Interim Consolidated Financial Statements of Alithya Group inc. For the three and six months ended September 30, 2023 and 2022 (unaudited) |
Exhibit 99.1
TABLE OF CONTENTS
Interim Consolidated Statements of Operations and Comprehensive (Loss) Income | |||||
Notes to Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | |||||
2.Basis of preparation | |||||
9.Net financial expenses | |||||
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
The accompanying notes are an integral part of these interim consolidated financial statements.
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||||||||
(in thousands of Canadian dollars, except per share data) (unaudited) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
Notes | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Revenues | 11 | 118,492 | 128,933 | 250,087 | 255,697 | |||||||||||||||||||||||||||
Cost of revenues | 7 | 83,701 | 91,173 | 177,203 | 183,873 | |||||||||||||||||||||||||||
Gross margin | 34,791 | 37,760 | 72,884 | 71,824 | ||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 7 | 29,930 | 30,421 | 62,429 | 59,348 | |||||||||||||||||||||||||||
Business acquisition, integration and reorganization costs | 8 | 2,663 | 2,741 | 3,768 | 4,623 | |||||||||||||||||||||||||||
Depreciation | 7 | 1,498 | 1,602 | 3,166 | 3,181 | |||||||||||||||||||||||||||
Amortization of intangibles | 6,177 | 6,708 | 13,001 | 11,407 | ||||||||||||||||||||||||||||
Foreign exchange loss (gain) | 112 | 64 | (16) | (100) | ||||||||||||||||||||||||||||
40,380 | 41,536 | 82,348 | 78,459 | |||||||||||||||||||||||||||||
Operating loss | (5,589) | (3,776) | (9,464) | (6,635) | ||||||||||||||||||||||||||||
Net financial expenses | 9 | 3,073 | 2,301 | 6,293 | 4,094 | |||||||||||||||||||||||||||
Loss before income taxes | (8,662) | (6,077) | (15,757) | (10,729) | ||||||||||||||||||||||||||||
Income tax expense (recovery) | ||||||||||||||||||||||||||||||||
Current | 86 | 164 | 287 | 48 | ||||||||||||||||||||||||||||
Deferred | 428 | (5,806) | 377 | (6,178) | ||||||||||||||||||||||||||||
514 | (5,642) | 664 | (6,130) | |||||||||||||||||||||||||||||
Net loss | (9,176) | (435) | (16,421) | (4,599) | ||||||||||||||||||||||||||||
Other comprehensive (loss) income | ||||||||||||||||||||||||||||||||
Items that may be classified subsequently to profit or loss | ||||||||||||||||||||||||||||||||
Cumulative translation adjustment on consolidation of foreign subsidiaries | 1,436 | 4,614 | 24 | 6,228 | ||||||||||||||||||||||||||||
1,436 | 4,614 | 24 | 6,228 | |||||||||||||||||||||||||||||
Comprehensive (loss) income | (7,740) | 4,179 | (16,397) | 1,629 | ||||||||||||||||||||||||||||
Basic and diluted loss per share | 6 | (0.10) | — | (0.17) | (0.05) | |||||||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 2 |
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
The accompanying notes are an integral part of these interim consolidated financial statements.
As at | September 30, | March 31, | ||||||||||||||||||
(in thousands of Canadian dollars) (unaudited) | 2023 | 2023 | ||||||||||||||||||
Notes | $ | $ | ||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash | 8,086 | 22,583 | ||||||||||||||||||
Accounts receivable and other receivables | 91,975 | 92,453 | ||||||||||||||||||
Unbilled revenues | 22,309 | 23,420 | ||||||||||||||||||
Tax credits receivable | 9,576 | 9,944 | ||||||||||||||||||
Prepaids | 7,149 | 7,680 | ||||||||||||||||||
139,095 | 156,080 | |||||||||||||||||||
Non-current assets | ||||||||||||||||||||
Tax credits receivable | 15,810 | 12,108 | ||||||||||||||||||
Other assets | 1,605 | 1,111 | ||||||||||||||||||
Property and equipment | 6,361 | 8,724 | ||||||||||||||||||
Right-of-use assets | 7,614 | 9,353 | ||||||||||||||||||
Intangibles | 91,508 | 104,335 | ||||||||||||||||||
Deferred tax assets | 5,868 | 5,997 | ||||||||||||||||||
Goodwill | 166,767 | 166,393 | ||||||||||||||||||
434,628 | 464,101 | |||||||||||||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable and accrued liabilities | 73,448 | 91,263 | ||||||||||||||||||
Deferred revenues | 21,644 | 22,275 | ||||||||||||||||||
Current portion of lease liabilities | 4,944 | 3,873 | ||||||||||||||||||
Current portion of contingent consideration | 12 | 1,396 | — | |||||||||||||||||
Current portion of long-term debt | 3 | 99,449 | 12,808 | |||||||||||||||||
200,881 | 130,219 | |||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Contingent consideration | 12 | 5,671 | 7,037 | |||||||||||||||||
Long-term debt | 3 | 32,305 | 114,382 | |||||||||||||||||
Lease liabilities | 11,817 | 14,643 | ||||||||||||||||||
Deferred tax liabilities | 8,886 | 8,632 | ||||||||||||||||||
259,560 | 274,913 | |||||||||||||||||||
Shareholders' equity | ||||||||||||||||||||
Share capital | 4 | 313,445 | 311,967 | |||||||||||||||||
Deficit | (157,739) | (141,481) | ||||||||||||||||||
Accumulated other comprehensive income | 4,634 | 4,610 | ||||||||||||||||||
Contributed surplus | 14,728 | 14,092 | ||||||||||||||||||
175,068 | 189,188 | |||||||||||||||||||
434,628 | 464,101 | |||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 3 |
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the six months ended September 30, (in thousands of Canadian dollars, except share data) (unaudited) | ||||||||||||||||||||||||||||||||||||||||||||
Notes | Shares outstanding | Share capital | Deficit | Accumulated other comprehensive income (loss) | Contributed surplus(a) | Total | ||||||||||||||||||||||||||||||||||||||
Number | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Balance as at March 31, 2023 | 95,195,816 | 311,967 | (141,481) | 4,610 | 14,092 | 189,188 | ||||||||||||||||||||||||||||||||||||||
Net loss | — | — | (16,421) | — | — | (16,421) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 24 | — | 24 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive (loss) income | — | — | (16,421) | 24 | — | (16,397) | ||||||||||||||||||||||||||||||||||||||
Share-based compensation | 5 | — | — | — | — | 1,679 | 1,679 | |||||||||||||||||||||||||||||||||||||
Share-based compensation granted on business acquisition | 5 | — | — | — | — | 1,287 | 1,287 | |||||||||||||||||||||||||||||||||||||
Issuance of Subordinate Voting Shares pursuant to vesting of share-based compensation granted on business acquisition | 4 | 622,421 | 1,924 | — | — | (1,924) | — | |||||||||||||||||||||||||||||||||||||
