10,000 | — | ||||||||||||
Balance of purchase payable with a nominal value of $3,100,000, non-interest bearing (5.8 % effective interest rate) payable April 3, 2022 | 3,072 | 2,988 | ||||||||||||
Balance of purchase payable with a nominal value of $1,800,000, non-interest bearing (6.0 % effective interest rate), payable on October 1, 2022 | 1,723 | 1,649 | ||||||||||||
Balance of purchase payable with a nominal value of $8,638,000 (US$6,825,000), non-interest bearing (6.0 % effective interest rate), payable on December 13, 2022 | 8,172 | 7,770 | ||||||||||||
Balance of purchase payable with a nominal value of $3,259,000, non-interest bearing (5.7 % effective interest rate) payable on February 1, 2022 | 3,244 | 3,112 | ||||||||||||
Unsecured promissory notes (US$ nil; March 31, 2021 US$4,800,000) (d) | — | 6,034 | ||||||||||||
Deferral of employment tax payments (US$979,000) (e) | 1,239 | 2,361 | ||||||||||||
| Other | 141 | 213 | ||||||||||||
Unamortized transaction costs (net of accumulated amortization of $687,000 and $477,000) | (407) | (199) | ||||||||||||
| 61,553 | 54,951 | |||||||||||||
| Current portion of long-term debt | 22,249 | 35,134 | ||||||||||||
| 39,304 | 19,817 | |||||||||||||
(a) The Credit Facility is available to a maximum amount of $70,000,000, and can be drawn in Canadian and the equivalent amount in U.S. dollars. It is available in prime rate advances, LIBOR advances, bankers’ acceptances and letters of credit up to $2,500,000.
The advances bear interest at the Canadian or U.S. prime rate, plus an applicable margin ranging from 0.25% to 0.75%, or bankers’ acceptances or LIBOR rates, plus an applicable margin ranging from 1.50% to 2.00%, as applicable for Canadian and U.S. advances, respectively. The applicable margin is determined based on threshold limits for certain financial ratios.
On January 27, 2022, the Credit Facility was amended and is now available to a maximum amount of $125,000,000. The advances will bear interest at the Canadian or U.S. prime rate, plus an applicable margin ranging from 0.25% to 1.00%, or bankers’ acceptances or SOFR rates, plus an applicable margin ranging from 1.50% to 2.25%, as applicable for Canadian and U.S. advances, respectively.
As security for the Credit Facility, Alithya provided a first ranking hypothec on the universality of its assets excluding any leased equipment and Investissement Québec’s first ranking lien on tax credits receivable for the financing related to refundable tax credits. Under the terms of the agreement, the Group is required to maintain certain financial covenants which are measured on a quarterly basis. The amended Credit Facility matures April 1, 2024 and is renewable for additional one-year periods at the lender’s discretion.
(b) On November 24, 2021, the Group entered into secured loans with Investissement Québec to finance its 2021 and 2022 refundable tax credits to a maximum of the lesser of 90% of the eligible refundable tax credit or $4,670,000 and $5,832,000, for 2021 and 2022, respectively. The secured loans bear interest at the Canadian prime rate plus 1.00% and are secured by a first ranking hypothec on the universality of the financed refundable tax credits and a subordinated ranking hypothec on accounts receivable and other receivables. The secured loans are repayable on the earlier of the date of receipt of the refundable tax credits receivable and the maturity dates of March 31, 2023 for the 2021 financed refundable tax credits, in the amount of $4,670,000 and March 31, 2024 for the 2022 financed refundable tax credits, in the amount of $3,926,490.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 15 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
7. LONG-TERM DEBT (CONT'D)
(c) On September 28, 2021, the Group entered into a subordinated unsecured loan, with Investissement Québec, in the amount of $10,000,000, bearing interest ranging between 6.00% and 7.25%, determined and payable quarterly, based on threshold limits for certain financial ratios, and maturing on October 1, 2025. Under the terms of the loan, the Group is required to maintain certain financial covenants which are measured on a quarterly basis.
On January 28, 2022, the subordinated unsecured loan was amended and increased to $20,000,000, bearing interest ranging between 7.10% and 8.35%, on the additional $10,000,000, determined and payable quarterly, based on threshold limits for certain financial ratios. An amount of $7,500,000 was drawn on the loan availability subsequent to period-end (note 15) with the remaining $2,500,000 available based on certain conditions.
(a)(c) The Group was in compliance with all of its financial covenants as at December 31, 2021.
(d) As a result of the COVID-19 pandemic, on May 5, 2020, five U.S. subsidiaries of the Group received funding under the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") administered by the U.S. Small Business Administration ("SBA") and entered into unsecured promissory notes (the "Notes") in the aggregate principal amount of US$6,300,000 ($7,932,000). The Notes have a term of five years at an interest rate of 1.00% per annum, with a deferral of payments until the date on which the applicable forgiveness is decisioned, with respect to any portion of the Notes which may not be forgiven.
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP, which the Group applied for between November 17, 2020 and January 5, 2021. The Group accounts for the forgiveness as government assistance with a corresponding reduction in the cost of the related item (note 11). Such forgiveness is to be determined, subject to limitations and ongoing rule making by the SBA, based on the necessity of the loan at the time of application and the timely use of loan proceeds for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest costs and the maintenance of employee and compensation levels. The PPP loans, even after notice of forgiveness by the SBA, are subject to subsequent audit by the SBA, for a period of six years after receiving such notice.
During the three and nine months ended December 31, 2021, the Group recognized an aggregate amount of nil and $5,868,000 (US$4,800,000), respectively, and $608,728 (US$475,000) for the three and nine months ended December 31, 2020, as government assistance for the PPP loans. During the three months ended December 31, 2021, the Group has received confirmation of full loan forgiveness decisions by the SBA on the last remaining PPP loan in the amount of $2,879,000 (US$2,275,000). The Group has now received full loan forgiveness decisions for all five PPP loans obtained in May 2020.
(e) The CARES Act allows employers to defer the payments of the employer share of social security taxes during the period beginning on March 27, 2020 and ending on the earlier of December 31, 2020 or the date the Company receives a decision from the lender that the PPP loan is forgiven. The payment of the deferred social security taxes was paid fifty percent on December 31, 2021, with the remaining amount due on December 31, 2022.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 16 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
8. SHARE CAPITAL
| Subordinate Voting Shares | Multiple Voting Shares | |||||||||||||||||||||||||
| Number of shares | $ | Number of shares | $ | |||||||||||||||||||||||
| Beginning balance as at April 1, 2021 | 51,373,822 | 193,552 | 7,321,616 | 3,985 | ||||||||||||||||||||||
| Shares issued pursuant to vesting of share-based compensation granted on business acquisitions | 534,132 | 1,849 | — | — | ||||||||||||||||||||||
| Business acquisition of R3D (note 3) | 25,182,676 | 80,585 | — | — | ||||||||||||||||||||||
| Shares repurchased for cancellation | (230,600) | (761) | — | — | ||||||||||||||||||||||
| Exercise of stock options | 1,500 | 6 | — | — | ||||||||||||||||||||||
| As at December 31, 2021 | 76,861,530 | 275,231 | 7,321,616 | 3,985 | ||||||||||||||||||||||
During the nine months ended December 31, 2021, the following transactions occurred:
•As part of the R3D Acquisition, 25,182,676 Subordinate Voting Shares, with a total value of $80,585,000, were issued in consideration of the acquisition.
•The repurchase and cancellation of 230,600 Subordinate Voting Shares under the Company's share repurchase plan for a total cash consideration of $767,000 with the excess of the purchase price over the carrying value in the amount of $6,000 charged to retained earnings.
•As part of the Matricis Acquisition, 157,882 Subordinate Voting Shares, with a total value of $600,000, reclassified from contributed surplus, were issued as settlement of the second anniversary share consideration rights.
•As part of the Travercent Acquisition, 376,250 Subordinate Voting Shares, with a total value of US$975,000 ($1,248,516), reclassified from contributed surplus, were issued as settlement of the second anniversary share consideration rights.
•1,500 stock options were exercised and 1,500 Subordinate Voting Shares were issued with an approximate value of $6,000, for cash consideration of $4,000, with $2,000 reclassified from contributed surplus.
During the nine months ended December 31, 2020, the following transactions occurred:
•As part of the Matricis Acquisition, 157,882 Subordinate Voting Shares, with a total value of $600,000, reclassified from contributed surplus, were issued as settlement of the first anniversary share consideration rights.
•As part of the Travercent Acquisition, the Company elected not to convert the first anniversary share consideration rights into Subordinate Voting Shares but rather to settle for total cash consideration of US$975,000 ($1,276,175). This resulted in a repurchase of a vested equity instrument, which has been recorded as a reduction of retained earnings and contributed surplus in the amounts of $72,237 and $1,203,938, respectively. The Company continues to account for the December 13, 2021 and 2022 anniversary share consideration rights as an equity instrument.
•7,718 DSUs were settled and 7,718 Subordinate Voting Shares were issued with an approximate value of $32,000, reclassified from contributed surplus.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 17 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
8. SHARE CAPITAL (CONT'D)
Share repurchase plan
On September 14, 2021, the Company’s Board of Directors authorized and subsequently the TSX approved the implementation of a Normal Course Issuer Bid (“NCIB”). Under the NCIB, the Company is allowed to purchase for cancellation up to 5,462,572 Subordinate Voting Shares, representing 10% of the Company’s public float as of the close of markets on September 8, 2021.
Purchases under the NCIB commenced on September 20, 2021 and will end on the earlier of September 19, 2022 and the date on which the Company will have acquired the maximum number of Subordinate Voting Shares allowable under the NCIB or otherwise has decided not to make any further purchases. All purchases of Subordinate Voting Shares will be made by means of open market transactions at their market price at the time of acquisition. Concurrently, the Company entered into an automatic share repurchase plan (“ASRP”) with a designated broker in connection with its NCIB. The ASRP allows for the designated broker, to purchase for cancellation Subordinate Voting Shares, on behalf of the Company, subject to certain trading parameters established, from time to time, by the Company.
Stock options
The following table presents information concerning stock option activity for the period:
| Number of stock options | Weighted average exercise price | |||||||||||||
| $ | ||||||||||||||
| Beginning balance as at April 1, 2021 | 3,525,181 | 3.37 | ||||||||||||
| Granted | 1,073,302 | 3.23 | ||||||||||||
| Forfeited | (174,292) | 3.59 | ||||||||||||
| Expired | (47,672) | 5.92 | ||||||||||||
| Exercised | (1,500) | 2.96 | ||||||||||||
| Ending balance as at December 31, 2021 | 4,375,019 | 3.26 | ||||||||||||
| Exercisable at period end | 1,800,617 | 3.38 | ||||||||||||
Included in the 1,800,617 of stock options exercisable as at December 31, 2021, 810,528 stock options are exercisable to purchase Class B multiple voting shares ("Multiple Voting Shares").
On June 14, 2021, Alithya issued 774,202 and 299,100 stock options, to purchase a total of 1,073,302 Subordinate Voting Shares, at a grant price of $3.23 and US$2.66, respectively.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 18 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
8. SHARE CAPITAL (CONT'D)
The number of Alithya stock options granted to employees during the nine months ended December 31, 2021 and 2020, the assumptions used to determine share-based compensation expense, using the Black-Scholes stock option pricing model, and the related compensation expense recorded, were as follows:
| Period ended | December 31, | |||||||||||||
| 2021 | 2020 | |||||||||||||
| Compensation expense related to the options granted | $236 | $106 | ||||||||||||
| Number of stock options granted | 1,073,302 | 755,000 | ||||||||||||
| Weighted average fair value of options granted | $1.20 | $0.81 | ||||||||||||
| Aggregate fair value of options granted | $1,290 | $609 | ||||||||||||
| Weighted average assumptions | ||||||||||||||
| Share price | $3.23 | $2.26 | ||||||||||||
| Exercise price | $3.23 | $2.26 | ||||||||||||
| Risk-free interest rate | 1.25 | % | 0.46 | % | ||||||||||
| Expected volatility* | 34.7 | % | 35.0 | % | ||||||||||
| Dividend yield | — | — | ||||||||||||
| Expected option life (years) | 6.6 | 6.6 | ||||||||||||
| Vesting conditions – time (years) | 3.2 | 3.2 | ||||||||||||
DSUs
The following table presents information concerning DSU activity for the period:
| Number of DSU | Weighted average grant date fair value | |||||||||||||
| $ | ||||||||||||||
| Beginning balance as at April 1, 2021 | 330,246 | 2.97 | ||||||||||||
| Granted | 130,720 | 3.38 | ||||||||||||
| Ending balance as at December 31, 2021 | 460,966 | 3.08 | ||||||||||||
On June 30, 2021, 46,310 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.39, per DSU, for an aggregate fair value of $157,000. The amounts have been recorded in share-based compensation expense.
On September 30, 2021, 43,798 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.48, per DSU, for an aggregate fair value of $152,000. The amounts have been recorded in share-based compensation expense.
On December 31, 2021, 40,612 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.25, per DSU, for an aggregate fair value of $132,000. The amounts have been recorded in share-based compensation expense.
