Sylogist Ltd

TSX:SYZ

Earnings Call Analysis

Sylogist's Q3 2024 Sees Strong Revenue Growth and Strategic Shifts

In Q3 2024, Sylogist reported a 15% increase in revenue, totaling $16.6 million, driven mainly by a 15% rise in SaaS subscription revenue. The company achieved 14% bookings growth and a remarkable 70% win rate, with approximately 40% of bookings from the SylogistEd sector. SaaS ARR grew 13% year-over-year, nearing $30 million. As Sylogist continues its transition to a partner-driven model, partner-attached bookings surged 700%. Adjusted EBITDA was $4.2 million, with a margin of 25.3%. Looking ahead, they expect continued growth momentum and improved profitability by 2025, despite operational changes impacting near-term growth.

Strong Performance Driven by SaaS Transition

In the third quarter of fiscal 2024, Sylogist Ltd. demonstrated a robust performance, showcasing a successful transition to a Software as a Service (SaaS) model. The company reported a total revenue of CAD 16.6 million, a 15% increase from the previous year, primarily driven by a 15% growth in SaaS subscription revenues. This transition is solidifying Sylogist's position in its three strategic markets: SylogistMission, SylogistEd, and SylogistGov.

Booking Growth and Market Penetration

The quarter saw an impressive 14% year-over-year growth in bookings, largely due to successful upselling and cross-selling within an expanding customer base. Notably, nearly 40% of the bookings came from the SylogistEd sector, indicating a vital market expansion. The company's win rate has soared above 70%, fueled by strong customer referrals and strategic competition displacements, which now account for about 75% of quarterly bookings.

Healthy Balance Sheet and Cost Management

Sylogist ended the quarter with CAD 13 million in cash, reflective of its operational seasonality. Total operating expenses remained consistent at 34% of revenue, a slight decrease compared to 35% in the same quarter last year. General and administrative expenses also saw a decrease, coming in at CAD 2.7 million, down from CAD 3.3 million, while sales and marketing expenses rose slightly due to strategic investments aimed at growth.

Sustainable ARR and Targeted Growth Strategy

The company's annual recurring revenue (ARR) from SaaS reached approximately CAD 30 million, representing a 13% year-over-year increase. This healthy growth is supplemented by a net revenue retention (NRR) rate of 107%. Sylogist's focus on strategic partner engagement has led to a remarkable 700% increase in partner-attached bookings year-over-year, aligning with their goal of implementing a partner-driven delivery model.

Guidance for Future Growth

Looking forward, Sylogist management expressed confidence about the growth trajectory, particularly in the back half of 2025. The company expects the momentum from its SaaS offerings to accelerate, with a planned balanced approach to investing in sales and marketing to drive future bookings. Although the company aims to maintain its current SaaS growth rates, management hinted at potential for an inflection point as implementation capacity increases through partnership-driven models.

Market Landscape and Competitive Edge

Sylogist's growth has been largely sustained through a mix of strategic displacement against competitors and expanding its market footprint. Management emphasized their unique positioning in the government and education sectors, capitalizing on the gaps left by outdated technology and limited competition. This competitive strategy not only includes targeting smaller players but also engaging with larger incumbents, establishing Sylogist as a viable alternative.

Excitement and Board Support

Bill Wood, the CEO, expressed a strong sense of optimism regarding the company's trajectory and the support from the board of directors. He emphasized the commitment to high-quality customer service and technology development. As the company continues to enhance its SaaS offerings, the management is focused on sustainable growth and operational leverage, aiming for Sylogist to evolve into a materially larger enterprise over time.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Sylogist Ltd. Third Quarter 2024 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]

I would like now to turn the conference over to Jennifer Smith with LodeRock Advisors. Please go ahead

[Jennifer Smith]

Thank you, Alan, and good morning. Joining me to discuss Sylogist's Q3 fiscal 2024 results are Bill Wood, Sylogist President and Chief Executive Officer; and Sujeet Kini, Chief Financial Officer. This call is being recorded live at 8:30 a.m. Eastern Time on November 7, 2024. Our Q3 press release, MD&A, financial statements and accompanying notes have been issued and are available for download on SEDAR+. Please note that some of the statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied and Sylogist disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The complete safe harbor statement is available in both our MD&A and press release as well as on sylogist.com. We encourage our investors to read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. Therefore, we will also discuss non-GAAP performance measures, which should be reviewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are in Canadian unless otherwise noted. I'll turn it over to Bill first with opening remarks, then Sujeet will review our Q3 financial performance, after which Bill will conclude scripted remarks; at which time, we will open it up for questions. Bill?