Shares purchased for cancellation | 4 | (139,512) | (487) | 163 | — | — | (324) | |||||||||||||||||||||||||||||||||||||
Issuance of Subordinate Voting Shares from exercise of stock options | 4,5 | 2,500 | 8 | — | — | (2) | 6 | |||||||||||||||||||||||||||||||||||||
Issuance of Subordinate Voting Shares from settlement of RSUs | 4,5 | 14,707 | 33 | — | — | (33) | — | |||||||||||||||||||||||||||||||||||||
Cash settlement of RSUs issued as share-based compensation | 5 | — | — | — | — | (371) | (371) | |||||||||||||||||||||||||||||||||||||
Total contributions by shareholders | 500,116 | 1,478 | 163 | — | 636 | 2,277 | ||||||||||||||||||||||||||||||||||||||
Balance as at September 30, 2023 | 95,695,932 | 313,445 | (157,739) | 4,634 | 14,728 | 175,068 | ||||||||||||||||||||||||||||||||||||||
Balance as at March 31, 2022 | 92,725,616 | 305,222 | (111,654) | (947) | 7,130 | 199,751 | ||||||||||||||||||||||||||||||||||||||
Net loss | — | — | (4,599) | — | — | (4,599) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 6,228 | — | 6,228 | ||||||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | — | — | (4,599) | 6,228 | — | 1,629 | ||||||||||||||||||||||||||||||||||||||
Share-based compensation | 5 | — | — | — | — | 1,226 | 1,226 | |||||||||||||||||||||||||||||||||||||
Share-based compensation granted on business acquisitions | 5 | — | — | — | — | 1,242 | 1,242 | |||||||||||||||||||||||||||||||||||||
Issuance of Subordinate Voting Shares in consideration of the Datum Acquisition, net of share issuance costs | 4 | 1,867,262 | 5,528 | — | — | — | 5,528 | |||||||||||||||||||||||||||||||||||||
Shares purchased for cancellation | (283,886) | (997) | 158 | — | — | (839) | ||||||||||||||||||||||||||||||||||||||
Total contributions by shareholders | 1,583,376 | 4,531 | 158 | — | 2,468 | 7,157 | ||||||||||||||||||||||||||||||||||||||
Balance as at September 30, 2022 | 94,308,992 | 309,753 | (116,095) | 5,281 | 9,598 | 208,537 | ||||||||||||||||||||||||||||||||||||||
(a) The Company reclassified comparative figures as at March 31, 2023 in order to correct an immaterial balance sheet presentation misstatement resulting in an increase in contributed surplus and a decrease in contingent consideration in the amount of $2,120,000.
The accompanying notes are an integral part of these interim consolidated financial statements.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 4 |
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these interim consolidated financial statements.
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||||||||
(in thousands of Canadian dollars) (unaudited) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
Notes | $ | $ | $ | $ | ||||||||||||||||||||||||||||
(note 10) | (note 10) | |||||||||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||||||||
Net loss | (9,176) | (435) | (16,421) | (4,599) | ||||||||||||||||||||||||||||
Adjustments for: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 7,675 | 8,310 | 16,167 | 14,588 | ||||||||||||||||||||||||||||
Net financial expenses | 9 | 3,073 | 2,301 | 6,293 | 4,094 | |||||||||||||||||||||||||||
Share-based compensation | 5 | 1,245 | 1,738 | 2,966 | 2,468 | |||||||||||||||||||||||||||
Unrealized foreign exchange loss (gain) | 433 | (456) | 89 | (735) | ||||||||||||||||||||||||||||
Realized foreign exchange (gain) loss on repayment of long-term debt | (27) | 47 | (27) | 105 | ||||||||||||||||||||||||||||
Impairment of property and equipment and right-of-use assets and loss on lease termination | 7 | — | — | 1,383 | — | |||||||||||||||||||||||||||
Settlement of RSUs | 5 | — | — | (371) | — | |||||||||||||||||||||||||||
Other | — | — | 18 | — | ||||||||||||||||||||||||||||
Deferred taxes | 428 | (5,806) | 377 | (6,178) | ||||||||||||||||||||||||||||
3,651 | 5,699 | 10,474 | 9,743 | |||||||||||||||||||||||||||||
Changes in non-cash working capital items | 10 | (20,931) | (6,349) | (20,157) | (20,192) | |||||||||||||||||||||||||||
Net cash used in operating activities | (17,280) | (650) | (9,683) | (10,449) | ||||||||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||||||||
Additions to property and equipment | (71) | (270) | (266) | (1,023) | ||||||||||||||||||||||||||||
Additions to intangibles | — | — | (41) | (350) | ||||||||||||||||||||||||||||
Restricted cash | — | — | — | 3,254 | ||||||||||||||||||||||||||||
Business acquisitions, net of cash acquired | — | (15,869) | — | (16,683) | ||||||||||||||||||||||||||||
Net cash used in investing activities | (71) | (16,139) | (307) | (14,802) | ||||||||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||||||||
Increase in long-term debt, net of related transaction costs | 39,598 | 7,144 | 70,361 | 47,687 | ||||||||||||||||||||||||||||
Repayment of long-term debt | (37,441) | (2,213) | (66,606) | (8,891) | ||||||||||||||||||||||||||||
Repayment of lease liabilities | (987) | (892) | (1,958) | (1,780) | ||||||||||||||||||||||||||||
Exercise of stock options | 4 | 6 | — | 6 | — | |||||||||||||||||||||||||||
Share issue costs | — | (24) | — | (24) | ||||||||||||||||||||||||||||
Shares purchased for cancellation | 4 | (175) | (309) | (324) | (839) | |||||||||||||||||||||||||||
Financial expense paid | 9 | (2,890) | (1,957) | (5,885) | (3,519) | |||||||||||||||||||||||||||
Net cash (used in) from financing activities | (1,889) | 1,749 | (4,406) | 32,634 | ||||||||||||||||||||||||||||
Effect of exchange rate changes on cash | 187 | 614 | (101) | 874 | ||||||||||||||||||||||||||||
Net change in cash | (19,053) | (14,426) | (14,497) | 8,257 | ||||||||||||||||||||||||||||
Cash, beginning of period | 27,139 | 40,338 | 22,583 | 17,655 | ||||||||||||||||||||||||||||
Cash, end of period | 8,086 | 25,912 | 8,086 | 25,912 | ||||||||||||||||||||||||||||
Cash paid (included in cash flow used in operating activities) | ||||||||||||||||||||||||||||||||