RSUs
As at December 31, 2021, 181,498 fully vested RSUs, in aggregate, are outstanding with a grant date fair value of $2.26.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 19 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
8. SHARE CAPITAL (CONT'D)
PSUs
On June 14, 2021, the Board approved the issuance of 332,263 PSUs, in aggregate, vesting three years from the date of grant.
On July 1, 2021, 332,263 PSUs, in aggregate, were granted to employees of the Company at a grant date fair value of $3.24, per PSU, for an aggregate fair value of $1,076,532. Share-based compensation expense for the three and nine months ended December 31, 2021 amounted to $91,000 and $182,000.
Share-based compensation
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Stock option plan | 236 | 166 | 634 | 533 | ||||||||||||||||||||||
| Share purchase plan – employer contribution | 298 | 144 | 825 | 429 | ||||||||||||||||||||||
| Share-based compensation granted on business acquisitions | 382 | 1,005 | 1,343 | 3,475 | ||||||||||||||||||||||
| Deferred share units | 132 | 134 | 441 | 408 | ||||||||||||||||||||||
| Restricted share units | — | 101 | 92 | 213 | ||||||||||||||||||||||
| Performance share units | 91 | — | 182 | — | ||||||||||||||||||||||
| 1,139 | 1,550 | 3,517 | 5,058 | |||||||||||||||||||||||
9. RELATED PARTIES
Operating transactions with key management personnel
In the normal course of operations, the Company incurred the following transactions with an entity controlled by a director. The transactions have been recorded at the contractual amount of the consideration established, which represents market rates, as agreed by the related parties.
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenues* | 4,922 | — | 16,322 | — | ||||||||||||||||||||||
* Under a ten-year commercial agreement, ending in April 2031, an entity controlled by a director has committed to minimum annual gross margin, resulting from the procurement of consulting services, with annual surpluses and/or deficiencies thereof eligible to certain carryover provisions. Should the minimum contracted amounts not be met, the entity will make compensating payments based on a formula as defined in the commercial agreement. The commercial agreement may be extended to April 2034, however the minimum annual gross margin requirements will not be applicable to the extension period.
| As at | December 31, | March 31, | ||||||||||||
| 2021 | 2020 | |||||||||||||
| $ | $ | |||||||||||||
| Trade accounts receivable | 10,282 | — | ||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 20 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
10. EARNINGS PER SHARE
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||
| Weighted average number of common shares outstanding | 83,940,403 | 58,237,401 | 83,898,760 | 58,132,638 | ||||||||||||||||||||||
| Basic and diluted loss per share | (0.04) | (0.08) | (0.10) | (0.25) | ||||||||||||||||||||||
The potentially dilutive outstanding equity instruments mentioned in Note 8 were not included in the calculation of diluted earnings per share since the Company incurred losses and the inclusion of these equity instruments would have an antidilutive effect.
11. ADDITIONAL INFORMATION ON OPERATING LOSS
The following table provides additional information on the consolidated loss:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
Employee compensation and subcontractor costs (a)(b) | 102,930 | 66,678 | 294,304 | 199,138 | ||||||||||||||||||||||
| Government assistance | ||||||||||||||||||||||||||
- tax credits (c) | (2,990) | (1,618) | (7,632) | (4,865) | ||||||||||||||||||||||
- grants and loan forgiveness (d) | (55) | (1,148) | (6,178) | (3,729) | ||||||||||||||||||||||
Selling expenses (e) | 13,690 | 11,237 | 38,664 | 34,875 | ||||||||||||||||||||||
General and administrative expenses (e) | 11,312 | 9,184 | 33,970 | 25,108 | ||||||||||||||||||||||
| Depreciation of property and equipment | 621 | 445 | 1,891 | 1,283 | ||||||||||||||||||||||
| Depreciation of right-of-use assets | 779 | 455 | 2,309 | 1,426 | ||||||||||||||||||||||
(a) Included in cost of sales and selling, general and administrative expenses.
(b) Net of grants and loan forgiveness.
(c) Included in cost of sales.
(d) For the three months ended December 31, 2021, $55,000 was included in cost of sales (2020 - $1,021,000 and $127,000 were included in cost of sales and selling, general and administrative expenses, respectively). For the nine months ended December 31, 2021, $4,854,000 and $1,324,000 (2020 - $3,339,000 and $391,000) were included in cost of sales and selling, general and administrative expenses, respectively.
(e) Including related employee compensation costs.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 21 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
12. NET FINANCIAL EXPENSES
The following table summarizes net financial expenses:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Interest on long-term debt | 651 | 307 | 1,661 | 864 | ||||||||||||||||||||||
| Interest and financing charges | 93 | 141 | 274 | 329 | ||||||||||||||||||||||
| Interest on lease liabilities | 167 | 156 | 517 | 445 | ||||||||||||||||||||||
| Amortization of finance costs | 82 | 63 | 211 | 179 | ||||||||||||||||||||||
| Interest accretion on balances of purchase payable | 216 | 208 | 635 | 627 | ||||||||||||||||||||||
| Interest income | (6) | (5) | (71) | (19) | ||||||||||||||||||||||
| 1,203 | 870 | 3,227 | 2,425 | |||||||||||||||||||||||
13. SUPPLEMENTARY CASH FLOW INFORMATION
Net change in non-cash working capital items is as follows:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Accounts receivable and other receivables | (4,222) | 2,379 | (13,758) | 6,684 | ||||||||||||||||||||||
| Income taxes receivable | (9) | (100) | 667 | 910 | ||||||||||||||||||||||
| Unbilled revenues | 6,376 | (738) | 3,176 | (4,214) | ||||||||||||||||||||||
| Tax credits receivable | (3,086) | (1,287) | (2,609) | 893 | ||||||||||||||||||||||
| Prepaids | (184) | (2,431) | 1,287 | (1,906) | ||||||||||||||||||||||
| Accounts payable and accrued liabilities | 5,636 | 1,573 | 7,881 | (2,158) | ||||||||||||||||||||||
| Income taxes payable | 152 | — | 181 | — | ||||||||||||||||||||||
| Deferred revenues | 3,179 | 1,780 | 4,608 | 2,731 | ||||||||||||||||||||||
| 7,842 | 1,176 | 1,433 | 2,940 | |||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 22 | ||||
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31 2021 AND 2020
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
14. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company has examined its activities and has determined, based on information received on a regular basis by the decision-makers, that it has a single reportable segment.
Revenues by geographic location
The following table presents total external revenues by geographic location:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Canada | 72,136 | 65.8 | 40,029 | 56.7 | 206,457 | 65.0 | 117,335 | 56.0 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. | 33,732 | 30.7 | 27,598 | 39.1 | 100,870 | 31.7 | 84,953 | 40.5 | ||||||||||||||||||||||||||||||||||||||||||
| International | 3,845 | 3.5 | 2,979 | 4.2 | 10,584 | 3.3 | 7,384 | 3.5 | ||||||||||||||||||||||||||||||||||||||||||
| 109,713 | 100.0 | 70,606 | 100.0 | 317,911 | 100.0 | 209,672 | 100.0 | |||||||||||||||||||||||||||||||||||||||||||
Long-lived assets by geographic location
The following table presents the total net book value of the Group’s long-lived assets by geographic location:
| As at | December 31, | March 31, | ||||||||||||||||||||||||
| 2021 | 2021 | |||||||||||||||||||||||||
| $ | % | $ | % | |||||||||||||||||||||||
| Canada | 154,698 | 71.5 | 62,172 | 48.2 | ||||||||||||||||||||||
| U.S. | 60,286 | 27.9 | 65,784 | 51.0 | ||||||||||||||||||||||
| International | 1,205 | 0.6 | 1,107 | 0.8 | ||||||||||||||||||||||
| 216,189 | 100.0 | 129,063 | 100.0 | |||||||||||||||||||||||
Major customer
Contracts with one major customer accounted for $16,401,000 and 14.9% of revenues for the three months ended December 31, 2021 ($7,522,000 and 10.7% for the three months ended December 31, 2020) and $46,934,000 and 14.8% of revenues for the nine months ended December 31, 2021 ($20,147,000 and 9.6% for the nine months ended December 31, 2020). As at December 31, 2021, accounts receivable and other receivables from two major customers amounted to $26,584,000 or 28.5% of total accounts receivable and other receivables (March 31, 2021 - one major customer amounted to $11,011,000 or 15.9%).
15. SUBSEQUENT EVENTS
On January 31, 2022, Alithya acquired 100% of the issued and outstanding membership interest of Vitalyst, LLC (“Vitalyst”) ("Vitalyst Acquisition"), a US-based learning, employee experience and transformative change enablement business.
The Vitalyst Acquisiton was completed for total consideration of US$50,200,000 ($64,000,000), including the assumption of the estimated IFRS 16 lease liabilities of US$3,200,000 ($4,070,000), with US$46,000,000 ($58,500,000) paid in cash, subject to working capital and other adjustments, plus a potential earnout of up to US$1,000,000 ($1,270,000) payable before May 31, 2023. The purchase price and related transaction costs were funded through a combination of a private placement of 6,514,658 Subordinate Voting Shares to a company controlled by a director and 1,628,664 Subordinate Voting Shares to Investissement Québec, in both cases at an issue market price of $3.07 per share, for aggregate gross proceeds of $25,000,000, a $7,500,000 draw on the subordinate unsecured loan (note 7) and availability under the Company's amended Credit Facility (note 7).
Alithya Group inc. – Interim Consolidated Financial Statements for the three and nine months ended December 31, 2021 and 2020 | | 23 | ||||
Exhibit 99.2
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya Group inc. For the three and nine months ended December 31, 2021 | ||
Table of Contents
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | |||||
1. Basis of Presentation
This Management’s Discussion and Analysis (“MD&A”) provides a review of the results of operations, financial condition and cash flows for Alithya Group inc. for the three-month and nine-month periods ended December 31, 2021. References to “Alithya”, the “Company”, the “Group”, “we”, “our” and “us” in this MD&A refer to Alithya Group inc. and its subsidiaries or any one or more of them, unless the context requires otherwise. This document should be read in conjunction with the information contained in the Company’s interim consolidated financial statements (the "Q3 Financial Statements") and accompanying notes for the three-month and nine-month periods ended December 31, 2021 and 2020, as well as the audited consolidated financial statements and MD&A for the fiscal year ended March 31, 2021. These documents, as well as the Company's Annual Information Form, and additional information regarding the business of the Company, are available under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and the Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”) at www.sec.gov.
For reporting purposes, the Company prepared the Q3 Financial Statements in Canadian dollars in accordance with IAS 34 - Interim Financial Reporting of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Unless otherwise indicated, all dollar (“$”) amounts and references in this MD&A are in Canadian dollars and references to “US$” are to U.S. dollars. Variances, ratios and percentage changes in this MD&A are based on unrounded numbers.
This MD&A contains both IFRS and non-IFRS financial measures. See the section titled “Non-IFRS Measures”.
Unless otherwise stated, in preparing this MD&A, the Company has considered information available to it up to February 9, 2022, the date the Company’s Board of Directors (“Board”) approved this MD&A and the Q3 Financial Statements.
2. Forward-Looking Statements
This MD&A contains statements that may constitute “forward-looking information” within the meaning of applicable Canadian securities laws and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and other applicable U.S. safe harbours (collectively “forward-looking statements”). Statements that do not exclusively relate to historical facts, as well as statements relating to management’s expectations regarding the future growth, results of operations, performance and business prospects of Alithya, and other information related to Alithya’s business strategy and future plans or which refer to the characterizations of future events or circumstances represent forward-looking statements. Such statements often contain the words “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” “project,” “target,” and similar expressions and variations thereof, although not all forward-looking statements contain these identifying words.
Forward-looking statements in this MD&A include, among other things, information or statements about: (i) our ability to generate sufficient earnings to support our operations; (ii) our ability to take advantage of business opportunities and meet our goals set in our three-to-five-year strategic plan; (iii) our ability to develop new business, broaden the scope of our service offerings and enter into new contracts; (iv) our strategy, future operations, and prospects; (v) our need for additional financing and our estimates regarding our future financing and capital requirements; (vi) our expectations regarding our financial performance, including our revenues,
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 1 | ||||
profitability, research and development, costs and expenses, gross margins, liquidity, capital resources, and capital expenditures; (vii) our ability to realize the expected synergies or cost savings relating to the integration of our business acquisitions, and (viii) the impact of the COVID-19 pandemic and related response measures on our business operations, financial results and financial position and those of our clients and on the economy in general.
Forward-looking statements are presented for the sole purpose of assisting investors and others in understanding Alithya’s objectives, strategies and business outlook as well as its anticipated operating environment and may not be appropriate for other purposes. Although management believes the expectations reflected in Alithya’s forward-looking statements were reasonable as at the date they were made, forward-looking statements are based on the opinions, assumptions and estimates of management and, as such, are subject to a variety of risks and uncertainties and other factors, many of which are beyond Alithya’s control, and which could cause actual events or results to differ materially from those expressed or implied in such statements. Such risks and uncertainties include but are not limited to those discussed in the section titled “Risks and Uncertainties” of this MD&A and the MD&A for the year ended March 31, 2021, as well as in Alithya’s other materials made public, including documents filed with Canadian and U.S. securities regulatory authorities from time to time and which are available on SEDAR at www.sedar.com and EDGAR at www.sec.gov. Additional risks and uncertainties not currently known to Alithya or that Alithya currently deems to be immaterial could also have a material adverse effect on its financial position, financial performance, cash flows, business or reputation.
