Earnings call transcript: Alithya Group reports Q4 FY2026 loss, shares drop

Alithya Group Inc. (ALYA) reported a net loss for Q4 FY2026, with revenue down 9.2% year-over-year. The company’s stock fell by 14.17% following the earnings announcement, reflecting investor concerns over the financial performance. Despite improvements in gross margin and strategic advancements in AI capabilities, the overall market sentiment turned negative, influenced by the reported net loss and increased expenses.

Alithya Group’s performance in Q4 FY2026 showed a decline in revenue and a net loss compared to the previous year. The company faced a challenging comparison due to an exceptionally strong Q4 FY2025. However, the full fiscal year saw an increase in revenue and gross margin, indicating some positive trends amidst the quarterly challenges.

• Revenue growth over the last twelve months: 4.32%, showing resilience despite quarterly challenges.

• Free cash flow yield: 33%, indicating strong cash generation relative to market valuation.

Following the earnings release, Alithya’s stock price fell by 14.17% to $0.72, reflecting investor disappointment with the financial results. The stock is trading near its 52-week low of $0.82, and has declined 29% over the past six months. According to InvestingPro data, the RSI suggests the stock is in oversold territory, presenting a potential opportunity for contrarian investors. The company’s market capitalization now stands at $85.64 million. The market reaction suggests concerns over the net loss and increased expenses despite strategic advancements.

Alithya continues to focus on strategic growth through AI and cloud modernization initiatives. The company has achieved significant milestones, including Microsoft Copilot specialization and AWS certifications, which are expected to drive future growth. Despite current headwinds, InvestingPro analysis indicates that analysts predict the company will be profitable this year, with net income expected to grow. The stock appears undervalued according to InvestingPro’s Fair Value assessment, suggesting potential upside for investors willing to look past near-term challenges. Analysts collectively see an 85% upside potential, with targets ranging from $1.07 to $1.93.

CEO Paul Raymond stated, "Our strategic focus on AI and cloud modernization is paving the way for future growth. Despite the current financial challenges, we are committed to improving our revenue quality and strengthening our delivery capabilities."

During the earnings call, analysts questioned the impact of the strategic acquisitions on future revenue and the company’s ability to manage rising expenses. Executives highlighted ongoing integration efforts and the focus on higher-margin services as key priorities moving forward.

For investors seeking deeper insights into Alithya’s turnaround potential, InvestingPro offers a comprehensive Pro Research Report covering this and 1,400+ other US equities, transforming complex Wall Street data into clear, actionable intelligence through intuitive visuals and expert analysis.

Dominic, Conference Call Moderator, Alithya: Good morning, everyone, welcome to Alithya’s fourth quarter and full fiscal 2026 results conference call. Thank you for joining us this morning. The press release, along with the MD&A containing condensed financial statements and related notes, was published this morning and is now accessible on our website. The presentation can also be found on our website in the Investors section. Please be advised that this call will contain forward-looking statements, which are subject to various risks and uncertainties that may cause actual results to differ materially from those anticipated. These statements include our estimates, plans, expectations, and statements regarding future growth, operational results, performance, and business prospects that do not solely relate to historical facts.

These statements may also refer to future events, including expectations around client demand, business opportunities, leveraging our services, IP, AI, and expertise to meet client needs, excelling in a competitive market, achieving our three-year strategic plan, and deploying our SmartShore capabilities. For more information, please refer to the cautionary note included in our presentation and the Forward-Looking Statements and Risk and Uncertainty sections of our MD&A, which are accessible on our website. All figures discussed on today’s call are in Canadian dollars, unless stated otherwise, we may refer to certain indicators that are non-IFRS measures. Please refer to the cautionary notes included in our presentation to the Non-IFRS and Other Financial Measures section in our MD&A for more detail. The conference call will be followed by a question and answer period. Only questions from the financial community will be addressed.

To raise or lower your hand, please press star followed by five. You will hear a confirmation once your hand is raised. Presenting this morning are Paul Raymond, Alithya’s President and Chief Executive Officer, Bernard Dockrill, Chief Operating Officer, Pierre Blanchette, Chief Financial Officer. I will now turn the call over to Paul Raymond. Paul?