Income taxes paid | 135 | 223 | 370 | 223 | ||||||||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 5 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(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. (together with its subsidiaries, “Alithya” or the “Company”) is a professional services firm providing IT services and solutions through the optimal use of digital technologies in the areas of strategic consulting, enterprise transformation and business enablement in the manufacturing, healthcare, financial services, insurance, telecommunications, government, renewable energy, retail and distribution, and higher education sectors.
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’s 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") as issued by the International Accounting Standards Board, and should be read in conjunction with the annual audited consolidated financial statements for the year ended March 31, 2023. The Company applied the accounting policies adopted in its most recent annual audited consolidated financial statements for the year ended March 31, 2023, except for changes as detailed below.
These interim consolidated financial statements were approved and authorized for issue by the Board of Directors (the “Board”) on November 13, 2023.
Basis of Measurement
These interim consolidated financial statements have been prepared under the historical cost basis except for
•Identifiable assets acquired and liabilities and contingent liabilities resulting from 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;
•Equity classified share-based payment arrangements which are measured at fair value at grant date pursuant to IFRS 2, Share-Based Payment; and
•Derivatives, which are initially recognized at fair value on the date the derivative contract is entered into and are subsequently re‑measured at their fair value at the end of each reporting period.
Significant Management Judgement in Applying Accounting Policies and Estimation Uncertainty
The preparation of these consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that 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.
The critical judgements that management has made in applying accounting policies and that have the most significant effect on the amounts recognized in the interim consolidated financial statements are the same as those in the annual consolidated financial statements and in addition, include the liquidity risk associated with the Company’s ability to execute a new credit facility or renew its existing Credit Facility prior to its expiry as discussed in note 12.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 6 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
2. BASIS OF PREPARATION (CONT’D)
ACCOUNTING STANDARD AMENDMENTS EFFECTIVE FOR THE YEAR ENDING MARCH 31, 2024
The following amendments to existing standards were adopted by the Company on April 1, 2023:
Amendments to IAS 8, Definition of Accounting Estimates
In February 2021, the IASB amended IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors to introduce a new definition of “accounting estimates” to replace the definition of “change in accounting estimates” and also include clarifications intended to help entities distinguish changes in accounting policies from changes in accounting estimates. This distinction is important because changes in accounting policies must be applied retrospectively while changes in accounting estimates are accounted for prospectively. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier application was permitted. The amendment of IAS 8 had no impact on the Company’s interim 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 was permitted. The amendment of IAS 12 did not have a material impact on the Company’s consolidated financial statements. Furthermore, the amendment of IAS 12 has no impact on the consolidated statements of financial position and the changes in the income taxes note disclosure will be reflected in the annual consolidated financial statements for the year ended March 31, 2024.
Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policy Information
In February 2021, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IFRS Practice Statement 2 - Making Materiality Judgements. The amendments help entities provide accounting policy disclosures that are more useful to primary users of financial statements by:
•Replacing the requirement to disclose “significant” accounting policies under IAS 1 with a requirement to disclose “material” accounting policies. Under this, an accounting policy would be material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that primary users of general purpose financial statements make on the basis of those financial statements.
•Providing guidance in IFRS Practice Statement 2 to explain and demonstrate the application of the four-step materiality process to accounting policy disclosures.
The amendments shall be applied prospectively. The amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023. Earlier application was permitted. Once an entity applies the amendments to IAS 1, it is also permitted to apply the amendments to IFRS Practice Statement 2. The Company will update its accounting policy information disclosures in its annual consolidated financial statements for the year ended March 31, 2024.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 7 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
2. BASIS OF PREPARATION (CONT’D)
FUTURE ACCOUNTING STANDARDS
At the date of authorization of these interim consolidated 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 Company. 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 Company’s consolidated financial statements, are detailed as follows:
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. 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. After reconsidering certain aspects of the 2020 amendments, the IASB reconfirmed that only covenants with which a company must comply on or before the reporting date affect the classification of a liability as current or non-current. Additional disclosure will be required to help users understand the risk that those liabilities could become repayable within twelve months after the reporting date. 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. The amendments to IAS 1 apply retrospectively and are effective for annual periods beginning on or after January 1, 2024, with earlier application permitted. Management is currently evaluating the impact of the amendment on its consolidated financial statements.