Forward-looking statements contained in this MD&A are qualified by these cautionary statements and are made only as of the date of this MD&A. Alithya expressly disclaims any obligation to update or alter any forward-looking statements, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law. Investors are cautioned not to place undue reliance on forward-looking statements since actual results may vary materially from them.
3. Business Overview
Alithya advises in strategy and digital transformation, with more than 3,600 professionals, including the recent acquisition of Vitalyst, LLC (see section 14), in Canada, the U.S., and internationally and assists clients in their pursuit of innovation and excellence and the achievement of their business objectives through the optimal use of digital technologies.
Alithya deploys leading-edge solutions, services, and skills to develop tools designed to meet the unique needs of customers in a variety of sectors, including financial services, manufacturing, renewable energy, telecommunications, transportation and logistics, professional services, healthcare, and government.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 2 | ||||
Business Offerings
Alithya's business offerings include a comprehensive range of digital technology services to address client needs:
•Business Strategy. Alithya leads clients through essential decision-making processes regarding strategic planning, change management, systems evolution, operational processes, and more. Applying the most recurrent methodologies, we help our clients optimize efficiency and successfully navigate the digital transformation age. We achieve results by leveraging an array of Business Strategy services, including strategic consulting, digital transformation, organizational performance and enterprise architecture.
•Application Services. Alithya’s experts guide clients through all facets of Application Services, from migration of legacy systems into future-ready digital solutions, to the development of completely new solutions using state-of-the-art technologies. Our experts assist our clients in the choice between cloud, on-premise, and hybrid hosting strategies and solutions. Alithya’s Application Solutions services include digital applications DevOps, legacy systems modernization, control and software engineering, cloud infrastructure, quality assurance and automated testing.
•Enterprise Solutions. Working with key industry partners, including some of the world’s largest vendors of cloud-based Enterprise Solutions, Alithya’s experts help clients deploy company-wide systems to improve the efficiency of their finance, human capital, operations, and marketing functions. Alithya’s Enterprise Solutions services include Enterprise Resource Planning (ERP), Corporate Performance Management (CPM/EPM), Customer Relationship Management (CRM/CXM) and Human Capital Management (HCM).
•Data and Analytics. Data analysis plays a critical role in the optimization of business processes. Leveraging specialized IT systems and software, Alithya’s data scientists help clients gain business insight and drive better decision-making through enhanced data collection, big data analytics, machine learning automation and reporting. Alithya’s Data and Analytics services include business intelligence, data management, artificial intelligence and machine learning, as well as Internet of Things (IoT).
Geographically, Alithya’s operations span across Canada, the United States and internationally, providing a full spectrum of strategy and digital technology services with deep expertise in a range of technologies and business domains.
Competitive Environment
Today, for many companies, digital systems and infrastructures are among their most important and strategic assets. Not only do these assets require significant investments, but they increasingly serve as key differentiators and drivers of growth for customers.
Accordingly, businesses are seeking solutions that allow them to maintain their ability to differentiate themselves from competitors with proprietary business processes, combined with product customization. That is where digital transformation comes into play, inviting companies to make a shift in their approach and to evolve from traditional information technologies to flexible digital technologies.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 3 | ||||
As businesses’ technology spending continues to increase, digital technology firms such as Alithya are striving to deliver innovative thinking and in-depth vertical industry expertise, while facilitating business process transformation through the use of the most optimal technologies.
Alithya believes it is well positioned to respond to these trends in clients’ investments in digital technology. Alithya’s business model is built on a philosophy of offering flexible and creative solutions, enabling clients to realize maximum benefits from their digital technology investments. Alithya positions itself as an agile trusted advisor and consulting partner capable of delivering rapid results for its clients.
Alithya’s competitors include systems integration firms, contract programming companies, application software companies, cloud computing service providers, large or traditional consulting firms, professional services groups of computer equipment companies, infrastructure management and outsourcing companies and boutique digital companies. In addition, Alithya competes with numerous smaller local companies in the various geographic markets in which it operates.
Alithya competes based on the following principal differentiating factors: vision and strategic advisory ability, digital services capabilities, performance and reliability, quality of technical support, training and services, responsiveness to client needs, reputation and experience, financial stability and strong corporate governance and competitive pricing of services.
Alithya also relies on the following measures to compete effectively: (a) investments to scale its services practice areas; (b) a well-developed recruiting, training and retention model; (c) a successful service delivery model; (d) intrapreneurial culture and approach; (e) a broad referral base; (f) continual investment in process improvement and knowledge capture; (g) investment in infrastructure and research and development; (h) continued focus on responsiveness to client needs, quality of services and competitive prices; and (i) project management capabilities and technical expertise.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 4 | ||||
4. Strategic Business Plan
Alithya has adopted a three-to-five-year strategic plan which sets as a goal to consolidate its position as to become a North American digital transformation leader.
According to this plan, Alithya's consolidated scale and scope should allow it to leverage its geographies, expertise, integrated offerings, and position on the value chain to target the fastest growing IT services segments. Alithya's specialization in digital technologies and the flexibility to deploy enterprise solutions, and deliver solutions tailored to specific business objectives, responds directly to client expectations.
More specifically, Alithya has established a three-pronged plan focusing on:
•Increasing scale through organic growth and strategic acquisitions by:
◦Generating profitable organic growth through innovation, higher-value offerings and client-relationships based on trust;
◦Completing value enhancing business acquisitions by way of a North American geographic expansion to complement current market presence, while progressively adding major integrated enterprise solutions offerings and selected specialized expertise;
•Achieving best-in-class employee engagement by:
◦Fostering a culture of collaboration, diversity, and ownership;
◦Cultivating employee well-being and personal growth;
◦Investing in the development of its leaders and employees;
•Providing its investors, partners and stakeholders with long-term growing return on investment by:
◦Strengthening its existing relationships with clients, as a key trusted advisor, by generating long-term value;
◦Investing in innovation and higher value service offerings;
◦Acting responsibly, with a sustainable and respectful vision for its stakeholders.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 5 | ||||
5. Financial Highlights
| Results of Operations | Three months ended December 31, | Nine months ended December 31, | ||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenues | 109,713 | 70,606 | 317,911 | 209,672 | ||||||||||||||||||||||
| Net Loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||
| Basic and Diluted Loss per Share | (0.04) | (0.08) | (0.10) | (0.25) | ||||||||||||||||||||||
EBITDA (1) | 2,425 | (540) | 6,948 | (1,762) | ||||||||||||||||||||||
EBITDA Margin (1) | 2.2 | % | (0.8) | % | 2.2 | % | (0.8) | % | ||||||||||||||||||
Adjusted EBITDA (1) | 4,514 | 2,290 | 16,561 | 6,383 | ||||||||||||||||||||||
Adjusted EBITDA Margin (1) | 4.1 | % | 3.2 | % | 5.2 | % | 3.0 | % | ||||||||||||||||||
| Other | December 31, | March 31 | ||||||||||||
| (in $ thousands) | 2021 | 2021 | ||||||||||||
| $ | $ | |||||||||||||
| Total Assets | 364,457 | 243,261 | ||||||||||||
Non-Current Financial Liabilities (4) | 54,563 | 33,353 | ||||||||||||
Total Long-Term Debt | 61,553 | 54,951 | ||||||||||||
Net Bank Borrowing (2) | 13,987 | 21,100 | ||||||||||||
| Shares, Stock Options and Share Units Outstanding | February 4, | |||||||
| 2022 | ||||||||
| Class A Subordinate Voting Shares ("Subordinate Voting Shares") | 85,239,344 | |||||||
| Class B Multiple Voting Shares ("Multiple Voting Shares") | 7,321,616 | |||||||
Options (3) | 4,375,019 | |||||||
| Deferred Share Units ("DSUs") | 460,966 | |||||||
| Restricted Share Units ("RSUs") | 181,498 | |||||||
| Performance Share Units ("PSUs") | 332,263 | |||||||
1 These are non-IFRS financial measures defined below and accompanied by a reconciliation to the most directly comparable IFRS financial measure. Refer to the section below titled “Non-IFRS Measures”.
2 This is a non-IFRS financial measure as defined below. Refer to the section below titled “Non-IFRS Measures” and to section 11.6 for the calculated amount.
3 Includes 810,528 stock options to purchase Multiple Voting Shares.
4 Non-current financial liabilities include the long-term portion of the long-term debt and the long-term portion of the lease liabilities.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 6 | ||||
For the three months ended December 31, 2021:
•Revenues increased 55.4% to $109.7 million, compared to $70.6 million for the same quarter last year. The percentage increase would have been 57.0% assuming a constant US$ exchange rate.
•Adjusted EBITDA(1) increased 97.0% to $4.5 million, or 4.1% of revenues, compared to $2.3 million, or 3.2% of revenues, for the same quarter last year.
•Gross margin increased 38.3% to $28.3 million, compared to $20.4 million for the same quarter last year.
•Gross margin for the third quarter, as a percentage of revenues, was 25.8%, or 28.1% when excluding the impact of the April 2021 acquisition of R3D Consulting Inc. (the "R3D Acquisition"), from 28.9% for the same quarter last year.
•Selling, general and administrative expenses as a percentage of revenues decreased to 22.8%, from 28.9% for the same quarter last year.
•Net loss decreased to $3.5 million, or $0.04 per share, compared to a net loss of $4.8 million, or $0.08 per share, for the same quarter last year.
•Q3 Bookings(1) reached $125.2 million, which translated into a Book-to-Bill Ratio(1) of 1.14 for the quarter, and on a trailing twelve months basis, Bookings(1) were $1,017.4 million, including the $600.0 million estimated value of the two long-term contracts signed as part of the R3D Acquisition, which translated into a Book-to-Bill Ratio(1) of 2.57.
•Solid financial position, with net cash generated from operating activities of over $10.1 million during the third quarter, $8.6 million of new secured loans to finance refundable tax credits, and the senior secured revolving credit facility usage decreasing from $56.2 million last quarter to $25.8 million.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 7 | ||||
6. Business Combination
Alithya IT Services Inc.
Overview
On April 1, 2021, the Company acquired all of the outstanding shares of R3D Consulting Inc. (now Alithya IT Services Inc.) ("Alithya IT" or "R3D"), a private Québec firm that specializes in digital solutions.
The purchase price was paid by the issuance of 25,182,676 Subordinate Voting Shares of the Company, at a value of $3.20 per share, which was the closing share price on the TSX on April 1, 2021, cash of $978,000 and assumption of accounts payable and accrued liabilities and long-term debt of $45,000 and $8,887,000, respectively, on the closing date. The accounting for this acquisition and the purchase price allocation have been measured on a provisional basis as the fair value of the intangible assets and right-of-use assets are pending completion of an independent valuation.
The fair value of the assets acquired, liabilities assumed, and the purchase consideration is preliminary pending completion of their valuation. Should new information, obtained within one year of the date of acquisition, about the facts and circumstances that existed at the date of the R3D Acquisition, result in adjustments to the below amounts, or require additional provisions for conditions that existed at the date of the R3D Acquisition, the fair value will then be revised. The R3D Acquisition is being accounted for using the acquisition method of accounting.
For the three and nine months ended December 31, 2021, the Company incurred acquisition-related costs of approximately nil and $1,646,000. These costs have been recorded in the consolidated statement of operations in business acquisition and integration costs.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 8 | ||||
Purchase Price Allocation
The preliminary allocation of the fair value of the assets acquired and the liabilities assumed is detailed as follows:
| Acquisition of Alithya IT Services Inc. (in $ thousands) | $ | |||||||
| Current assets | ||||||||
| Cash | 577 | |||||||
| Accounts receivable and other receivables | 10,165 | |||||||
| Unbilled revenues | 7,169 | |||||||
| Prepaids | 91 | |||||||
| 18,002 | ||||||||
| Non-current assets | ||||||||
| Tax credits receivable | 3,234 | |||||||
| Property and equipment | 2,207 | |||||||
| Right-of-use assets | 4,212 | |||||||
| Intangibles | 52,777 | |||||||
| Deferred tax assets | 763 | |||||||
| Goodwill | 40,627 | |||||||
| Total assets acquired | 121,822 | |||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | 15,070 | |||||||
| Income taxes payable | 155 | |||||||
| Deferred revenues | 125 | |||||||
| Current portion of lease liabilities | 592 | |||||||
| Current portion of long-term debt | 8,887 | |||||||
| 24,829 | ||||||||
| Non-current liabilities | ||||||||
| Lease liabilities | 3,620 | |||||||
| Deferred tax liabilities | 11,810 | |||||||
| Total liabilities assumed | 40,259 | |||||||
| Net assets acquired | 81,563 | |||||||
Goodwill
The goodwill recognized consists mainly of the future economic value attributable to the profitability of the acquired business, as well as its workforce and expected synergies from the integration of Alithya IT into the Group's existing business. The Company does not expect the goodwill to be deductible for income tax purposes.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 9 | ||||
Consideration paid
The following table summarizes the acquisition date fair value of each class of consideration as follows:
| Acquisition of Alithya IT Services Inc. (In $ thousands) | $ | |||||||
| Cash paid | 978 | |||||||
| Issuance of 25,182,676 Subordinate Voting Shares | 80,585 | |||||||
| Total consideration transferred | 81,563 | |||||||
Alithya IT 's contribution to the Group results
For the three and nine months ended December 31, 2021, the Alithya IT business contributed revenues of approximately $15,441,000 and $51,002,000, respectively. For the three and nine months ended December 31, 2021, the Alithya IT business contributed to the consolidated net loss of the Group, a loss in the amount of $775,000 and $4,595,000, respectively, including amortization, primarily related to the acquired customer relationships, of $1,267,000 and $3,805,000, respectively, and acquisition and integration costs of $201,000 and $3,683,000, respectively. Since the R3D Acquisition, all new contracts and all new employees related to the acquired business are being recorded in other Canadian entities of the Group, in preparation for its administrative integration which has resulted in a gradual transition of the activity levels within the acquired legal entity.