[William Wood, executive]

Thank you, Jen. Good morning and good afternoon to those of you joining us overseas. Building on the momentum we generated the first half of 2024, it was a strong Q3 for the business. Our results continue to validate the successful transition to a SaaS-driven enterprise with growing recurring revenue, an effective and engaged partner network and an expanding presence across our 3 strategic markets. In short, we're very pleased with the results we're seeing from the execution of our value creation strategy. I'd like to add some color to our Q3 performance. We saw 14% year-over-year bookings growth in the quarter. Especially encouraging was our success with customer upsells and cross-sells that's largely attributable to happy customers using more of what our SaaS platforms now offer.

I also want to highlight that nearly 40% of our bookings came from our SylogistEd sector reflecting the continued acceleration I've been signaling was on the horizon is now clearly occurring. The success we're seeing from our targeted competitor displacement strategy, the success of our SaaS offerings relative to the competitive landscape and strong customer referrals drove our overall win rate even higher to above 70% in Q3. This impressive win rate is inclusive of both direct and partner-led sales motions. We're now seeing an increasingly balanced pipeline in bookings across all 3 strategic markets; SylogistMission, SylogistEd and SylogistGov. At the end of Q3, our bookings pipeline is up 122% year-over-year.

These leading indicators bode well for more balanced SaaS ARR growth across all 3 sectors as we look out to 2025 and beyond. One of the pillars of our value creation strategy is a carefully selected, aligned and enabled partner network to allow us to scale profitably and capture market opportunity quickly. It's been just over a year since we turned earnest attention to building a strong partner community and we're well ahead of plan in terms of the results we're seeing. As of Q3, partner attached bookings have grown more than 700% year-over-year and grew 52% quarter-over-quarter. Partner attached bookings represented almost 50% of our total bookings this quarter compared to just 7% in Q3 of 2023.

In our SylogistMission and SylogistGov sectors so net of SylogistEd where we don't yet engage partners, partner attached bookings came in at 77% of total bookings. Again, a very strong result for a KPI that bodes well for future value creation. To help ensure project implementation success, we continue to maintain our expert internal team to both empower the expanding partner community as well as deliver SylogistMission, SylogistGov and SylogistEd project services to customers directly. As our community of high quality partners becomes more self-sufficient, we see increasing leverage in sales and even more importantly, broader implementation capacity in the back half of 2025 and beyond.

As we execute our channel strategy, one of the outcomes is the accelerating hand-off of our direct-to-customer project service revenue. This effectively inhibits our top line revenue growth in the near term as we settle to a new top line revenue mix that's increasingly comprised of more lucrative SaaS ARR. As I've said previously, this is an exciting purposeful shift and we're very pleased it's happening at a faster-than-expected clip as it validates that our partner strategy is working. To that end, strong execution continues to drive robust growth in our higher margin, high LTV SaaS ARR as well as our SaaS NRR. Our SaaS ARR increased by 13% year-over-year to just shy of $30 million and SaaS NRR came in at a healthy 107%.

I'll pause here and let Sujeet take you through our financial performance for the quarter in a little more detail. Sujeet?

[Sujeet Kini, executive]

Thank you, Bill, and good morning, good afternoon, everybody. Before we get into the numbers, I wanted to remind everyone that in Q2 2024, we completed the divestiture of our Managed IT Services division. In order to facilitate an apples-to-apples comparison of key financial and operating metrics, all comparisons to prior periods have been adjusted to reflect the sale of this division. Additionally, within our Q3 2024 MD&A, we have included for your reference a 4-quarter table that quantifies the revenue and adjusted EBITDA impacts of the Managed IT Services division. As Bill mentioned, our Q3 results demonstrate the meaningful transformation of Sylogist into a SaaS enterprise whilst staying focused on profitable growth. Total revenue for the quarter was $16.6 million led by 15% growth in our SaaS subscription revenues.

This growth was partially offset by an anticipated decrease in project services revenue related to our strategic shift to a partner-led delivery model. Overall revenue growth continues to be driven primarily by our SylogistMission segment that grew at 15% year-over-year closely followed by our SylogistEd segment that grew by 10% year-over-year. Q3's overall comparative year-over-year revenue growth was additionally impacted by significant levels of noncore hardware sales that happened in Q3 2023. I want to remind everyone that we had a large hardware booking within our SylogistSolutions business segment in Q3 2023 and this was in the amount of $545,000. So absent the impact of this hardware sale in Q3 2023, year-over-year top line revenue growth would have been approximately in the 6% growth range, that is year-over-year Q3 2024 versus Q3 2023.