3. LONG-TERM DEBT
The following table summarizes the Company’s long-term debt:
As at | September 30, | March 31, | ||||||||||||
2023 | 2023 | |||||||||||||
$ | $ | |||||||||||||
Senior secured revolving credit facility (the "Credit Facility") (a) | 86,781 | 82,512 | ||||||||||||
Secured loans (b) | 17,256 | 13,192 | ||||||||||||
Subordinated unsecured loans (c) | 20,000 | 20,000 | ||||||||||||
Balance of purchase price payable with a nominal value of $8,463,000 (US$6,230,000) (March 31, 2023 - $12,695,000 (US$9,345,000)), non-interest bearing (4.4% effective interest rate), payable in annual installments of $4,232,000 (US$3,115,000), maturing on July 1, 2025 | 8,026 | 11,993 | ||||||||||||
Unamortized transaction costs (net of accumulated amortization of $1,381,000 and $1,184,000) | (309) | (507) | ||||||||||||
131,754 | 127,190 | |||||||||||||
Current portion of long-term debt | 99,449 | 12,808 | ||||||||||||
32,305 | 114,382 | |||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 8 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
3. LONG-TERM DEBT (CONT’D)
(a) The Credit Facility is available to a maximum amount of $125,000,000 which can be increased under an accordion provision to $140,000,000, under certain conditions, and can be drawn in Canadian and the equivalent amount in U.S. dollars.
The advances 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. The applicable margin is determined based on threshold limits for certain financial ratios. 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 Credit Facility matures on April 1, 2024 and is renewable for additional one-year periods at the lender’s discretion. As the maturity date of the Credit Facility is within twelve months after the reporting date, it has been classified under the current portion of long-term debt as a current liability in the statement of financial position (note 12).
As at September 30, 2023, the amount outstanding under the Credit Facility includes $83,681,000 (March 31, 2023 - $82,512,000) payable in U.S. dollars (US$61,600,000; March 31, 2023 - US$61,000,000).
The Company has an additional operating credit facility available to a maximum amount of $2,717,000 (US$2,000,000), bearing interest at U.S. prime rate plus 1.00%. This operating credit facility can be terminated by the lender at any time. There was no amount outstanding under this additional operating credit facility as at September 30, 2023.
(b) The secured loans issued by Investissement Québec to finance the Company’s refundable tax credits have the following terms and conditions:
As at | September 30, | March 31, | ||||||||||||||||||
2023 | 2023 | |||||||||||||||||||
$ | $ | |||||||||||||||||||
Year of related Refundable Tax Credit | Repayable on the earlier of the date of receipt of the refundable tax credits receivable and | Bearing interest at | ||||||||||||||||||
2022 | March 31, 2024 | Prime rate + 1.00% | 8,719 | 8,719 | ||||||||||||||||
2023 | March 31, 2025 | Prime rate + 1.25% | 8,537 | 4,473 | ||||||||||||||||
17,256 | 13,192 | |||||||||||||||||||
The maximum amount that can be financed for the 2022 and 2023 refundable tax credits is the lesser of 90% of the eligible refundable tax credits and $8,776,000 for 2022 and $10,670,000 for 2023. The loans are secured by a first ranking hypothec on the universality of the Group’s financed refundable tax credits receivable and a subordinated ranking hypothec on accounts receivable and other receivables.
(c) The subordinated unsecured loans with Investissement Québec, in the amount of $20,000,000, mature on October 1, 2025. The first $10,000,000 bears fixed interest rates ranging between 6.00% and 7.25% and the additional $10,000,000 bears interest ranging between 7.10% and 8.35%, determined and payable quarterly, based on threshold limits for certain financial ratios. Under the terms of the loans, the Company is required to maintain compliance with certain financial covenants which are measured on a quarterly basis.
(a)(c) The Company was in compliance with all of its financial covenants as at September 30, 2023 and March 31, 2023.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 9 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
4. SHARE CAPITAL
The following table presents information concerning issued share capital activity for the six month period:
Subordinate Voting Shares | Multiple Voting Shares | |||||||||||||||||||||||||
Number of shares | $ | Number of shares | $ | |||||||||||||||||||||||
Beginning balance as at April 1, 2023 | 87,871,568 | 307,110 | 7,324,248 | 4,857 | ||||||||||||||||||||||
Shares issued pursuant to vesting of share-based compensation granted on business acquisition | 622,421 | 1,924 | — | — | ||||||||||||||||||||||
Conversion of shares | 50,000 | 33 | (50,000) | (33) | ||||||||||||||||||||||
Shares purchased for cancellation | (139,512) | (487) | — | — | ||||||||||||||||||||||
Exercise of stock options | 2,500 | 8 | — | — | ||||||||||||||||||||||
Settlement of RSUs | 14,707 | 33 | — | — | ||||||||||||||||||||||
Ending balance at at September 30, 2023 | 88,421,684 | 308,621 | 7,274,248 | 4,824 | ||||||||||||||||||||||
During the six months ended September 30, 2023, the following transactions occurred:
•As part of the acquisition of Datum Consulting Group, LLC and its international affiliates (the “Datum Acquisition”), 622,421 Subordinate Voting Shares, with a total value of $1,924,000 (US$1,438,000), reclassified from contributed surplus, were issued as settlement of the first anniversary share consideration.
•50,000 Class B multiple voting shares (“Multiple Voting Shares”) with a carrying value of $33,000 were converted into 50,000 Subordinate Voting Shares by a director of the Company.
•The purchase for cancellation of 139,512 Subordinate Voting Shares under the Company's normal course issuer bid for a total cash consideration of $324,000 and a carrying value of $487,000. The excess of the carrying value over the purchase price in the amount of $163,000 was recorded as a reduction to deficit.