7. Non-IFRS Measures
This MD&A includes certain measures which have not been prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with IFRS.
The non-IFRS measures used by Alithya are described below:
•“EBITDA” refers to net income before adjusting for income tax expense (recovery), net financial expenses, amortization of intangibles, depreciation of property and equipment and right-of-use assets, and impairment of intangibles and goodwill. Management believes that EBITDA is a useful measure as it provides an indication of the results generated by Alithya’s main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration non-cash depreciation and amortization. For a reconciliation of net loss to EBITDA, see the section titled “EBITDA and Adjusted EBITDA” below.
•“EBITDA Margin” refers to the percentage of total revenue that EBITDA represents for a given period. See the section titled “EBITDA and Adjusted EBITDA” below.
•"Adjusted EBITDA” refers to net income before adjusting for income tax expense (recovery), net financial expenses, foreign exchange, amortization of intangibles, depreciation of property and equipment and right-of-use assets, impairment of intangibles and goodwill, share-based compensation, business acquisition and
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 10 | ||||
integration costs, severance, internal ERP systems implementation, and other redundant and non-recurring items. Management believes that Adjusted EBITDA is a useful measure as it provides an indication of the results generated by Alithya’s main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration the non-cash and other items listed above. For a reconciliation of net loss to Adjusted EBITDA, see the section titled “EBITDA and Adjusted EBITDA” below.
•“Adjusted EBITDA Margin” refers to the percentage of total revenue that Adjusted EBITDA represents for a given period. See the section titled “EBITDA and Adjusted EBITDA” below.
•“Net Bank Borrowing” refers to long-term debt, including the current portion, less balances of purchase payable, the subordinated unsecured loan, the secured loans, unsecured promissory notes under the Paycheck Protection Program ("PPP"), deferral of employment tax payments under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), unamortized transaction costs, cash, and restricted cash. For the calculation of Net Bank Borrowing, see the section titled “Long-Term Debt and Net Bank Borrowing” below. Management believes that Net Bank Borrowing is a useful measure as it provides an indication of the liquidity of the Company.
•‘’Bookings’’ refers to the amount of new bookings, which includes new contracts, including those acquired through acquisitions, as well as renewals, extensions and changes to existing contracts occurring during the period. Management believes information regarding new bookings can provide useful trend insight regarding changes in the volume of new business over time.
•‘’Book-to-Bill Ratio’’ refers to Bookings divided by revenues, for the same period. Management believes this measure allows the monitoring of the Company’s backlog and offers useful insight on how the business varies and evolves over time. This measure is best used over a long period as it could fluctuate significantly from one quarter to the other.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 11 | ||||
8. Results of Operations
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands, except for per share data) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenues | 109,713 | 70,606 | 317,911 | 209,672 | ||||||||||||||||||||||
| Cost of revenues | 81,456 | 50,178 | 232,841 | 150,109 | ||||||||||||||||||||||
| Gross margin | 28,257 | 20,428 | 85,070 | 59,563 | ||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 25,002 | 20,421 | 72,634 | 59,983 | ||||||||||||||||||||||
| Business acquisition and integration costs | 857 | 500 | 5,489 | 1,603 | ||||||||||||||||||||||
| Depreciation | 1,400 | 900 | 4,200 | 2,709 | ||||||||||||||||||||||
| Amortization of intangibles | 3,438 | 2,703 | 10,268 | 9,249 | ||||||||||||||||||||||
| Foreign exchange loss (gain) | (27) | 47 | (1) | 399 | ||||||||||||||||||||||
| 30,670 | 24,571 | 92,590 | 73,943 | |||||||||||||||||||||||
| Operating loss | (2,413) | (4,143) | (7,520) | (14,380) | ||||||||||||||||||||||
| Net financial expenses | 1,203 | 870 | 3,227 | 2,425 | ||||||||||||||||||||||
| Gain on recovery of note receivable | — | — | — | (660) | ||||||||||||||||||||||
| Loss before income taxes | (3,616) | (5,013) | (10,747) | (16,145) | ||||||||||||||||||||||
| Income tax expense (recovery) | ||||||||||||||||||||||||||
| Current | 62 | (185) | (134) | 1,050 | ||||||||||||||||||||||
| Deferred | (192) | (35) | (2,318) | (2,382) | ||||||||||||||||||||||
| (130) | (220) | (2,452) | (1,332) | |||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||
| Basic and diluted loss per share | (0.04) | (0.08) | (0.10) | (0.25) | ||||||||||||||||||||||
8.1Revenues
Revenues amounted to $109.7 million for the three months ended December 31, 2021, including $15.4 million from the R3D Acquisition, representing a $39.1 million increase, or 55.4%, from $70.6 million for the three months ended December 31, 2020. The percentage increase would have been 57.0% assuming a constant US$ exchange rate. Excluding the impact of the R3D Acquisition, revenues increased 33.5% over the same period, or 35.1% on a constant currency basis.
Revenues in Canada increased by $32.1 million, or 80.2%, to $72.1 million for the three months ended December 31, 2021, from $40.0 million for the three months ended December 31, 2020. Organic growth in all areas, the general recovery of activity levels, revenues of $15.4 million from the R3D Acquisition, and growth from the two long-term contracts signed as part of the R3D Acquisition, accounted for the bulk of the increase in revenues. All new customer contracts, including the two long-term contracts, and all new employees relating to R3D, and the corresponding revenues, have generally been recorded in other Canadian entities of the Group, in preparation for its administrative integration, resulting in a gradual transition of its activity levels until such integration was completed at the end of this quarter. On a sequential basis, revenues in Canada increased by $6.0 million, from $66.1 million for the second quarter of this year.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 12 | ||||
U.S. revenues increased by $6.1 million, or 22.2%, to $33.7 million for the three months ended December 31, 2021, from $27.6 million for the three months ended December 31, 2020. Organic growth in all areas of the business and the general recovery of activity levels was partially offset by the negative impact of foreign exchange variations between the periods. Revenues would have been $34.9 million with a constant US$ exchange rate, resulting in an organic increase in constant currency of 26.4%.
International revenues increased by 29.1%, to $3.8 million, from $3.0 million for the same quarter last year, due primarily to a general recovery of activity levels, partially offset by the negative impact of foreign exchange variations between the two periods.
Revenues amounted to $317.9 million for the nine months ended December 31, 2021, including $51.0 million from the R3D Acquisition, representing a $108.2 million increase, or 51.6%, from $209.7 million for the nine months ended December 31, 2020.
Revenues in Canada increased by $89.1 million, or 75.9%, to $206.4 million for the nine months ended December 31, 2021, from $117.3 million for the nine months ended December 31, 2020. Organic growth in all areas, the general recovery of activity levels, revenues of $51.0 million from the R3D Acquisition, and growth from the two long-term contracts signed as part of the R3D Acquisition, accounted for the bulk of the increase in revenues.
U.S. revenues increased by $15.9 million, or 18.7%, to $100.9 million for the nine months ended December 31, 2021, from $85.0 million for the nine months ended December 31, 2020. Organic growth in most areas and the general recovery of activity levels was partially offset by the negative impact of foreign exchange variations between the periods. Revenues would have been $108.2 million with a constant US$ exchange rate, resulting in an increase in constant currency of 27.4%.
International revenues increased by 43.4%, to $10.6 million for the nine months ended December 31, 2021, from $7.4 million for the nine months ended December 31, 2020, due primarily to a general recovery of activity levels, partially offset by the negative impact of foreign exchange variations between the two periods.
8.2Gross Margin
Gross margin increased by $7.9 million, or 38.3%, to $28.3 million for the three months ended December 31, 2021, from $20.4 million for the three months ended December 31, 2020. Gross margin as a percentage of revenues decreased to 25.8% for the three months ended December 31, 2021, from 28.9% for the three months ended December 31, 2020. However, excluding the impact of the R3D Acquisition, gross margin as a percentage of revenues would have amounted to 28.1% for the three months ended December 31, 2021.
As explained above, the percentage decrease was driven in part by decreased gross margin in Canada from the R3D Acquisition, whose revenues historically show a higher proportion from billable subcontractors, resulting in lower margins. Gross margin percentage also decreased in other areas of the business due to an increase in subcontractor revenues relative to revenues from permanent employees, a symptom of the tightening labor market, increased costs in certain customer projects in Canada and the U.S., and decreased software revenues, which carry higher margins.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 13 | ||||
Gross margin increased by $25.5 million, or 42.8%, to $85.1 million for the nine months ended December 31, 2021, from $59.6 million for the nine months ended December 31, 2020. Gross margin as a percentage of revenues decreased to 26.8% for the nine months ended December 31, 2021, from 28.4% for the nine months ended December 31, 2020. However, excluding the impact of the R3D Acquisition, gross margin as a percentage of revenues would have amounted to 29.3% for the nine months ended December 31, 2021.
The percentage decrease was driven primarily by decreased gross margin in Canada from the R3D Acquisition, whose revenues historically show a higher proportion from billable subcontractors, increased subcontractor revenues in other areas of the business relative to revenues from permanent employees as a result of the tightening labor market, as well as a $2.5 million impact in the first quarter of this year from increased costs on one large customer project involving the development of some highly complex, bespoke digital transformation software which may have further commercial applications. The project is nearing completion and no further cost increases or losses are expected going forward. This decrease was partially offset by increased gross margin in the U.S. and internationally, due to some U.S. governmental wage subsidies, namely the forgiveness of the $4.6 million in PPP loans in the first quarter of this year, and increased utilization rates.
As with previous acquisitions, the Company’s objective is to gradually transform R3D's revenue mix by increasing revenues from permanent employees relative to subcontractor revenues, which would result in higher gross margins.
8.3Segment Reporting
An operating segment is a component of a company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of Alithya’s other segments.
Based on the information received and analyzed by decision-makers on a regular basis, Alithya has determined that it has a single reportable segment.
The following table presents total external revenues by geographic location:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Canada | 72,136 | 65.8 | 40,029 | 56.7 | 206,457 | 65.0 | 117,335 | 56.0 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. | 33,732 | 30.7 | 27,598 | 39.1 | 100,870 | 31.7 | 84,953 | 40.5 | ||||||||||||||||||||||||||||||||||||||||||
| International | 3,845 | 3.5 | 2,979 | 4.2 | 10,584 | 3.3 | 7,384 | 3.5 | ||||||||||||||||||||||||||||||||||||||||||
| 109,713 | 100.0 | 70,606 | 100.0 | 317,911 | 100.0 | 209,672 | 100.0 | |||||||||||||||||||||||||||||||||||||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 14 | ||||
8.4Operating Expenses
8.4.1Selling, General and Administrative Expenses
Selling, general and administrative expenses include salary, wages and other benefits for selling and administrative employees, professional fees, occupancy costs, information technology and communications costs, share-based compensation, public listing and investor fees, and other administrative expenses.
Selling, general and administrative expenses totaled $25.0 million for the three months ended December 31, 2021, an increase of $4.6 million, or 22.4%, from $20.4 million for the three months ended December 31, 2020. As a percentage of consolidated revenues, total selling, general and administrative expenses amounted to 22.8% for the three months ended December 31, 2021, compared to 28.9% for the same period last year.
Expenses in Canada increased by $3.1 million, or 24.4%, including $1.1 million related to R3D, to $15.7 million, for the three months ended December 31, 2021, from $12.6 million for the three months ended December 31, 2020. This increase was due primarily to an increase of $3.1 million in employee compensation costs, as headcount and salaries increased, an increase of $0.4 million in recruiting fees, as the Company continued to invest in hiring, and an increase of $0.2 million in travel costs. These expenses were partially offset by a decrease of $0.6 million in mostly non-cash share-based compensation from fully vested shares.