Paul Raymond, President and Chief Executive Officer, Alithya: Good morning, everyone, thank you, Dominic. Thank you for joining us today. Before reviewing our results, I want to begin by thanking our teams for their continued discipline and commitment to our clients’ success. Their expertise and dedication remain central to our ability to deliver mission-critical projects and to advance our long-term strategy. In the fourth quarter, we remained and maintain a strong focus on execution while continuing to shift our business towards higher-value services and improving our gross margin profile. For the full fiscal year, we made progress in strengthening our business fundamentals. Revenues and gross margin increased year-over-year, adjusted net earnings remained stable. These results reflect the discipline of our teams, the continued evolution of our portfolio, the steady increase of AI activities, the integration of the recent eVerge and XRM Vision acquisitions.

We remain focused on advancing our industry-first approach and supporting our clients in their AI and digital transformation initiatives. Demand for integrated capabilities across data, enterprise application, and cloud continues to evolve, and we are well-positioned to meet these needs as a trusted advisor. In parallel, we’ve continued to strengthen our internal capabilities with AI and upskilling for everyone to enhance how we deliver for clients and drive efficiency across our operations. With that, I will now turn it over to Pierre for the financial highlights of the quarter, followed by Bernard with an update on operations. Pierre?

Pierre Blanchette, Chief Financial Officer, Alithya: Thank you, Paul, and good morning, everyone. Before looking at our fourth quarter, I want to provide an update on the divestiture of Datum. On March 31st, we sold all the shares of Datum in exchange for a minority equity interest in the capital of Medivra Holdings. Prior to the transaction, we recorded an impairment of intangible of CAD 3.1 million. In FY 2026, Datum represented close to CAD 15 million in revenue and CAD 1.2 million in EBITDA. This transaction is aligned with our long-term strategy as we are focused on the growth of our core activities. I would also like to highlight an important update on our internal controls. As disclosed in FY 2025, we had identified a material weakness related to control activities in our revenue processes for fixed fee and time and material arrangement applying the input method. This weakness did not result in any material errors.

During FY 2026, we enhanced the design and implementation of controls. Management completed testing of the operating effectiveness of these enhanced controls during the fourth quarter. We have concluded that the material weakness has been remediated. Now turning to financial highlights for our fourth quarter’s results. In the quarter, we delivered CAD 113.8 million of revenue, down 9.2% year-over-year. It is important to note that the fourth quarter for FY 2025 was unusually strong as a higher number of project go lives drove elevated revenue in that period, creating a tougher year-over-year comparison. Gross margin as a percentage of revenue reached 37.8% in the quarter, up from 36.8% last year. Both periods were positively impacted by the recognition of tax credits.

There was a more significant contribution in Q4 2026 as CAD 5.8 million of non-refundable tax credits were recognized as they are available for carry-forward. While this supported a year-over-year increase of our gross margin as a percentage of revenue, our margin remains solid at 32.7% when excluding the recognition of the tax credit in Q4. Looking at our performance by segment. Revenues in the U.S. reached CAD 55.6 million, up 2.6% compared to the same quarter last year. In constant currency, the revenue would have been CAD 58.2 million in Q4 2026, up 7.5%. The increase was due primarily to revenue from eVerge since its acquisition and organic growth in enterprise transformation services. This was achieved despite a lower contribution by Datum, which was disposed on March 31st, 2026, reflecting momentum in our U.S. segment.

In the U.S., gross margin as a percentage of revenue decreased compared to the same quarter last year, primarily due to a lower contribution by Datum, partially offset by the increased use of our Smart Shoring capabilities. In Canada, revenues were CAD 49.7 million, down 24% on a year-over-year basis. This change is mainly due to reduced revenue from government contracts and client projects reaching maturity, as we have chosen not to renew lower margin work awarded primarily on price. Gross margin increased as a percentage of revenue compared to the same quarter last year, mainly due to the recognition of non-refundable tax credits and proportiona