•2,500 stock options were exercised and 2,500 Subordinate Voting Shares were issued with a carrying value of $8,000, for cash consideration of $6,000, with $2,000 reclassified from contributed surplus.
•14,707 RSUs were settled and 14,707 Subordinate Voting Shares were issued with a carrying value of $33,000, which was reclassified from contributed surplus.
During the six months ended September 30, 2022, the Company acquired all of the outstanding shares of U.S.-based Datum Consulting Group, LLC and its international affiliates. As part of the acquisition, 1,867,262 Subordinate Voting Shares were issued, for net consideration of $5,528,000.
Normal Course Issuer Bid ("NCIB")
On September 13, 2023, the Company’s Board of Directors authorized and subsequently the TSX approved the renewal of its NCIB. Under the NCIB, the Company is allowed to purchase for cancellation up to 2,411,570 Subordinate Voting Shares, representing 5% of the Company’s public float as of the close of markets on September 7, 2023.
The NCIB commenced on September 20, 2023 and will end on the earlier of September 19, 2024 and the date on which the Company will have acquired the maximum number of Subordinate Voting Shares allowable under the NCIB or will otherwise have decided not to make any further purchases. All purchases of Subordinate Voting Shares are made by means of open market transactions at their market price at the time of acquisition.
Concurrently, the Company entered into an automatic share purchase plan (“ASPP”) with a designated broker in connection with its NCIB. The ASPP 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.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 10 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
5. SHARE-BASED COMPENSATION
Stock options
The following tables present information concerning outstanding stock options issued by currency:
Number of stock options | Weighted average exercise price (CAD) | |||||||||||||||||||||||||
$ | ||||||||||||||||||||||||||
Beginning balance as at April 1, 2023 | 3,400,696 | 3.23 | ||||||||||||||||||||||||
Forfeited | (38,000) | 3.42 | ||||||||||||||||||||||||
Expired | (18,000) | 3.97 | ||||||||||||||||||||||||
Ending balance as at September 30, 2023 | 3,344,696 | 3.22 | ||||||||||||||||||||||||
Exercisable at period end | 1,936,814 | 3.34 | ||||||||||||||||||||||||
Number of stock options | Weighted average exercise price (USD) | |||||||||||||||||||||||||
$ | ||||||||||||||||||||||||||
Beginning balance as at April 1, 2023 | 1,084,175 | 2.55 | ||||||||||||||||||||||||
Forfeited | (35,100) | 2.41 | ||||||||||||||||||||||||
Expired | (13,000) | 3.23 | ||||||||||||||||||||||||
Exercised | (2,500) | 1.67 | ||||||||||||||||||||||||
Ending balance as at September 30, 2023 | 1,033,575 | 2.54 | ||||||||||||||||||||||||
Exercisable at period end | 441,875 | 2.67 | ||||||||||||||||||||||||
Included in the 1,936,814 stock options exercisable issued in Canadian dollars, 505,264 stock options are available to purchase Multiple Voting Shares as at September 30, 2023.
Deferred Share Units (“DSUs”)
The following table presents information concerning the outstanding number of DSUs for the period:
Number of DSUs | ||||||||||||||
Beginning balance as at April 1, 2023 | 666,974 | |||||||||||||
Granted to non-employee directors | 133,760 | |||||||||||||
Granted to employees | 304,688 | |||||||||||||
Ending balance as at September 30, 2023 | 1,105,422 | |||||||||||||
During the six months ended September 30, 2023, 133,760 fully vested DSUs, in aggregate, were granted under the Long-Term Incentive Plan (“LTIP”) to non-employee directors of the Company at an average grant date fair value of $2.11, per DSU, for an aggregate fair value of $282,000.
During the six months ended September 30, 2023, 304,688 DSUs, in aggregate, were granted under the Share Unit Plan (“SUP”) at a grant date fair value of $2.30, per DSU, for an aggregate fair value of $701,000. Share-based compensation expense was recorded as at March 31, 2023 as the related services were performed and the performance conditions were met at that date.
As at September 30, 2023, included in the 1,105,422 DSUs are 800,734 DSUs issued under LTIP and 304,688 DSUs issued under the SUP.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 11 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
5. SHARE-BASED COMPENSATION (CONT’D)
Restricted Share Units (“RSUs”)
The following table presents information concerning the outstanding number of RSUs for the period:
Number of RSUs | ||||||||||||||
Beginning balance as at April 1, 2023 | 181,498 | |||||||||||||
Granted | 311,246 | |||||||||||||
Settled | (181,498) | |||||||||||||
Ending balance as at September 30, 2023 | 311,246 | |||||||||||||
During the six months ended September 30, 2023, 311,246 RSUs, in aggregate, vesting over three years from the date of grant, were granted under the SUP at a grant date fair value of $2.30, per RSU, for an aggregate fair value of $716,000.
During the six months ended September 30, 2023, 181,498 RSUs issued under the LTIP were settled. 14,707 RSUs were settled through the issuance of 14,707 Subordinate Voting Shares, with a carrying value of $33,000. The balance was settled for a total cash consideration of $371,000.
As at September 30, 2023, there were 311,246 RSUs issued under the SUP.
Performance Share Units (“PSUs”)
The following table presents information concerning the outstanding number of PSUs for the period:
Number of PSUs | ||||||||||||||
Beginning balance as at April 1, 2023 | 855,383 | |||||||||||||
Granted | 1,349,752 | |||||||||||||
Forfeited | (14,600) | |||||||||||||
Ending balance as at September 30, 2023 | 2,190,535 | |||||||||||||
During the six months ended September 30, 2023, 1,349,752 PSUs, in aggregate, vesting three years from the date of grant, were granted at a grant date fair value of $2.30, per PSU, for an aggregate fair value of $3,104,000.