U.S. and international expenses increased by $1.5 million due to increased employee compensation costs, as headcount and salaries increased and variable compensation increased with revenues, and recruiting costs, as the Company continued to invest in hiring for future revenue growth. These expenses were partially offset by a favorable US$ exchange rate impact of $0.3 million.
Selling, general and administrative expenses totaled $72.6 million for the nine months ended December 31, 2021, an increase of $12.6 million, or 21.1%, from $60.0 million for the nine months ended December 31, 2020. As a percentage of consolidated revenues, total selling, general and administrative expenses amounted to 22.8% for the nine months ended December 31, 2021, compared to 28.6% for the nine months ended December 31, 2020.
Expenses in Canada increased by $11.4 million, or 32.1%, including $4.5 million related to R3D, to $46.9 million for the nine months ended December 31, 2021, from $35.5 million for the nine months ended December 31, 2020. This increase was due primarily to an increase of $11.1 million in employee compensation costs, as headcount and salaries increased and variable compensation increased with revenues, an increase of $0.9 million in recruiting fees, as the Company continued to invest in hiring, an increase of $1.0 million in information technology and communications costs, and an increase of $0.5 million in professional fees. These expenses were partially offset by decreases of $2.0 million in mostly non-cash share-based compensation from fully vested shares and $0.6 million in occupancy costs.
U.S. and international expenses increased by $1.2 million due to increased employee compensation costs, as headcount and salaries increased and variable compensation increased with revenues, and recruiting costs as the Company continued to invest in hiring for future revenue growth. These expenses were partially offset by a favorable US$ exchange rate impact of $1.7 million, cost-saving measures implemented in response to the COVID-19 pandemic, and government subsidies recorded against compensation costs, namely the forgiveness of $1.3 million in PPP loans recorded in the first quarter of this year.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 15 | ||||
8.4.2Share-Based Compensation
Share-based compensation is included in cost of revenues and selling, general and administrative expenses and is detailed in the table below:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Stock option plan | 236 | 166 | 634 | 533 | ||||||||||||||||||||||
| Share purchase plan – employer contribution | 298 | 144 | 825 | 429 | ||||||||||||||||||||||
| Share-based compensation granted on business acquisitions | 382 | 1,005 | 1,343 | 3,475 | ||||||||||||||||||||||
| DSUs | 132 | 134 | 441 | 408 | ||||||||||||||||||||||
| RSUs | — | 101 | 92 | 213 | ||||||||||||||||||||||
| PSUs | 91 | — | 182 | — | ||||||||||||||||||||||
| 1,139 | 1,550 | 3,517 | 5,058 | |||||||||||||||||||||||
Share-based compensation amounted to $1.1 million for the three months ended December 31, 2021, representing a decrease of $0.5 million, from $1.6 million for the three months ended December 31, 2020. The decrease in share-based compensation was driven primarily by decreased expenses related to the fully vested shares issued in connection with anniversary payments related to previous business acquisitions. These shares ceased to generate share-based compensation once fully vested. The decrease was partially offset by increased employer contributions under the Company's share purchase plan.
Share-based compensation amounted to $3.5 million for the nine months ended December 31, 2021, representing a decrease of $1.6 million, from $5.1 million for the nine months ended December 31, 2020. The decrease in share-based compensation was driven primarily by decreased expenses related to the fully vested shares issued in connection with anniversary payments related to previous business acquisitions. These shares ceased to generate share-based compensation once fully vested. The decrease was partially offset by increased employer contributions under the Company's share purchase plan.
8.4.3Business Acquisition and Integration Costs
Business acquisition and integration costs amounted to $0.9 million for the three months ended December 31, 2021, representing an increase of $0.4 million, from $0.5 million for the three months ended December 31, 2020, driven primarily by integration costs related to the R3D Acquisition.
Business acquisition and integration costs amounted to $5.5 million for the nine months ended December 31, 2021, representing an increase of $3.9 million, from $1.6 million for the nine months ended December 31, 2020, driven primarily by the R3D Acquisition.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 16 | ||||
8.4.4Depreciation
Depreciation totaled $1.4 million for the three months ended December 31, 2021, compared to $0.9 million for the three months ended December 31, 2020. These costs consisted primarily of depreciation of Alithya’s property and equipment and right-of-use assets.
Depreciation related to property and equipment amounted to $0.6 million for the three months ended December 31, 2021, representing an increase of $0.2 million, from $0.4 million for the three months ended December 31, 2020. Depreciation related to right-of-use assets amounted to $0.8 million for the three months ended December 31, 2021, representing an increase of $0.3 million, from $0.5 million for the three months ended December 31, 2020.
Depreciation totaled $4.2 million for the nine months ended December 31, 2021, compared to $2.7 million for the nine months ended December 31, 2020. These costs consisted primarily of depreciation of Alithya's property and equipment and right-of-use assets.
Depreciation related to property and equipment amounted to $1.9 million for the nine months ended December 31, 2021, representing an increase of $0.6 million, from $1.3 million for the nine months ended December 31, 2020. Depreciation related to right-of-use assets amounted to $2.3 for the nine months ended December 31, 2021, representing an increase of $0.9 million, from $1.4 million for the nine months ended December 31, 2020.
8.4.5Amortization of Intangibles
Amortization of intangibles totaled $3.4 million for the three months ended December 31, 2021, compared to $2.7 million for the three months ended December 31, 2020. These costs consisted primarily of amortization of customer relationships recognized on acquisitions, which increased by $0.9 million. Additionally, amortization of software decreased by $0.1 million and amortization of non-compete agreements decreased by $0.1 million.
Amortization of intangibles totaled $10.3 million for the nine months ended December 31, 2021, compared to $9.2 million for the nine months ended December 31, 2020. These costs consisted primarily of amortization of customer relationships recognized on acquisitions, which increased by $1.4 million, partially offset by amortization of software, which decreased by $0.3 million.
8.4.6Foreign Exchange Loss (Gain)
Foreign exchange gain amounted to $0.03 million for the three months ended December 31, 2021, compared to a loss of $0.1 million for the three months ended December 31, 2020.
Foreign exchange loss amounted to nil and $0.4 million for the nine months ended December 31, 2021 and 2020, respectively.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 17 | ||||
8.5Other Income and Expenses
8.5.1Net Financial Expenses
Net financial expenses are summarized in the table below:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Interest on long-term debt | 651 | 307 | 1,661 | 864 | ||||||||||||||||||||||
| Interest and financing charges | 93 | 141 | 274 | 329 | ||||||||||||||||||||||
| Interest on lease liabilities | 167 | 156 | 517 | 445 | ||||||||||||||||||||||
| Amortization of finance costs | 82 | 63 | 211 | 179 | ||||||||||||||||||||||
| Interest accretion on balances of purchase payable | 216 | 208 | 635 | 627 | ||||||||||||||||||||||
| Interest income | (6) | (5) | (71) | (19) | ||||||||||||||||||||||
| 1,203 | 870 | 3,227 | 2,425 | |||||||||||||||||||||||
Net financial expenses amounted to $1.2 million for the three months ended December 31, 2021, representing an increase of $0.3 million, or 38.1%, from $0.9 million for the three months ended December 31, 2020, driven mainly by the increase in long-term debt, as described in section 11.6, which accounted for the increase in interest on long-term debt.
Net financial expenses amounted to $3.2 million for the nine months ended December 31, 2021, representing an increase of $0.8 million, or 33.1%, from $2.4 million for the nine months ended December 31, 2020, driven mainly by the increase in long-term debt, as described in section 11.6, which accounted for the increase in interest on long-term debt.
8.5.2Income Taxes
Income tax recovery was $0.1 million for the three months ended December 31, 2021, representing a decrease of $0.1 million, from $0.2 million for the three months ended December 31, 2020, due primarily to an increase in current tax expense in certain entities, partially offset by an increase in deferred tax recovery in certain entities.
Income tax recovery was $2.5 million for the nine months ended December 31, 2021, representing an increase of $1.2 million, from $1.3 million for the nine months ended December 31, 2020, due primarily to an increase in current tax recovery in certain entities.
8.6Net Loss and Loss per Share
Net loss for the three months ended December 31, 2021 was $3.5 million, an improvement of $1.3 million, from $4.8 million for the three months ended December 31, 2020. The decreased loss was driven by increased gross margin, partially offset by increased selling, general and administrative expenses, increased depreciation and amortization, increased net financial expenses, increased business acquisition and integration costs, and decreased income tax recovery in the three months ended December 31, 2021, compared to the three months
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 18 | ||||
ended December 31, 2020. On a per share basis, this translated into a basic and diluted net loss per share of $0.04 for the three months ended December 31, 2021, compared to a net loss of $0.08 per share for the three months ended December 31, 2020.
Net loss for the nine months ended December 31, 2021 was $8.3 million, an improvement of $6.5 million, from $14.8 million for the nine months ended December 31, 2020. The decreased loss was driven by increased gross margin and increased income tax recovery, partially offset by increased selling, general and administrative expenses, increased depreciation and amortization, increased net financial expenses, decreased gain on recovery of note receivable, and increased business acquisition and integration costs in the nine months ended December 31, 2021, compared to the nine months ended December 31, 2020. On a per share basis, this translated into a basic and diluted net loss per share of $0.10 for the nine months ended December 31, 2021, compared to a net loss of $0.25 per share for the nine months ended December 31, 2020.
9. EBITDA and Adjusted EBITDA
The following table reconciles net loss to EBITDA and Adjusted EBITDA:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenues | 109,713 | 70,606 | 317,911 | 209,672 | ||||||||||||||||||||||
| Net loss | (3,486) | (4,793) | (8,295) | (14,813) | ||||||||||||||||||||||
| Net financial expenses | 1,203 | 870 | 3,227 | 2,425 | ||||||||||||||||||||||
| Income tax recovery | (130) | (220) | (2,452) | (1,332) | ||||||||||||||||||||||
| Depreciation | 1,400 | 900 | 4,200 | 2,709 | ||||||||||||||||||||||
| Amortization of intangibles | 3,438 | 2,703 | 10,268 | 9,249 | ||||||||||||||||||||||
EBITDA (1) | 2,425 | (540) | 6,948 | (1,762) | ||||||||||||||||||||||
EBITDA Margin (1) | 2.2 | % | (0.8) | % | 2.2 | % | (0.8) | % | ||||||||||||||||||
| Adjusted for: | ||||||||||||||||||||||||||
| Foreign exchange loss (gain) | (27) | 47 | (1) | 399 | ||||||||||||||||||||||
| Share-based compensation | 1,139 | 1,550 | 3,517 | 5,058 | ||||||||||||||||||||||
| Business acquisition and integration costs | 857 | 500 | 5,489 | 1,603 | ||||||||||||||||||||||
| Gain on recovery of note receivable | — | — | — | (660) | ||||||||||||||||||||||
| Premise relocation expenses | — | 225 | — | 778 | ||||||||||||||||||||||
| Severance | — | — | — | 151 | ||||||||||||||||||||||
| Internal ERP systems implementation | 120 | 508 | 608 | 816 | ||||||||||||||||||||||
Adjusted EBITDA (1) | 4,514 | 2,290 | 16,561 | 6,383 | ||||||||||||||||||||||
Adjusted EBITDA Margin (1) | 4.1 | % | 3.2 | % | 5.2 | % | 3.0 | % | ||||||||||||||||||
1 Non-IFRS measure. See section titled “Non-IFRS Measures” above.
EBITDA amounted to $2.4 million for the three months ended December 31, 2021, representing an increase of $3.0 million, from an EBITDA loss of $0.5 million for the three months ended December 31, 2020. EBITDA
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 19 | ||||
Margin was equal to 2.2% for the three months ended December 31, 2021, compared to (0.8)% for the three months ended December 31, 2020.
Adjusted EBITDA amounted to $4.5 million for the three months ended December 31, 2021, representing an increase of $2.2 million, from $2.3 million for the three months ended December 31, 2020. As explained above, the contribution from the R3D Acquisition and increased gross margin were partially offset by increased selling, general and administrative expenses. Adjusted EBITDA Margin was 4.1% for the three months ended December 31, 2021, compared to 3.2% for the three months ended December 31, 2020.
EBITDA amounted to $6.9 million for the nine months ended December 31, 2021, representing an increase of $8.7 million, from an EBITDA loss of $1.8 million for the nine months ended December 31, 2020. EBITDA Margin was equal to 2.2% for the nine months ended December 31, 2021, compared to (0.8)% for the nine months ended December 31, 2020.
Adjusted EBITDA amounted to $16.6 million for the nine months ended December 31, 2021, representing an increase of $10.2 million, from $6.4 million for the nine months ended December 31, 2020. As explained above, the contribution from the R3D Acquisition, increased gross margin, and the forgiveness of $5.9 million in PPP loans, recorded in the first quarter of this year, were partially offset by increased selling, general and administrative expenses and the $2.5 million impact in the first quarter of this year from increased costs on one large customer project, as described above. Adjusted EBITDA Margin was 5.2% for the nine months ended December 31, 2021, compared to 3.0% for the nine months ended December 31, 2020.