Our gross profit margin for Q3 2024 was relatively consistent with recent quarters coming in at 60% for the current quarter. Total operating expenses for Q3 '24 were also relatively consistent at 34% of revenue compared with 35% during the same period last year. G&A expenses decreased by $0.6 million to $2.7 million in Q3 2024 compared with the corresponding period last year, coming in at 16% of revenues compared to 19% of revenues in Q3 2023. This decrease in G&A is a result of various operational savings in the current quarter. Sales and marketing expenses for Q3 2024 were $2 million or 12% of revenue compared to $1.7 million or 11% of revenue in the same period last year. This increase was due to anticipated strategic investments made in additional sales quota carrying headcount and increased marketing programmatic spending, including the spend on our SylogistEd user conference.

Our sales and marketing FTE headcount increased to 26 people at the end of Q3 2024, up from 22 people at the end of Q3 2023. Net R&D expenses for Q3 2024 were consistent at 6% of revenue for Q3 2024 compared to 5% of revenue for Q3 2023. Similarly, gross R&D expenses were consistent at 14% of revenue for both periods. Adjusted EBITDA for Q3 2024 was $4.2 million and our adjusted EBITDA margin came in as expected at 25.3% in the current quarter compared to 27.2% in Q3 2023. At the end of Q3 2024, we had $13 million in cash. This level of cash is in line with the seasonality of our operations and the renewal cycle of a material cohort of our SylogistEd customer community. On October 31, 2024, we renewed our corporate credit facility. The renewal now includes a revolver for CAD 50 million, that's CAD 5-0 million, with an additional CAD 75 million optional accordion feature. This is in comparison to the prior facility, which is essentially a revolver for a headline amount of $125 million.

The new credit facility is committed for a 3-year term and is renewable annually thereafter. We purposefully constructed the renewal in this manner as it saves us approximately $200,000 in standby fees annually while at the same time preserving access to the same borrowing range that we would have had under the prior facility. And finally, I would also like to point out that at the end of this quarter, we completed the 3-year anniversary of the Mission CRM acquisition and its related earnout. Inclusive of the accruals for the third year earnout, the total purchase consideration for this acquisition is approximately $7.8 million. We are extremely pleased to say that the overall ARR for Mission CRM at the 3-year point or at the 3-year mark is $1.9 million. This compared to $140,000 when we acquired Mission CRM back in October 2021. All of this is a compounded annual growth of approximately 141%. And so this acquisition, we believe, has undoubtedly strengthened our mission, platform and team.

With that, I will hand it back to you, Bill.

[William Wood, executive]

Thank you, Sujeet. With our 3 leading SaaS platforms now in market, our competitor displacement strategy gaining traction and the successful shift to a partner-driven model; we're well positioned to deliver increasingly profitable growth that's scalable, repeatable and aligned with long-term value creation. To the credit of our outstanding team and a customer-first mindset, our investments are yielding the desired results. We've laid the foundation for growing very sticky reoccurring revenue, expanding free cash flow and enhanced margins that we expect to become even more evident in the back half of 2025. Make no mistake, we envision a day when Sylogist is a materially larger enterprise with operating leverage. Thank you for your continued confidence and support as we push Sylogist to new heights.

With that, let's take some questions.

[Operator]

[Operator Instructions] Our first question comes from Amr Ezzat from Ventum Capital.

[Amr Ezzat, analyst]

Just a few questions. The first one, can you update us on the pace of your targeted competitor displacement? I'm wondering how does it compare to the previous few quarters? Is it holding steady or are you seeing it accelerate?

[William Wood, executive]

We're actually seeing it accelerate. Now we're expanding the aperture of who those targeted competitors are as our now all 3 platforms are in market. So we have crosshairs in the Ed, Gov and Mission segment. Within the mission segment specifically, we're seeing good strength in that area, continuing strength and better efficiencies as we work through each and every one and light up new customers from a given competitor. So the momentum is building. We feel really good it's sustainable for many quarters ahead.

[Amr Ezzat, analyst]

Fantastic. On your NRR for the quarter and still just SylogistEd's, we saw a slight dip in NRR quarter-over-quarter. I also expected to see a bigger sales number in education especially with the strong bookings last quarter. The MD&A notes some anticipated attrition in the vertical that impacted NRR. Can you maybe give us color on that?