As at September 30, 2023, there were 2,190,535 PSUs issued under the LTIP.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 12 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
5. SHARE-BASED COMPENSATION (CONT’D)
Share-Based Compensation expense
Total share-based compensation expense for the period is summarized as follows:
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Stock options | 151 | 260 | 336 | 486 | ||||||||||||||||||||||
Share purchase plan – employer contribution | 350 | 363 | 707 | 694 | ||||||||||||||||||||||
Share-based compensation granted on business acquisitions | 402 | 1,105 | 1,287 | 1,242 | ||||||||||||||||||||||
DSUs | 135 | 138 | 319 | 273 | ||||||||||||||||||||||
RSUs | 111 | — | 126 | — | ||||||||||||||||||||||
PSUs | 446 | 235 | 898 | 467 | ||||||||||||||||||||||
1,595 | 2,101 | 3,673 | 3,162 | |||||||||||||||||||||||
6. EARNINGS PER SHARE
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Net loss | (9,176) | (435) | (16,421) | (4,599) | ||||||||||||||||||||||
Weighted average number of Shares outstanding (a) | 95,767,048 | 94,357,077 | 95,480,413 | 93,508,475 | ||||||||||||||||||||||
Basic and diluted loss per share | (0.10) | — | (0.17) | (0.05) | ||||||||||||||||||||||
The potentially dilutive outstanding equity instruments, which are DSUs , PSUs and options mentioned in Note 5 granted under LTIP and certain shares to be issued as part of anniversary payments related to business acquisition, 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.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 13 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
7. ADDITIONAL INFORMATION ON CONSOLIDATED LOSS
The following table provides additional information on the consolidated loss:
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Expenses by Nature | ||||||||||||||||||||||||||
Employee compensation and subcontractor costs | 105,223 | 115,590 | 223,066 | 231,405 | ||||||||||||||||||||||
Tax credits (a) | (1,148) | (2,574) | (3,540) | (5,317) | ||||||||||||||||||||||
Licenses and telecommunications | 2,385 | 2,404 | 4,928 | 4,697 | ||||||||||||||||||||||
Professional fees | 2,220 | 1,663 | 3,977 | 3,483 | ||||||||||||||||||||||
Other expenses | 4,951 | 4,511 | 9,818 | 8,953 | ||||||||||||||||||||||
Impairment of property and equipment and right-of-use assets and loss on lease termination | — | — | 1,383 | — | ||||||||||||||||||||||
Depreciation of property and equipment | 850 | 676 | 1,849 | 1,344 | ||||||||||||||||||||||
Depreciation of right-of-use assets | 648 | 926 | 1,317 | 1,837 | ||||||||||||||||||||||
115,129 | 123,196 | 242,798 | 246,402 | |||||||||||||||||||||||
Expenses by Function | ||||||||||||||||||||||||||
Cost of revenues | 83,701 | 91,173 | 177,203 | 183,873 | ||||||||||||||||||||||
Selling, general and administrative expenses | 29,930 | 30,421 | 62,429 | 59,348 | ||||||||||||||||||||||
Depreciation | 1,498 | 1,602 | 3,166 | 3,181 | ||||||||||||||||||||||
115,129 | 123,196 | 242,798 | 246,402 | |||||||||||||||||||||||
8. BUSINESS ACQUISITION, INTEGRATION AND REORGANIZATION COSTS
The following table summarizes business acquisition, integration and reorganization costs:
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Acquisition costs (a) | 262 | 399 | 262 | 1,478 | ||||||||||||||||||||||
Integration costs (b) | 901 | 251 | 1,640 | 866 | ||||||||||||||||||||||
Reorganization costs (c) | 1,409 | 1,735 | 1,575 | 1,923 | ||||||||||||||||||||||
Employee compensation on business acquisition (d) | 91 | 356 | 291 | 356 | ||||||||||||||||||||||
2,663 | 2,741 | 3,768 | 4,623 | |||||||||||||||||||||||
(a) The acquisition costs consisted mainly of professional fees incurred in relation to business acquisitions.
(b) For the three and six months ended September 30, 2023, integration costs referred mainly to retention bonuses in relation to business acquisitions and to termination of leases of vacated premises previously acquired as part of business combinations. For the three and six months ended September 30, 2022, integration costs consisted mainly of transition costs related to systems integration.
(c) Reorganization costs consisted of employee termination and benefits costs.
(d) Employee compensation on business acquisition included deferred cash consideration from the Datum Acquisition.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 14 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
9. NET FINANCIAL EXPENSES
The following table summarizes net financial expenses:
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Interest on long-term debt | 2,741 | 1,651 | 5,762 | 2,886 | ||||||||||||||||||||||
Interest on lease liabilities | 186 | 210 | 375 | 427 | ||||||||||||||||||||||
Amortization of finance costs | 99 | 88 | 197 | 171 | ||||||||||||||||||||||
Interest accretion on balances of purchase price payable | 84 | 256 | 211 | 404 | ||||||||||||||||||||||
Financing fees | 40 | 159 | 92 | 288 | ||||||||||||||||||||||
Interest income | (77) | (63) | (344) | (82) | ||||||||||||||||||||||
3,073 | 2,301 | 6,293 | 4,094 | |||||||||||||||||||||||
10. SUPPLEMENTARY CASH FLOW INFORMATION
Changes in non-cash working capital items are as follows:
For the three months ended September 30, | For the six months ended September 30, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Accounts receivable and other receivables | (6,171) | 568 | 547 | 8,030 | ||||||||||||||||||||||
Unbilled revenues | (3,123) | (448) | 1,123 | (12,538) | ||||||||||||||||||||||
Tax credits receivable | (1,006) | (1,469) | (3,360) | (4,216) | ||||||||||||||||||||||
Prepaids | 1,464 | 598 | 532 | 205 | ||||||||||||||||||||||
Other assets | (555) | 27 | (494) | 63 | ||||||||||||||||||||||
Accounts payable and accrued liabilities | (12,151) | (5,667) | (17,819) | (10,530) | ||||||||||||||||||||||
Deferred revenues | 611 | 42 | (686) | (1,206) | ||||||||||||||||||||||
(20,931) | (6,349) | (20,157) | (20,192) | |||||||||||||||||||||||
During the three months ended September 30, 2023, non-cash investing and financing activities included additions to right-of-use assets and lease liabilities in the amount of nil (September 30, 2022 - $135,000).