10. Bookings
Booking information is a non-IFRS measure, which involves judgments, estimates and assumptions, which does not have a standard industry definition, and which does not replace the analysis of historical revenues. For more information about the “Bookings” and “Book-to-Bill Ratio” measures, see section titled “Non-IFRS Measures” above.
New Bookings during the three months ended December 31, 2021 and for the trailing twelve months were $125.2 million and $1,017.4 million, respectively. This translated into a Book-to-Bill Ratio, for the quarter and the trailing twelve months, of 1.14 and 2.57, respectively. Included in the new Bookings for the trailing twelve months is the $600.0 million estimated value of the two long-term contracts which were signed as part of the R3D Acquisition.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 20 | ||||
11. Liquidity and Capital Resources
11.1Consolidated Statements of Cash Flows
Alithya’s ongoing operations and growth are financed through a combination of operating cash flows, borrowings under its existing credit facility, secured loans and subordinated unsecured loan, and the issuance of equity. Alithya seeks to maintain an optimal level of liquidity through the active management of its assets and liabilities, as well as its cash flows. The following table summarizes Alithya’s cash flow activities for the three and nine months ended December 31, 2021 and 2020:
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Net cash from operating activities | 10,148 | 889 | 3,151 | 1,565 | ||||||||||||||||||||||
| Net cash used in investing activities | (455) | (2,426) | (1,602) | (4,202) | ||||||||||||||||||||||
| Net cash (used in) from financing activities | (24,566) | 2,359 | 256 | 3,423 | ||||||||||||||||||||||
| Effect of exchange rate changes | (10) | (66) | (29) | (167) | ||||||||||||||||||||||
| Net change in cash | (14,883) | 756 | 1,776 | 619 | ||||||||||||||||||||||
| Cash at the beginning of the period | 23,562 | 8,673 | 6,903 | 8,810 | ||||||||||||||||||||||
| Cash at the end of the period | 8,679 | 9,429 | 8,679 | 9,429 | ||||||||||||||||||||||
11.2Cash Flows - Operating Activities
For the three months ended December 31, 2021, net cash from operating activities was $10.1 million, representing an increase of $9.2 million, from $0.9 million for the three months ended December 31, 2020. The cash flows for the three months ended December 31, 2021 resulted primarily from the net loss of $3.5 million, plus $5.8 million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization and share-based compensation, partially offset by deferred taxes, and $7.8 million in favorable changes in non-cash working capital items. In comparison, the cash flows for the three months ended December 31, 2020 resulted primarily from the net loss of $4.8 million, plus $4.5 million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization and share-based compensation, partially offset by the forgiveness of a PPP loan, and $1.2 million in favorable changes in non-cash working capital items.
Favorable changes in non-cash working capital items of $7.8 million during the three months ended December 31, 2021 consisted primarily of a $6.4 million decrease in unbilled revenues, a $5.6 million increase in accounts payable and accrued liabilities, a $3.2 million increase in deferred revenues, and a $0.2 million increase in income taxes payable, partially offset by a $4.2 million increase in accounts receivable and other receivables, a $3.1 million increase in tax credits receivable, and a $0.2 million increase in prepaids. For the three months ended December 31, 2020, favorable changes in non-cash working capital items of $1.2 million consisted primarily of a $2.4 million decrease in accounts receivable and other receivables, a $1.8 million increase in deferred revenues, and a $1.6 million increase in accounts payable and accrued liabilities, partially offset by a $2.4 million increase in prepaids, a $1.3 million increase in tax credits receivable, a $0.7 million increase in unbilled revenues, and a $0.1 million increase in income taxes receivable.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 21 | ||||
For the nine months ended December 31, 2021, net cash from operating activities was $3.2 million, representing an increase of $1.6 million, from $1.6 million for the nine months ended December 31, 2020. The cash flows for the nine months ended December 31, 2021 resulted primarily from the net loss of $8.3 million, plus $10.0 million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization and share-based compensation, partially offset by the forgiveness of PPP loans and deferred taxes, and $1.4 million in favorable changes in non-cash working capital items. In comparison, the cash flows for the nine months ended December 31, 2020 resulted primarily from the net loss of $14.8 million, plus $13.5 million of non-cash adjustments to the net loss, consisting primarily of depreciation and amortization and share-based compensation, partially offset by deferred taxes, and $2.9 million in favorable changes to non-cash working capital items.
Favorable changes in non-cash working capital items of $1.4 million during the nine months ended December 31, 2021 consisted primarily of a $7.9 million increase in accounts payable and accrued liabilities, a $4.6 million increase in deferred revenues, a $3.2 million decrease in unbilled revenues, a $1.3 million decrease in prepaids, a $0.7 million decrease in income taxes receivable, and a $0.2 million increase in income taxes payable, partially offset by a $13.8 million increase in accounts receivable and other receivables and a $2.6 million increase in tax credits receivable. For the nine months ended December 31, 2020, favorable changes in non-cash working capital items of $2.9 million consisted primarily of a $6.7 million decrease in accounts receivable and other receivables, a $2.7 million increase in deferred revenues, a $0.9 million decrease in income taxes receivable, and a $0.9 million decrease in tax credits receivable, partially offset by a $4.2 million increase in unbilled revenues, a $2.2 million decrease in accounts payable and accrued liabilities, and a $1.9 million increase in prepaids.
11.3Cash Flows - Investing Activities
For the three months ended December 31, 2021, net cash used in investing activities was $0.5 million, representing a decrease of $1.9 million, from $2.4 million of cash used for the three months ended December 31, 2020. The cash used in the three months ended December 31, 2021 resulted primarily from purchases of property and equipment as part of the ordinary course of business. In comparison, the cash used in the three months ended December 31, 2020 resulted primarily from the repurchase of equity interests issued on business acquisitions and purchases of property and equipment mainly related to the relocation of certain office premises and computer equipment acquired to facilitate working remotely due to the COVID-19 pandemic.
For the nine months ended December 31, 2021, net cash used in investing activities was $1.6 million, representing a decrease of $2.6 million, from $4.2 million of cash used for the nine months ended December 31, 2020. The cash used in the nine months ended December 31, 2021 resulted primarily from the R3D Acquisition and purchases of property and equipment as part of the ordinary course of business. In comparison, the cash used in the nine months ended December 31, 2020 resulted primarily from purchases of property and equipment mainly related to the relocation of certain office premises and computer equipment acquired to facilitate working remotely due to the COVID-19 pandemic, the repurchase of equity interests issued on business acquisitions, and an increase in restricted cash.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 22 | ||||
11.4 Cash Flows - Financing Activities
For the three months ended December 31, 2021, net cash used in financing activities was $24.6 million, representing an increase of $27.0 million, from $2.4 million of cash generated for the three months ended December 31, 2020. The cash flows for the three months ended December 31, 2021 resulted primarily from $31.6 million in long-term debt repayments, $0.7 million in repayments of lease liabilities, and $0.7 million in shares repurchased for cancellation, partially offset by $8.4 million in proceeds from long-term debt, net of related transaction costs. In comparison, the cash flows for the three months ended December 31, 2020 resulted primarily from $9.3 million in proceeds from long-term debt, net of related transaction costs, partially offset by $6.6 million in long-term debt repayments and $0.3 million in repayments of lease liabilities.
For the nine months ended December 31, 2021, net cash from financing activities was $0.3 million, representing a decrease of $3.1 million, from $3.4 million for the nine months ended December 31, 2020. The cash flows for the nine months ended December 31, 2021 resulted primarily from $61.6 million in proceeds from long-term debt, net of related transaction costs, partially offset by $58.8 million in long-term debt repayments, $1.8 million in repayments of lease liabilities, and $0.8 million in shares repurchased for cancellation. In comparison, the cash flows for the nine months ended December 31, 2020 resulted primarily from $44.5 million in proceeds from long-term debt, net of related transaction costs, and a tenant allowance of $0.9 million, partially offset by $41.1 million in long-term debt repayments and $0.9 million in repayments of lease liabilities.
11.5Capital Resources
Alithya’s capital consists of cash, restricted cash, long-term debt and total equity. Alithya’s main objectives when managing capital are to provide a strong capital base in order to maintain shareholders’, creditors’ and other stakeholders’ confidence and to sustain future growth and development of the business, to maintain a flexible capital structure that optimizes the cost of capital at an acceptable risk level and preserves the ability to meet its financial obligations, to ensure sufficient liquidity to pursue its organic growth strategy and undertake selective acquisitions, and to provide returns on investment to shareholders.
In managing its capital structure, Alithya monitors performance throughout the year to ensure anticipated working capital requirements and maintenance capital expenditures are funded from operations, available cash on deposit and, where applicable, borrowings.
11.6 Long-Term Debt and Net Bank Borrowing
Alithya has a senior secured revolving credit facility (the “Credit Facility”) which is available to a maximum amount of $70.0 million, which can be drawn in Canadian and the equivalent amount in U.S. dollars. It is available in prime rate advances, LIBOR advances, bankers’ acceptances and letters of credit up to $2.5 million. The advances bear interest at the Canadian or U.S. prime rate, plus an applicable margin ranging from 0.25% to 0.75%, or bankers’ acceptances or LIBOR rates, plus an applicable margin ranging from 1.50% to 2.00%, as applicable for Canadian and U.S. advances, respectively. The applicable margin is determined based on threshold limits for certain financial ratios.
On January 27, 2022, the Credit Facility was amended and is now available to a maximum amount of $125.0 million. The advances will bear interest at the Canadian or U.S. prime rate, plus an applicable margin
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 23 | ||||
ranging from 0.25% to 1.00%, or bankers’ acceptances or SOFR rates, plus an applicable margin ranging from 1.50% to 2.25%, as applicable for Canadian and U.S. advances, respectively.
As security for the Credit Facility, Alithya provided a first ranking hypothec on the universality of its assets excluding any leased equipment and Investissement Québec’s first ranking lien on tax credits receivable for the financing related to refundable tax credits. Under the terms of the agreement, the Group is required to maintain certain financial covenants which are measured on a quarterly basis. The amended Credit Facility matures April 1, 2024 and is renewable for additional one-year periods at the lender’s discretion.
On November 24, 2021, the Group entered into secured loans with Investissement Québec to finance its 2021 and 2022 refundable tax credits to a maximum of the lesser of 90% of the eligible refundable tax credit or $4.7 million and $5.8 million, for 2021 and 2022, respectively. The secured loans bear interest at the Canadian prime rate plus 1.00% and are secured by a first ranking hypothec on the universality of the financed refundable tax credits and a subordinated ranking hypothec on accounts receivable and other receivables. The secured loans are repayable on the earlier of the date of receipt of the refundable tax credits receivable and the maturity dates of March 31, 2023 for the 2021 financed refundable tax credits, in the amount of $4.7 million and March 31, 2024 for the 2022 financed refundable tax credits, in the amount of $3.9 million.
On September 28, 2021, the Group entered into a subordinated unsecured loan, with Investissement Québec, in the amount of $10.0 million, bearing interest ranging between 6.00% and 7.25%, determined and payable quarterly, based on threshold limits for certain financial ratios, and maturing on October 1, 2025. Under the terms of the loan, the Group is required to maintain certain financial covenants which are measured on a quarterly basis.
On January 28, 2022, the subordinated unsecured loan was amended and increased to $20.0 million, bearing interest ranging between 7.10% and 8.35%, on the additional $10.0 million, determined and payable quarterly, based on threshold limits for certain financial ratios. An amount of $7.5 million was drawn on the loan availability subsequent to period-end with the remaining $2.5 million available based on certain conditions.
The Group was in compliance with all of its financial covenants as at December 31, 2021.
As a result of the COVID-19 pandemic, on May 5, 2020, five U.S. subsidiaries of the Group received funding under the PPP of the CARES Act administered by the U.S. Small Business Administration ("SBA") and entered into unsecured promissory notes (the "Notes") in the aggregate principal amount of US$6.3 million ($7.9 million). The Notes have a term of five years at an interest rate of 1.00% per annum, with a deferral of payments until the date on which the applicable forgiveness is decisioned, with respect to any portion of the Notes which may not be forgiven.
Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness for all or a portion of loans granted under the PPP, which the Group applied for between November 17, 2020 and January 5, 2021. The Group accounts for the forgiveness as government assistance with a corresponding reduction in the cost of the related item. Such forgiveness is to be determined, subject to limitations and ongoing rule making by the SBA, based on the necessity of the loan at the time of application and the timely use of loan proceeds for payroll costs, including payments required to continue group health care benefits, and certain rent, utility, and mortgage interest costs and the maintenance of employee and compensation levels. The PPP loans, even after notice of forgiveness by the SBA, are subject to subsequent audit by the SBA, for a period of six years after receiving such notice.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 24 | ||||
During the three and nine months ended December 31, 2021, the Group recognized an aggregate amount of nil and $5.9 million (US$4.8 million), respectively, and $0.6 million (US$0.5 million) for the three and nine months ended December 31, 2020, as government assistance for the PPP loans. During the three months ended December 31, 2021, the Group has received confirmation of full loan forgiveness decisions by the SBA on the last remaining PPP loan in the amount of $2.9 million (US$2.3 million). The Group has now received full loan forgiveness decisions for all five PPP loans obtained in May 2020.