[William Wood, executive]

For sure. There were some legacy customers that deepened their cycle in terms of where they fit with our go-forward SylogistEd strategy. So I would consider that the kind of cycling of some strategic attrition that we had identified several customers within the legacy customer community that really weren't good fit for the go forward. And so because of the budgeting cycle, they kind of went off as a cohort in that Q3 time frame. Nothing really should be derived from that as any churn picking up or whatever. It was really more of a strategic churn in that than anything that gives us pause.

[Amr Ezzat, analyst]

Okay. And is that mostly done or do you foresee more of that over the coming quarters?

[William Wood, executive]

We see that mostly done. Well, there may be the odd here and there, but ultimately we have a good sight line to that community. We've been engaged with them for several years now and we have a very good handle on the go forward. We think anything that would happen churn-wise would be minor as we think about the go-forward.

[Amr Ezzat, analyst]

Great. Then I guess on your partner strategy, I wonder can you share with us what kind of SaaS growth rates you'd anticipate as we enter 2025 with an increased implementation capacity both internally and externally? You're sort of growing SaaS in the mid-teens. Do you guys like foresee 2025 to be like materially higher in terms of like SaaS growth with the new capacity?

[William Wood, executive]

Sujeet?

[Sujeet Kini, executive]

Yes. So from a 2025 perspective, one of the comments I'll make is obviously working...

[William Wood, executive]

Sujeet, is your line muted?

[Sujeet Kini, executive]

My apologies. Can everybody hear me now? Amr, can you hear me?

[Amr Ezzat, analyst]

Yes, loud and clear. We missed all the good parts.

[Sujeet Kini, executive]

No. My apologies, I was speaking into a muted mic when Bill was trying to get my attention. So to answer your question, Amr, I would look at it in terms of maintaining SaaS growth rates at the current rates. Since your question is more specific to the partner channel, certainly we do see lots of traction happening there. But just from a pure modeling perspective, I would view it as maintaining our SaaS recurring revenue growth in kind of the current range. And part of that also is in connection with there is, if you will, a certain lag between the bookings and the revenue and essentially maintaining the growth rate at the current levels allows for that limited lag, if you will. And that's kind of how we are thinking about it within our shop and like I said, we're at the moment looking through our pipeline in terms of the impacts on 2025 and how that would translate out into bookings and bookings into revenue. But my answer really would be to continue to maintain it in the range that it is right now.

[Amr Ezzat, analyst]

Okay. I would have thought we'd see an inflection point given that you've got like increased implementation capacity. At some point, we see like SaaS grow from 15% to like 20%-something range?

[Sujeet Kini, executive]

The answer is yes. I mean there will be an inflection that will happen. I think the more nuanced or more of a refinement to that is putting -- pinpointing exactly when that inflection will happen and that's sort of where I think we need to think through the fact that there is a little bit of a lag between bookings and revenue and the inflection point has a lag effect compared to the actual booking happening.

[Amr Ezzat, analyst]

Understood. So it's happening, but it's hard to pinpoint when. That's great. Then maybe one last one. Any updates on SylogistPay that you guys can share with us?

[William Wood, executive]

Nothing in this quarter. We believe we'll have some updates in the coming periods, but nothing has materially changed from our belief that SylogistEd continues to be an integral part of our strategy as we monetize the transactions flowing through the platforms. And ultimately as we see more of the Mission Gov -- SylogistGov activity and the transactions that flow through that platform within municipalities, we see strength there as well. But stay tuned.

[Operator]

Our next question comes from Gavin Fairweather of Cormark.

[Gavin Fairweather, analyst]

Maybe just to start out, Bill, on the partner channel. Can you refresh us on how many partners you're up to now? And I'm also curious kind of how mature that partner cohort is? Are they all kind of reaching the level of bookings and deal generation that you would expect or are some of those still in the process of ramping?

[William Wood, executive]

We haven't given a specific number, but it is approximately 2x from where we were this time last year. It's fulsome in terms of the coverage we're looking for at this point. I would say a solid 1/3 to 1/2 of those are now getting their legs underneath them and we're moving into the phase where they're not shadowing us, but we're shadowing them in terms of implementations while the newer partners are more in the formal part of going through the certification and training. So it's very pleasing to see the inbound activity we're seeing from the partner community who are anxious to be able to carry our flag. They have identified us as a leader for the specific solutions that they're looking for for their customer cohorts that are looking to upgrade. So we think the go-forward is very exciting as that community continues to build out. But I would say about half of them are now flipping to the more partner-led [ side ] and not shadowing side, which is a great signal.