During the six months ended September 30, 2023, non-cash investing and financing activities included additions to right-of-use assets and lease liabilities in the amount of $454,000 (September 30, 2022 - $428,000).
As a result of the change in accounting policy disclosed in the annual audited consolidated financial statements for the year ended March 31, 2023, the Company changed comparative figures in the consolidated statements of cash flows to conform to the current period’s presentation. Consequently, interest paid in the amount of $1,957,000 for the three months ended September 30, 2022 and $3,519,000 for the six months ended September 30, 2022 have been presented as financing cash flows instead of operating cash flows.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 15 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
11. SEGMENT INFORMATION
The following tables present the Company's operations based on reportable segments:
For the three months ended September 30, 2023 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Revenues | 67,959 | 45,745 | 4,788 | 118,492 | ||||||||||||||||||||||
Operating income by segment | 8,071 | 5,664 | 262 | 13,997 | ||||||||||||||||||||||
Head office general and administrative expenses | 9,136 | |||||||||||||||||||||||||
Business acquisition, integration and reorganization costs | 2,663 | |||||||||||||||||||||||||
Foreign exchange loss (gain) | 112 | |||||||||||||||||||||||||
Operating income before depreciation and amortization | 2,086 | |||||||||||||||||||||||||
Depreciation and amortization | 7,675 | |||||||||||||||||||||||||
Operating loss | (5,589) | |||||||||||||||||||||||||
For the three months ended September 30, 2022 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Revenues | 75,122 | 48,590 | 5,221 | 128,933 | ||||||||||||||||||||||
Operating income by segment | 8,268 | 6,939 | 1,078 | 16,285 | ||||||||||||||||||||||
Head office general and administrative expenses | 8,946 | |||||||||||||||||||||||||
Business acquisition, integration and reorganization costs | 2,741 | |||||||||||||||||||||||||
Foreign exchange loss (gain) | 64 | |||||||||||||||||||||||||
Operating income before depreciation and amortization | 4,534 | |||||||||||||||||||||||||
Depreciation and amortization | 8,310 | |||||||||||||||||||||||||
Operating loss | (3,776) | |||||||||||||||||||||||||
For the six months ended September 30, 2023 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Revenues | 144,946 | 94,989 | 10,152 | 250,087 | ||||||||||||||||||||||
Operating income by segment | 16,041 | 14,104 | 974 | 31,119 | ||||||||||||||||||||||
Head office general and administrative expenses | 20,664 | |||||||||||||||||||||||||
Business acquisition, integration and reorganization costs | 3,768 | |||||||||||||||||||||||||
Foreign exchange loss (gain) | (16) | |||||||||||||||||||||||||
Operating income before depreciation and amortization | 6,703 | |||||||||||||||||||||||||
Depreciation and amortization | 16,167 | |||||||||||||||||||||||||
Operating loss | (9,464) | |||||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 16 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
11. SEGMENT INFORMATION (CONT’D)
For the six months ended September 30, 2022 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Revenues | 153,679 | 92,855 | 9,163 | 255,697 | ||||||||||||||||||||||
Operating income by segment | 15,425 | 12,458 | 1,448 | 29,331 | ||||||||||||||||||||||
Head office general and administrative expenses | 16,855 | |||||||||||||||||||||||||
Business acquisition, integration and reorganization costs | 4,623 | |||||||||||||||||||||||||
Foreign exchange loss (gain) | (100) | |||||||||||||||||||||||||
Operating income before depreciation and amortization | 7,953 | |||||||||||||||||||||||||
Depreciation and amortization | 14,588 | |||||||||||||||||||||||||
Operating loss | (6,635) | |||||||||||||||||||||||||
Information about revenues
An analysis of the Company’s revenues from customers for each major service category is as follows:
For the three months ended September 30, 2023 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Consulting services - time and materials arrangements | 59,221 | 24,490 | 4,412 | 88,123 | ||||||||||||||||||||||
Consulting services - fixed-fee arrangements | 5,487 | 9,419 | 376 | 15,282 | ||||||||||||||||||||||
Subscription, software and other revenue | 3,251 | 11,836 | — | 15,087 | ||||||||||||||||||||||
67,959 | 45,745 | 4,788 | 118,492 | |||||||||||||||||||||||
For the three months ended September 30, 2022 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Consulting services - time and materials arrangements | 62,787 | 27,938 | 4,801 | 95,526 | ||||||||||||||||||||||
Consulting services - fixed-fee arrangements | 8,596 | 7,129 | 420 | 16,145 | ||||||||||||||||||||||
Subscription, software and other revenue | 3,739 | 13,523 | — | 17,262 | ||||||||||||||||||||||
75,122 | 48,590 | 5,221 | 128,933 | |||||||||||||||||||||||
For the six months ended September 30, 2023 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Consulting services - time and materials arrangements | 125,690 | 53,507 | 8,688 | 187,885 | ||||||||||||||||||||||
Consulting services - fixed-fee arrangements | 13,090 | 17,806 | 1,464 | 32,360 | ||||||||||||||||||||||
Subscription, software and other revenue | 6,166 | 23,676 | — | 29,842 | ||||||||||||||||||||||
144,946 | 94,989 | 10,152 | 250,087 | |||||||||||||||||||||||
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 17 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
11. SEGMENT INFORMATION (CONT’D)
For the six months ended September 30, 2022 | ||||||||||||||||||||||||||
Canada | U.S. | International | Total | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
Consulting services - time and materials arrangements | 128,348 | 56,373 | 8,705 | 193,426 | ||||||||||||||||||||||
Consulting services - fixed-fee arrangements | 18,368 | 12,184 | 458 | 31,010 | ||||||||||||||||||||||
Subscription, software and other revenue | 6,963 | 24,298 | — | 31,261 | ||||||||||||||||||||||
153,679 | 92,855 | 9,163 | 255,697 | |||||||||||||||||||||||
Major customer
During the three months ended September 30, 2023, one client generated more than 10% of total revenues for $13,231,000 (September 30, 2022 - one client generated more than 10% of total revenues for $14,924,000) and for the six months ended September 30, 2023, one client generated more than 10% of total revenues for $28,679,000 (September 30, 2022 - one client generated more than 10% of total revenues for $32,452,000).