The CARES Act allows employers to defer the payments of the employer share of social security taxes during the period beginning on March 27, 2020 and ending on the earlier of December 31, 2020 or the date the Company receives a decision from the lender that the PPP loan is forgiven. The payment of the deferred social security taxes was paid fifty percent on December 31, 2021, with the remaining amount due on December 31, 2022.
Total long-term debt as at December 31, 2021 increased by $6.6 million, to $61.6 million, from $55.0 million as at March 31, 2021, due primarily to the $10.0 million subordinated unsecured loan and the $8.6 million secured loans for the financing of refundable tax credits, partially offset by the recording of forgiveness of $6.0 million of the unsecured promissory notes under the PPP and a decrease of $5.3 million in drawings under the Credit Facility. The increase in total long-term debt was used to fund operations and resulted in a $1.8 million increase in cash.
As at December 31, 2021, cash amounted to $8.7 million, restricted cash held in trust as required by contractual obligations arising from business acquisitions was $3.2 million, and $25.8 million was drawn under the Credit Facility and classified as long-term debt. In comparison, as at March 31, 2021, cash amounted to $6.9 million, restricted cash held in trust as required by contractual obligations arising from business acquisitions was $3.2 million, and $31.0 million was drawn under the Credit Facility and classified as current portion of long-term debt.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 25 | ||||
The following table reconciles long-term debt to Net Bank Borrowing:
| As at | December 31, | March 31, | ||||||||||||
| (in $ thousands) | 2021 | 2021 | ||||||||||||
| $ | $ | |||||||||||||
| Current portion of long-term debt | 22,249 | 35,134 | ||||||||||||
| Non-current portion of long-term debt | 39,304 | 19,817 | ||||||||||||
| Total long-term debt | 61,553 | 54,951 | ||||||||||||
| Less: | ||||||||||||||
| Balances of purchase payable | 16,211 | 15,519 | ||||||||||||
| Subordinated unsecured loan | 10,000 | — | ||||||||||||
| Secured loans | 8,596 | — | ||||||||||||
| Unsecured promissory notes under the PPP | — | 6,034 | ||||||||||||
| Deferral of employment tax payments under the CARES Act | 1,239 | 2,361 | ||||||||||||
| Unamortized transaction costs | (407) | (199) | ||||||||||||
| Cash | 8,679 | 6,903 | ||||||||||||
| Restricted cash | 3,248 | 3,233 | ||||||||||||
| 47,566 | 33,851 | |||||||||||||
Net Bank Borrowing (1) | 13,987 | 21,100 | ||||||||||||
(1) Non-IFRS measure. See section titled “Non-IFRS Measures” above.
During the nine months ended December 31, 2021, Alithya's Net Bank Borrowing decreased primarily as a result of the decreased borrowing under the Credit Facility in favour of other forms of debt, as explained above, and the increase in the cash balance.
11.7 Contractual Obligations
Alithya is committed under the terms of contractual obligations which have various expiration dates, primarily for the rental of premises and technology licenses and infrastructure. Please refer to section 10.7 of Alithya's MD&A for the year ended March 31, 2021 for an overview of such obligations as at such date. There have been no material changes with respect to contractual obligations since March 31, 2021 outside of Alithya’s ordinary course of business.
11.8Off-Balance Sheet Arrangements
Alithya uses off-balance sheet financing for operating commitments for technology licenses and infrastructure. Please refer to section 10.8 of Alithya's MD&A for the year ended March 31, 2021 and Note 13 of the annual consolidated financial statements for the same period for an overview of such arrangements as at such date. There have been no material changes with respect to off-balance sheet arrangements since March 31, 2021 outside of Alithya’s ordinary course of business.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 26 | ||||
12. Share Capital
In the context of the discussion on share capital, Alithya Group inc. will be referred to as “Alithya” or the “Company”, and the Company and its subsidiaries will be referred to as the “Group”.
12.1Issued
| Subordinate Voting Shares | Multiple Voting Shares | |||||||||||||||||||||||||
| (in $ thousands) | Number of shares | $ | Number of shares | $ | ||||||||||||||||||||||
| Beginning balance as at April 1, 2021 | 51,373,822 | 193,552 | 7,321,616 | 3,985 | ||||||||||||||||||||||
| Shares issued pursuant to vesting of share-based compensation granted on business acquisitions | 534,132 | 1,849 | — | — | ||||||||||||||||||||||
| Business acquisition of R3D | 25,182,676 | 80,585 | — | — | ||||||||||||||||||||||
| Shares repurchased for cancellation | (230,600) | (761) | — | — | ||||||||||||||||||||||
| Exercise of stock options | 1,500 | 6 | — | — | ||||||||||||||||||||||
| As at December 31, 2021 | 76,861,530 | 275,231 | 7,321,616 | 3,985 | ||||||||||||||||||||||
During the nine months ended December 31, 2021, the following transactions occurred:
•As part of the R3D Acquisition, 25,182,676 Subordinate Voting Shares, with a total value of $80,585,000, were issued in consideration of the acquisition.
•The repurchase and cancellation of 230,600 Subordinate Voting Shares under the Company's share repurchase plan for a total cash consideration of $767,000 with the excess of the purchase price over the carrying value in the amount of $6,000 charged to retained earnings.
•As part of the Matricis Acquisition, 157,882 Subordinate Voting Shares, with a total value of $600,000, reclassified from contributed surplus, were issued as settlement of the second anniversary share consideration rights.
•As part of the Travercent Acquisition, 376,250 Subordinate Voting Shares, with a total value of US$975,000 ($1,248,516), reclassified from contributed surplus, were issued as settlement of the second anniversary share consideration rights.
•1,500 stock options were exercised and 1,500 Subordinate Voting Shares were issued with an approximate value of $6,000, for cash consideration of $4,000, with $2,000 reclassified from contributed surplus.
During the nine months ended December 31, 2020, the following transactions occurred:
•As part of the Matricis Acquisition, 157,882 Subordinate Voting Shares, with a total value of $600,000, reclassified from contributed surplus, were issued as settlement of the first anniversary share consideration rights.
•As part of the Travercent Acquisition, the Company elected not to convert the first anniversary share consideration rights into Subordinate Voting Shares but rather to settle for total cash consideration of US$975,000 ($1,276,175). This resulted in a repurchase of a vested equity instrument, which has been
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 27 | ||||
recorded as a reduction of retained earnings and contributed surplus in the amounts of $72,237 and $1,203,938, respectively. The Company continues to account for the December 13, 2021 and 2022 anniversary share consideration rights as an equity instrument.
•7,718 DSUs were settled and 7,718 Subordinate Voting Shares were issued with an approximate value of $32,000, reclassified from contributed surplus.
12.2Share Repurchase Plan
On September 14, 2021, the Company’s Board of Directors authorized and subsequently the TSX approved the implementation of a Normal Course Issuer Bid (“NCIB”). Under the NCIB, the Company is allowed to purchase for cancellation up to 5,462,572 Subordinate Voting Shares, representing 10% of the Company’s public float as of the close of markets on September 8, 2021. Shareholders may obtain a copy of the notice of NCIB approved by the TSX, free of charge, by contacting the Company.
Purchases under the NCIB commenced on September 20, 2021 and will end on the earlier of September 19, 2022 and the date on which the Company will have acquired the maximum number of Subordinate Voting Shares allowable under the NCIB or otherwise has decided not to make any further purchases. All purchases of Subordinate Voting Shares will be made by means of open market transactions at their market price at the time of acquisition. Concurrently, the Company entered into an automatic share repurchase plan (“ASRP”) with a designated broker in connection with its NCIB. The ASRP allows for the designated broker, to purchase for cancellation Subordinate Voting Shares, on behalf of the Company, subject to certain trading parameters established, from time to time, by the Company.
12.3Long-term Incentive Plan (the "Plan")
The Company operates a Plan for eligible employees and directors of the Company and its subsidiaries which provides for various types of awards, including equity-settled stock options, DSUs, RSUs and PSUs. The Board, at its discretion, may elect to settle the RSUs and PSUs in the form of a cash payment. The Company accounts for the RSUs and PSUs as equity-settled awards as the Board intends to settle these awards through the issuance of capital stock.
The fair value of the share-based expense is based on the grant date fair value of the award expected to vest over the vesting period with a corresponding adjustment through contributed surplus. Forfeitures are estimated at the time of the grant and are included in the measurement of the expense and are subsequently adjusted to reflect actual events. For awards with graded vesting, the fair value of each tranche is recognized on a straight-line basis over its vesting period.
Any consideration paid by participants on exercise of stock options is credited to capital stock together with any related share-based compensation expense originally recorded in contributed surplus.
When DSUs, RSUs and PSUs are settled, the recorded fair value of the award is removed from contributed surplus and credited to capital stock.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 28 | ||||
12.4Stock Options
The following table presents information concerning stock option activity for the period:
| Number of stock options | Weighted average exercise price | |||||||||||||
| $ | ||||||||||||||
| Beginning balance as at April 1, 2021 | 3,525,181 | 3.37 | ||||||||||||
| Granted | 1,073,302 | 3.23 | ||||||||||||
| Forfeited | (174,292) | 3.59 | ||||||||||||
| Expired | (47,672) | 5.92 | ||||||||||||
| Exercised | (1,500) | 2.96 | ||||||||||||
| Ending balance as at December 31, 2021 | 4,375,019 | 3.26 | ||||||||||||
| Exercisable at period end | 1,800,617 | 3.38 | ||||||||||||
Included in the 1,800,617 of stock options exercisable as at December 31, 2021, 810,528 stock options are exercisable to purchase Multiple Voting Shares.
On June 14, 2021, Alithya issued 774,202 and 299,100 stock options, to purchase a total of 1,073,302 Subordinate Voting Shares, at a grant price of $3.23 and US$2.66, respectively.
The number of Alithya stock options granted to employees during the nine months ended December 31, 2021 and 2020, the assumptions used to determine share-based compensation expense, using the Black-Scholes stock option pricing model, and the related compensation expense recorded, were as follows:
| Period ended | December 31, | December 31, | ||||||||||||
| (in $ thousands, except for per share data) | 2021 | 2020 | ||||||||||||
| Compensation expense related to the options granted | $236 | $106 | ||||||||||||
| Number of stock options granted | 1,073,302 | 755,000 | ||||||||||||
| Weighted average fair value of options granted | $1.20 | $0.81 | ||||||||||||
| Aggregate fair value of options granted | $1,290 | $609 | ||||||||||||
| Weighted average assumptions | ||||||||||||||
| Share price | $3.23 | $2.26 | ||||||||||||
| Exercise price | $3.23 | $2.26 | ||||||||||||
| Risk-free interest rate | 1.25 | % | 0.46 | % | ||||||||||
| Expected volatility* | 34.7 | % | 35.0 | % | ||||||||||
| Dividend yield | — | — | ||||||||||||
| Expected option life (years) | 6.6 | 6.6 | ||||||||||||
| Vesting conditions – time (years) | 3.2 | 3.2 | ||||||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 29 | ||||
12.5Deferred Share Units
The following table presents information concerning DSU activity for the period:
| Number of DSU | Weighted average grant date fair value | |||||||||||||
| $ | ||||||||||||||
| Beginning balance as at April 1, 2021 | 330,246 | 2.97 | ||||||||||||
| Granted | 130,720 | 3.38 | ||||||||||||
| Ending balance as at December 31, 2021 | 460,966 | 3.08 | ||||||||||||
On June 30, 2021, 46,310 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.39, per DSU, for an aggregate fair value of $157,000. The amounts have been recorded in share-based compensation expense.
On September 30, 2021, 43,798 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.48, per DSU, for an aggregate fair value of $152,000. The amounts have been recorded in share-based compensation expense.
On December 31, 2021, 40,612 fully vested DSUs, in aggregate, were granted to non-employee directors of the Company at a fair value of $3.25, per DSU, for an aggregate fair value of $132,000. The amounts have been recorded in share-based compensation expense.
12.6Restricted Share Units
As at December 31, 2021, 181,498 fully vested RSUs, in aggregate, are outstanding with a grant date fair value of $2.26.
12.7Performance Share Units
Under the Plan, the Board, subject to the provisions of the Plan and such other terms and conditions, may grant PSUs to obtain Subordinate Voting Shares to qualified employees and directors of the Company and its subsidiaries. The terms and conditions of each PSU grant, including market and non-market performance goals, are determined by the Board. For the portion of PSUs that are issuable based on market performance conditions, the amount of PSUs recognized as an expense is adjusted based on an estimate of fair value measured using a Monte Carlo model considering market performance conditions at grant date. For the portion of the PSUs that are issuable based on non-market conditions, the amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
On June 14, 2021, the Board approved the issuance of 332,263 PSUs, in aggregate, vesting three years from the date of grant.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 30 | ||||
On July 1, 2021, 332,263 PSUs, in aggregate, were granted to employees of the Company at a grant date fair value of $3.24, per PSU, for an aggregate fair value of $1,076,532. Share-based compensation expense for the three and nine months ended December 31, 2021 amounted to $91,000 and $182,000.