[Gavin Fairweather, analyst]

Yes, that's great to hear. And then the KPIs you shared are super impressive in terms of the pipeline and the win rates that you're seeing. It strikes me as though you just need to see more deals. I mean I'm curious what those metrics are telling you in terms of the need to invest in marketing and partner enablement and potentially a few more bodies in the direct sales force.

[William Wood, executive]

We agree. As we now have the motions reflected, we're not just throwing money into the wind. We do believe as we look at enabling the partner community to be able to bring us into deals as well as us being able to activate deals ourselves. We see the ability to now get even more efficiency out of our marketing motions and as well as our customer referrals are starting to become more meaningful as our pod of gov and ed customers expand. We were starting from relatively a very small base and ultimately wanted to make sure that would progress in a thoughtful way before we got out over our skis of more people knocking on the door than we could accommodate. But we're now through that gate and we feel that there's still the scalability portion we feel very good about and now that's really being supplemented by the idea of our pipeline is growing with more balance and really materially year-over-year. We feel good about what growth can occur in the coming quarters in terms of just bookings.

[Gavin Fairweather, analyst]

Appreciate the color. And then just on gov, I know you've transitioned some customers on to the new SaaS platform and partners are increasingly working with it on deals. Can you just provide a bit of color on the feedback that you're getting from that existing customer cohort that's moved over and the partners that are increasingly looking to sell it? And how is that kind of influencing your view on the growth prospects for that platform going forward?

[William Wood, executive]

From the customer side, they're delighted. They were able to transition from a standpoint of core business functions and now empowered with a fully SaaS platform. The prospective customers, the RFPs that are out there, we see almost an open arm kind of welcome. Thank goodness you're here because there really has been a void of new technology for the segment that we're aimed at. So the RFP activity is very strong. The desire for the Microsoft-based platform is very strong. We're well positioned obviously and uniquely positioned there. So we're quite bullish on the gov sector in terms of an accelerator for us as we think about the go-forward and as we expand the footprint not only east to west in Canada, but into North America overall. So partners will be a big part of that. That is 100% partner driven and they have cohorts of Great Plains customers and so on that they've been looking for a solution to be able to fit the needs and budgets of customers that really hasn't existed for some time. So we're very excited about the gov sector overall and we think we're now in a very good position to accelerate in that space.

[Operator]

The next question comes from Suthan Sukumar of Stifel Canada.

[Suthan Sukumar, analyst]

Congrats on a solid print. For my first question, I wanted to just touch on your go-to-market success to date. It's really good to hear that competitive placements are sustaining well. But just kind of curious, how much of your go-to-market success to date has been driven from greenfield opportunities meaning going after that segment of the market that has yet to adopt any meaningful technology?

[William Wood, executive]

That segment just greenfield is quite small. The technology may be really dated, which is very common in the ed and gov and frankly, a little less so on the mission sector; but most everyone is coming off of an existing system of some sort. As I said, it could be maybe in place for decades. The key -- and I'll give you a sense of displacement and our displacement strategy. Almost 75% of our bookings in this quarter were with targeted competitor displacements. So that really gives you a sense of a, our focus, the efficiency that we're bringing to those motions, the activity that's going on within those cohort communities that now have visibility to us as a viable and exciting alternative. And so I would say that the motions around our targeted displacement shouldn't be taken as a small pond. It's a very, very large ocean of opportunity. We're just focused on those where we can win at a very high rate and have good efficiency to lead to happy customers.

[Suthan Sukumar, analyst]

Great. My second question, Bill, is really around the education vertical. Can you talk a little bit about the strength that you're seeing there? I think following last quarter, I may have been maybe incorrectly anticipating a little bit of normalization in the pace of bookings growth and how that translates to revenue growth, but it looks like the strength is continuing. Can you talk about some of the factors for the success underlying the strength there?