As at September 30, 2023, no customer represented more than 10% of total accounts receivable and other receivables (March 31, 2023 - one major customer amounted to $10,777,000 or 11.7%).
12. FINANCIAL INSTRUMENTS
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s activities are financed through a combination of cash flows from operations, borrowings under existing Credit Facility, issuance of debt and issuance of equity instruments. In order to manage its exposure to liquidity risk, the Company’s primary goal is to maintain an optimal level of liquidity through an active management of assets and liabilities as well as cash flows. As at September 30, 2023, the Company has an unused capacity of $38,219,000 under its Credit Facility of $125,000,000, which expires on April 1, 2024. As at September 30, 2023, the carrying amount of the liabilities of the Company having a maturity of less than one year amount to $200,881,000, some of which bear interest as disclosed in Note 3.
The Company’s ability to meet the obligations associated with its financial liabilities that will require settlement in less than one year is contingent on its ability to maintain adequate credit facilities. The Company is currently in the process of evaluating terms and conditions proposed by several lenders, including its current lenders, and is planning to execute a new credit facility or renew its existing Credit Facility, in the normal course of business, in amounts which will be sufficient, and on acceptable terms and conditions, by the end of 2023. If the Company is unable to execute a new credit facility or renew its existing Credit Facility prior to its expiry on April 1, 2024, it will not have sufficient cash flows to realize its assets and discharge its liabilities in the normal course of business. Significant judgment was exercised by the Company in determining its ability to execute a new credit facility or renew its existing Credit Facility prior to the expiry of its existing Credit Facility on April 1, 2024 and in determining that there are no material uncertainties upon the Company’s ability to continue as a going concern. There is no assurance that the Company will be successful in executing a new credit facility or renewing its existing Credit Facility and be able to meet the obligations associated with its financial liabilities that will require settlement in less than one year.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 18 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
12. FINANCIAL INSTRUMENTS (CONT’D)
Fair Value of Financial Instruments
Financial instruments recorded at fair value on the interim consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
•Level 1 - Valuation based on quoted prices observed in active markets for identical assets or liabilities.
•Level 2 - Valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 - Valuation techniques with significant unobservable market inputs. A financial instrument is classified at the lowest level of the hierarchy for which a significant unobservable market input has been considered in measuring fair value.
The carrying amount of cash, accounts receivable and other receivables, other assets, accounts payable and accrued liabilities and long-term debt bearing interest at variable rates approximates fair value.
The Company has designated as an effective hedging instrument an interest rate swap for a nominal amount of $30,000,000 maturing on August 30, 2025 to fix the variability in interest rates on a designated portion of borrowings under its Credit Facility. Under the interest rate swap agreement, the Company pays interest based on a fixed rate of 3.97%, and receives interest based on the actual one-month BA/CDOR rate. The fair value of derivatives instruments is estimated by discounting expected cash flows using one month BA/CDOR forward rates (level 2). The fair market value of the interest rate swap agreement as at September 30, 2023 is not material.
The contingent consideration related to business combination is payable in U.S. dollars based on the achievement of growth in excess of the trailing twelve months gross margin for earn-out periods ending on July 1, 2024 and 2025 and is included in Level 3 of the fair value hierarchy. The fair value was determined at $7,067,000 (US$5,202,000), including a current portion of $1,396,000 and a long-term portion of $5,671,000, considering the expected earn-out payments, discounted to present value using a risk-adjusted discount rate of 6.0% as at September 30, 2023. There were no significant changes in the assumptions for the three and six months ended September 30, 2023.
The fair value of the long-term debt bearing interest at fixed rates is estimated by discounting expected cash flows at rates that would be currently offered to the Company for debts of the same remaining maturities and conditions (Level 2). For both September 30, 2023 and March 31, 2023, the Company has determined that the fair value of the Credit Facility, the secured loans and the balance of purchase price payable are not significantly different than their carrying amount.
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 19 |
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Tabular amounts are in thousands of Canadian dollars, except share and per share data in tables) (unaudited)
12. FINANCIAL INSTRUMENTS (CONT’D)
The following table summarizes the carrying amount of the financial liabilities included in the long-term debt and measured at amortized cost:
As at | September 30, | March 31, | ||||||||||||
2023 | 2023 | |||||||||||||
$ | $ | |||||||||||||
Credit Facility | 86,781 | 82,512 | ||||||||||||
Secured loans | 17,256 | 13,192 | ||||||||||||
Subordinated unsecured loans (a) | 20,000 | 20,000 | ||||||||||||
Balance of purchase price payable | 8,026 | 11,993 | ||||||||||||
132,063 | 127,697 | |||||||||||||
(a) As at September 30, 2023, the fair value of the subordinated unsecured loans, bearing interest at fixed rates, was approximately $18,807,000 (March 31, 2023 - $19,038,000).
Alithya Group inc. – Interim Consolidated Financial Statements for the three and six months ended September 30, 2023 and 2022 | | 20 |