13. Related Parties
Operating transactions with key management personnel
In the normal course of operations, the Company incurred the following transactions with an entity controlled by a director. The transactions have been recorded at the contractual amount of the consideration established, which represents market rates, as agreed by the related parties.
| For the three months ended December 31, | For the nine months ended December 31, | |||||||||||||||||||||||||
| (in $ thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| Revenues* | 4,922 | — | 16,322 | — | ||||||||||||||||||||||
| As at | December 31, | March 31, | ||||||||||||
| (in $ thousands) | 2021 | 2020 | ||||||||||||
| $ | $ | |||||||||||||
| Trade accounts receivable | 10,282 | — | ||||||||||||
14. Subsequent Events
On January 31, 2022, Alithya acquired 100% of the issued and outstanding membership interest of Vitalyst, LLC (“Vitalyst”) ("Vitalyst Acquisition"), a US-based learning, employee experience and transformative change enablement business.
The Vitalyst Acquisiton was completed for total consideration of US$50.2 million ($64.0 million), including the assumption of the estimated IFRS 16 lease liabilities of US$3.2 million ($4.1 million), with US$46.0 million ($58.5 million) paid in cash, subject to working capital and other adjustments, plus a potential earnout of up to US$1.0 million ($1.3 million) payable before May 31, 2023. The purchase price and related transaction costs were funded through a combination of a private placement of 6,514,658 Subordinate Voting Shares to a company controlled by a director and 1,628,664 Subordinate Voting Shares to Investissement Québec, in both cases at an issue market price of $3.07 per share, for aggregate gross proceeds of $25.0 million, a $7.5 million draw on the subordinate unsecured loan and availability under the Company's amended Credit Facility.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 31 | ||||
15. Eight Quarter Summary
| For the three months ended | |||||||||||||||||||||||||||||
| (in $ thousands, except for per share data) | Mar 31, | Jun 30, | Sep 30, | Dec 31, | Mar 31, | Jun 30, | Sep 30, | Dec 31, | |||||||||||||||||||||
| 2020 | 2020 | 2020 | 2020 | 2021 | 2021 | 2021 | 2021 | ||||||||||||||||||||||
| Revenues | 73,181 | 70,711 | 68,355 | 70,606 | 77,971 | 102,921 | 105,277 | 109,713 | |||||||||||||||||||||
| Cost of revenues | 52,228 | 50,308 | 49,623 | 50,178 | 54,517 | 74,581 | 76,804 | 81,456 | |||||||||||||||||||||
| Gross margin | 20,953 | 20,403 | 18,732 | 20,428 | 23,454 | 28,340 | 28,473 | 28,257 | |||||||||||||||||||||
| 28.6 | % | 28.9 | % | 27.4 | % | 28.9 | % | 30.1 | % | 27.5 | % | 27.0 | % | 25.8 | % | ||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 21,534 | 19,416 | 20,146 | 20,421 | 21,740 | 22,747 | 24,885 | 25,002 | |||||||||||||||||||||
| Business acquisition and integration costs | 1,173 | 913 | 190 | 500 | 718 | 3,943 | 689 | 857 | |||||||||||||||||||||
| Depreciation | 894 | 882 | 927 | 900 | 1,058 | 1,553 | 1,247 | 1,400 | |||||||||||||||||||||
| Amortization of intangibles | 3,480 | 3,654 | 2,892 | 2,703 | 2,490 | 3,380 | 3,450 | 3,438 | |||||||||||||||||||||
| Foreign exchange expense (gain) | (158) | 8 | 344 | 47 | 74 | 68 | (42) | (27) | |||||||||||||||||||||
| Impairment of intangibles and goodwill | 28,036 | — | — | — | — | — | — | — | |||||||||||||||||||||
| 54,959 | 24,873 | 24,499 | 24,571 | 26,080 | 31,691 | 30,229 | 30,670 | ||||||||||||||||||||||
| Operating loss | (34,006) | (4,470) | (5,767) | (4,143) | (2,626) | (3,351) | (1,756) | (2,413) | |||||||||||||||||||||
| Net financial expenses | 668 | 728 | 827 | 870 | 849 | 949 | 1,075 | 1,203 | |||||||||||||||||||||
| Gain on recovery of note receivable | — | — | (660) | — | — | — | — | — | |||||||||||||||||||||
| Loss before income taxes | (34,674) | (5,198) | (5,934) | (5,013) | (3,475) | (4,300) | (2,831) | (3,616) | |||||||||||||||||||||
| Income tax recovery | (699) | (669) | (443) | (220) | (950) | (2,268) | (54) | (130) | |||||||||||||||||||||
| Net loss | (33,975) | (4,529) | (5,491) | (4,793) | (2,525) | (2,032) | (2,777) | (3,486) | |||||||||||||||||||||
| Basic and diluted loss per share | (0.59) | (0.08) | (0.09) | (0.08) | (0.04) | (0.02) | (0.03) | (0.04) | |||||||||||||||||||||
Quarterly variances in Alithya's results are due primarily to seasonality. The revenues generated by Alithya's consultants are impacted by the number of working days in a particular quarter, which can vary as a result of vacations and other paid time off and statutory holidays. Similarly, customer information technology investment cycles are also affected by the seasonality of their own operations. Finally, quarterly variations can be attributed to the timing of acquisitions.
Over the eight-quarter period, revenues have increased mainly due to business acquisitions, and organic growth in most areas of the Company’s business. Fluctuations in gross margin over the previous eight quarters can be attributed to a steady migration towards higher value-added services, offset by the negative impacts of the COVID-19 pandemic and the R3D Acquisition. Selling, general and administrative expenses have increased mainly from business acquisitions, net of possible synergies, and additional costs associated with carrying out the strategic business plan and increased recruiting in order to grow revenues. As a percentage of consolidated revenues, total selling, general and administrative expenses have trended downward over the period. Other expenses, such as business acquisition and integration costs and depreciation and amortization of intangibles, have also varied as a result of business acquisitions.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 32 | ||||
16. Critical Accounting Estimates
The preparation of Alithya’s consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions which affect the application of accounting policies and the amounts reported as assets, liabilities, income and expenses in the consolidated financial statements. Actual results could differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which they occur and in any future periods affected.
The Q3 Financial Statements have been prepared in accordance with the accounting policies adopted in the most recent annual consolidated financial statements for the year ended March 31, 2021. The accounting policies have been applied consistently by all entities of the Group.
17. New Standards and Interpretations Issued but Not Yet Effective
At the date of authorization of the Q3 Financial Statements, certain new standards, amendments and interpretations, and improvements to existing standards have been published by the IASB but are not yet effective and have not been adopted early by the Group. Management anticipates that all the relevant pronouncements will be adopted in the first reporting period following the date of application. Information on new standards, amendments and interpretations, and improvements to existing standards, which could potentially impact the Group’s consolidated financial statements, are detailed as follows:
IAS 1 - Presentation of Financial Statements
On January 23, 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements, to clarify the classification of liabilities as current or non-current. In July 2020, the IASB issued final amendments to defer the effective date to annual periods beginning on or after January 1, 2023. Early adoption is permitted. For the purposes of non-current classification, the amendments removed the requirement for a right to defer settlement or roll over of a liability for at least twelve months to be unconditional. Instead, such a right must have substance and exist at the end of the reporting period. The amendments also clarify how a company classifies a liability that includes a counterparty conversion option. The amendments state that: settlement of a liability includes transferring a company’s own equity instruments to the counterparty; and when classifying liabilities as current or non-current, a company can ignore only those conversion options that are recognized as equity. Management is currently assessing, but has not yet determined, the impact of this new standard on the Group’s consolidated financial statements.
Amendments to IAS 37 - Onerous Contracts, Cost of Fulfilling a Contract
On May 14, 2020, the IASB published Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37), which specifies which costs a company includes when assessing whether a contract will be loss-making. The amendments are effective for annual periods beginning on or after January 1, 2022 and applicable to contracts existing at the date when the amendments are first applied. At the date of the initial application, the cumulative effect of applying the amendments is recognized as an opening balance adjustment to retained
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 33 | ||||
earnings or other components of equity as appropriate. The comparatives are not restated. Management is currently assessing, but has not yet determined, the impact on the Group’s consolidated financial statements.
Amendments to IAS 12 - Income Taxes
On May 7, 2021, the IASB issued amendments to IAS 12 - Income Taxes to narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences. As a result, companies will be required to recognize a deferred tax asset and a deferred tax liability for temporary differences arising on initial recognition of a lease and a decommissioning provision. The amendments apply for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. Management is currently evaluating the impact of this standard on its consolidated financial statements.
18. Risks and Uncertainties
Alithya is subject to a number of risks and uncertainties and is affected by a number of factors which could have a material adverse effect on Alithya's financial position, financial performance, cash flows, business or reputation. These risks should be considered when evaluating an investment in Alithya and may, among other things, cause a decline in the price of the Subordinate Voting Shares.
Such risks and uncertainties include, but are not limited to, those discussed in the section entitled "Risks and Uncertainties" of the Company's MD&A for the fiscal year ended March 31, 2021, all of which are hereby incorporated by reference.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 34 | ||||
19. Management’s Evaluation of Our Disclosure Controls and Procedures
Disclosure Controls and Procedures
The Company has established and maintains disclosure controls and procedures designed to provide reasonable assurance that the material information relating to the Company is made known to the Chief Executive Officer and Chief Financial Officer by others, particularly during the period in which annual and interim filings are prepared and that information required to be disclosed by the Company in its annual, interim filings or other reports filed or submitted by the Company under Canadian and U.S. securities laws is recorded, processed, summarized and reported within the time periods specified under those laws and the related rules. The effectiveness of these disclosure controls and procedures, as defined under National Instrument 52-109 – Issuers’ annual and interim filings (“NI 52-109”) adopted by Canadian securities regulators and in Rule 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended, was evaluated under the supervision of and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as at the end of the Company’s most recently completed financial year ended March 31, 2021. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as at March 31, 2021.
Internal Control over Financial Reporting
The Company has also established and maintains adequate internal control over financial reporting, as defined under NI 52-109 adopted by Canadian securities regulators and in Rule 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by management and other key employees, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. The effectiveness of the Company’s internal control over financial reporting was evaluated under the supervision of and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer as at the end of the Company’s most recently completed financial year ended March 31, 2021 based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal control over financial reporting was effective as at March 31, 2021.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 35 | ||||
Limitations on Effectiveness of Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management recognizes that any disclosure controls and procedures and internal control over financial reporting, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect all errors or misstatements on a timely basis.
Limitations on Scope of design of Disclosure Controls and Procedures and Internal Control over Financial Reporting
The Company’s management has excluded from its assessment of the scope of the disclosure controls and procedures and internal control over financial reporting the controls, policies and procedures of Alithya IT, which was acquired on April 1, 2021, the operating results of which are included in the Q3 Financial Statements of the Company. The scope limitation is in accordance with National Instrument 52-109 - Certification of Disclosure in Issuers Annual and Interim Filings, which allows an issuer to limit its design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of a company acquired not more than 365 days before the end of the financial period to which the certificate relates.
Since the acquisition date, Alithya IT has contributed revenues of $51.0 million and generated a net loss of $4.6 million. In addition, Alithya IT's current assets and current liabilities represented approximately 11.6% and 6.6%, respectively, of consolidated current assets and current liabilities, and non-current assets, which include intangible assets and goodwill from the acquisition, and non-current liabilities represented approximately 40.6% and 16.5%, respectively, of consolidated non-current assets and non-current liabilities. The amounts recognized for the assets acquired and liabilities assumed as at the date of the acquisition are described in Note 3 of the Q3 Financial Statements and section 6 of this MD&A.
| Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alithya | |||||
For the three and nine months ended December 31, 2021 | | 36 | ||||
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Paul Raymond, President and Chief Executive Officer of Alithya Group inc., certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Alithya Group inc. (the "issuer") for the interim period ended December 31, 2021.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
(a)designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is that of the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013).
5.2N/A
5.3Limitation of scope of design: The issuer has disclosed in its interim MD&A
(a) the fact that the issuer’s other certifying officer(s) and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of
(i) N/A
(ii) N/A; or
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2021 and ended on December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: February 10, 2022
/s/ Paul Raymond
___________________________
Paul Raymond
President and Chief Executive Officer
2
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Claude Thibault, Chief Financial Officer of Alithya Group inc., certify the following:
1.Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Alithya Group inc. (the "issuer") for the interim period ended December 31, 2021.
2.No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3.Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
4.Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
5.Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
(a)designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
(i)material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
(ii)information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(b)designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
5.1Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is that of the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013).
5.2N/A
5.3Limitation of scope of design: The issuer has disclosed in its interim MD&A
(a) the fact that the issuer’s other certifying officer(s) and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of
(i) N/A
(ii) N/A; or
(iii) a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and
(b) summary financial information about the proportionately consolidated entity, special purpose entity or business that the issuer acquired that has been proportionately consolidated or consolidated in the issuer’s financial statements.
6.Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2021 and ended on December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.
Date: February 10, 2022
/s/ Claude Thibault
___________________________
Claude Thibault
Chief Financial Officer
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