[William Wood, executive]

It is the validation of our lift and shift of the technology that we acquired in Oklahoma that was specific to Oklahoma and now successfully lifting and shifting that to North Carolina, lighting up customers existing as well as new on that platform and then the permeation of that out to other school districts that have been looking for a solution and are unhappy with their existing. And that also is then our springboard as we think about '25 and beyond into targeted other states. So it really is you got to earn your stripes in a new state, if you will. There's covenants related to what the idiosyncrasies are. But from a software standpoint now, we've taken all the hardwiring out that was specific to Oklahoma and now any state that we move forward, it was validated in North Carolina, we can handle the nuances of state idiosyncrasies without any change to the software itself. It's more setup related. So it now gives us the ability to think about scale differently than we had thought of it before when we were first needing to validate that what we believe was true is now proving out to be so.

[Suthan Sukumar, analyst]

Excellent. And on the government segment, it's good to hear you're quite bullish on the opportunity there and really the opportunity to expand across North America. Can you speak a little bit about the strategy to protect your existing base I guess like from a migration standpoint and just a reminder of what are the key levers here to drive organic growth in the government segment?

[William Wood, executive]

The moat for protecting existing customers is largely there's few to no real viable alternatives, if you will, that meets the sophistication as well as the contemporary posture, security posture of the platform such as SylogistGov. We're in a very good place now in terms of our ability to demonstrate to partners that we have not just a solution on the come, but something that now is working in cities and towns that they can spin up on and take to their cohorts of customers to say we have something that you really need to look at. We also have now created visibility through technology and AI where we can go out and across North America, track all of the RFPs that are going on within the gov sector and that gives us a real good sense of timing of what our pipeline should look like, where we're pointing and where partners are already spending their efforts.

So we are sharing that platform and that data with them and so that we're making sure that we're aware of opportunities that are on the horizon and are in the queue to make sure that either we're part of that bidding process. But even more importantly, some of them and many of them and it's increasing we can get out to a sole-source provider scenario so they don't go out to or aren't forced to go out to a bid procurement because we have unique technology, the Microsoft platform built on Business Central that if their needs and desires are of that ilk, they can come in and look at us as a sole source provider. So that really shrinks the sales cycle as well. So where all systems go on the gov side at this point and our partners are really enthused and they're actually adding people to better assess the data that's coming in to them to be able to get their kind of attack mode of go-to-market using our platform ramped up.

[Suthan Sukumar, analyst]

Okay. Great. That's good color. Last one for me guys is just on Microsoft. Can you provide a quick update on how this relationship is evolving and what was the level of contribution to bookings and pipeline this quarter and what do you expect in the quarters ahead?

[William Wood, executive]

I'll take kind of the business side of it. We feel really good about our commitment to the Business Central platform and Dynamics 365 CRM platform. We get so many advantages vis-a-vis our competitors on the AI front, on the security posture front, on the cloud scalability front. And it's what our customers and what prospective customers are looking for. Microsoft is becoming almost a de facto kind of platform of choice or a provider of choice within the segments that we serve in the public sector. So that's a great tailwind for us relative to Microsoft as a partner. And we're also now having a couple of years of engagement through Grant McLarnon's efforts and his deep experience with Microsoft as managing it from KPMG to Microsoft previously.

We really expanded how we work with one another and make sure that we are aligned in our marketing efforts and how they think about their go-to-market in terms of the public sector and really showcase us as a premier partner for that side. They're horizontally oriented. So they're very reliant on vertical partner like us to be able to deliver their technology, sell their SaaS subscriptions, but with the vertical additions that we add to their horizontal solutions. So we feel good about it, really good about it on the acceleration side and maintaining and containing our R&D spend going forward. Anything on the financial side you want to add there, Sujeet?

[Sujeet Kini, executive]

No, Bill. And Suthan, I don't believe and I don't recall us having talked about the financial impacts of the Microsoft relationship either on the booking side or on the cost side. But again I will reiterate the huge, huge advantage of that relationship is obviously on the R&D side and on the kind of on the business side. It's that ability to leverage off the relationship and more often than not actually get walked into deals because of the Microsoft relationship. But we don't share numbers-related details in terms of bookings attributed, if you will, to Microsoft or anything on those lines.

[Suthan Sukumar, analyst]

Great update. Thanks for taking my questions.

[Operator]

Our next question comes from Daniel Rosenberg of Paradigm Capital.

[Daniel Rosenberg, analyst]

My first question was around the partner channel. And so I think you mentioned doubling the number of partners since last year, which is quite a positive to see. I was wondering going forward if you think bookings, is it about going deeper with these partners or do you plan on expanding again? That number was just quite -- doubling is quite significant. So just curious about any details there.

[William Wood, executive]

As I said earlier, we have a lot of inbound from Microsoft certified to Business Central and others that are well-known names across North America; firms with IT consulting, digital transformation and specifically financial practices on the consulting side and implementation for the public sector. If they have a Microsoft orientation as a partner and that's really our segment and many of them have also moved to that platform for the reasons I said before, it's what people want, we do see that partner community expanding. We're not doing it hey, we're open for business, anybody want to sign up? It's not our mode because we really want to make sure their commitment to the effectiveness of the implementation and the long-term partnership is sincere. And so I don't mean to say that they're coming to us with false pretense.

But the reality is we want to peel back and make sure that they're sustainable partners. Partners coming in and out is a costly proposition for us as we think about the go-forward. There's a lot of it, Daniel, that are knocking on our door that we're in discussions with now and we are in a good position to be able to kind of select which ones fit well for us. But also, we're very appreciative of the additive aspect of what they bring to our team, particularly visibility and girth. Many of them have really mature programs in the public sector and deep customer relationships that are really benefiting us as we start to win more deals and they put us on more deals. So it's very positive. We see it building as we go forward and undoubtedly, I think they will go deeper with us. And I think we will also add partners in count without question.

[Daniel Rosenberg, analyst]

Okay. I was also curious about the displacement that you spoke of. I was wondering what is that balance between the local solution or smaller players versus some of the larger incumbents? Is any of that displacement coming from the big guys today and do you see that changing as you look to the future?

[William Wood, executive]

I have to pause. Big guys is relative, right, in terms of who that could fit. I will say that our displacement strategy is not kind of one that's focused on down market. We are very much focused on our ICP and the displacement is very much associated with our ideal customer profile in each of the segments that we're working on. So no, we're not seeing any deal deflation in terms of our overall booking size whatsoever and we're actually seeing some expansion there. So I would say in certain markets, we are very much displacing the big guy, if you will, or big guys, if you will. Others in the gov side, we're never going to be a replacement for some of the high-end SAP kind of solutions that really compete for those uber large cities. That's not our ideal customer profile. So I wouldn't measure ourselves against the large deal. But what we are seeing is really good strong deal value continuing and growing as we think about not only the initial install, but the upsell and cross-sell as they use the platform more and bring on more users and bring on more functionality.

[Daniel Rosenberg, analyst]

Okay. And then my last question is just around M&A. You mentioned the success of Mission or you provided some data around the success that you've had. I was wondering how you guys are thinking about the M&A market today? Any opportunities or challenges when you look at what's out there as it relates to Sylogist?

[William Wood, executive]

Yes. Our appetite has not changed. We continue to make sure that we're not adding burden to ourselves that doesn't make sense or lift that doesn't make sense. There are continuing targets. We continue to have both direct outreach on an ongoing basis as well as through many partners that bring us possibilities as well. We have a strong appetite. We continue to look at a credit facility that allows us to matriculate on deals if they make sense. We haven't seen a lot of the deal values come down. Overall, we still feel that good assets are demanding or getting a lot of activity if they do come to market in a more public process. We continue to look at opportunities that may not be yet in a process and provide a compelling case as to why preemptively we would be a good buyer. So we're very much on that hunt, Daniel. We just over the last few quarters haven't been able to bring across something that we thought made sense for our value creation [ process ].

[Operator]

Our next question comes from Adam Wilk of Greystone Capital Management.

[Adam Wilk, analyst]

You guys had -- there's been a lot of focus on the sort of inflection of SaaS revenue growth in the near term and I guess over time. But you had previously mentioned the sort of balance of your internal capabilities and resources, making sure that the customers are taken care of rather than just plowing forward with as much growth as possible. Do you still feel like that remains the case in terms of where you sit today or can we just get an update on that sort of I guess bottleneck, my word not yours, in terms of where that sits today?

[William Wood, executive]

Great question and I think it's kind of somewhat of an adaptation of a prior one. We do see undoubtedly SaaS ARR revenue growth increasing. We're just trying to make sure that through mid-2025, we're not overstating what we believe is possible. But our capacity is growing both in terms of our direct and indirect, the efficacy is sky high and our ability to have greater implementation capacity with partners now being able to stand on their own 2 feet and deliver that. So that allows us to get to SaaS ARR more quickly and through implementations with a high degree of success. So I would say that we are coming out of the bottleneck. We still consider the success to be precious. We're not necessarily just saying come one, come all. But we're now in a mode where we have clear visibility to greater capacity both on the booking side and in all 3 markets whereas we were kind of a single piston machine before. So I will generally say that in the back half of '25, we see -- and I tried to speak to that in my opening comments that we see strengthening acceleration and leverage as we get into the back half of 2025.

[Adam Wilk, analyst]

Okay. Excellent. And then just an update on capital allocation priorities would be great. I know previous caller asked about M&A. And maybe I'll just add if there was a deal that made sense for you guys, could you just talk about what that might look like in terms of would it be -- are you more focused on the product side, geography type of customer? Would just love to get your thoughts on that.

[William Wood, executive]

Sure. It really does continue to be consistent with where we were previously. We will look at exercising our NCIB. We still feel there's lots of headroom in share value and so we do and the renewal of our NCIB undoubtedly will be occurring and we'll be exercising that as the Board sees fit, but that continues to be a value creation opportunity for our shareholders. On the M&A side, I'm staying true to my word there. We're not -- as our win rate reflects, we are very, very complete on the IP side; but that does not in any way prohibit us from bolt-on, add-on IP to our platform. That's the concept of a platform where we can easily think about complementary synergistic IP that would apply to a school district, to a municipality and to a charity. So we look at it from the standpoint of strategic, I don't want to call them just tuck-ins, it could be material as well as the idea of how do we think about customer density as a key priority of M&A.

Can we find an entity that maybe has legacy solutions that has a good customer cohort that has made the decision that they are not going to bridge to a full SaaS platform or the risk and cash to do so is going to be too daunting? So that is very attractive in terms of our crosshairs of where we could already have existing technology and think about a deal and a deal structure that would allow an owner of a legacy customer community to work with us to upgrade those customers to our platform. And also on the M&A side, it may not always be an acquisition. Because we now have a broad partner community, they have relationships with many, many solution providers that may not be in the business thinking of sale, but may be in a situation where they and we can derive royalties and dollars from them plugging into our platform and having access to our customer community.

So that's another area where we see revenue opportunity not necessarily through acquisition, but through kind of partnering with synergistic providers. So that necessarily isn't capital allocation required, but it broadens out how we think about adding value and adding scale. M&A, as I said in my closing, we see Sylogist as a materially larger enterprise with leverage. That's both organic as well as inorganic. So we're committed to both sides and we have the team, we have the muscle memory and then we have a really good playbook to be able to think about acquisitions in a positive light.

[Adam Wilk, analyst]

Excellent. Just 1 follow-up on that the synergistic partner efforts that you mentioned as a source of revenue. What has to take place for you to sort of turn that on so to speak?

[William Wood, executive]

Not a lot. Not a lot has to happen technically. We're continuing to build out our API suite to make that happen in a way that kind of doesn't require, don't look behind the curtain, but is very much plug and play. Because we are part of that Microsoft Business Central as well as CRM platform, we get a lot of those plug-ins that happen technically kind of out of the box. So it's just really making sure that we are first focusing on our own knitting and bringing customers on and making sure that we have really good success in that gov and ed sector at a high level and it's very repeatable and then we think about complementary IP. But those discussions and those from a strategy standpoint are already going on and our Director of Partnerships and our Chief Revenue Officer, Grant McLarnon, are all ears and engaged in conversations around what that could look like going forward.

[Adam Wilk, analyst]

Okay. Excellent. And then last question for me. You obviously know the sort of margin targets or sort of soft guidance that you've given in terms of your level of investment. But as you scale, I think I maybe ask this question every quarter; but as you scale, if there's opportunity to invest more or to throw some dollars at something you're trying to accomplish, whether it's white space, displacement? Are you comfortable maybe giving up some margin to do that or are you holding firm on where you guys are? Can you just talk a little bit about the tradeoff there?

[William Wood, executive]

I'll try to be consistent. We undoubtedly still -- because it's foundational to our thesis as well as kind of how we're thinking and what the Board is thinking about in terms of building the business, profitable growth is key. We're not looking to drain the piggy bank and try to Hail Mary it. But undoubtedly, when we have that kind of efficacy in our close and win rates happening, it certainly supports more and more lean-in in terms of -- and the question's happened a few different ways today on the call here. We're very comfortable with more lean-in because now if we can get 1 plus 1 equals 3 or 4 because of our sales and marketing motions and the efficacy of then also the wallet share expansion that we're seeing, the lean-in for us to be able to think about top line, it's a big part of how we think about it. Again I just want to state our top line right now growth is just wonky because we're decelerating a major contributor to what that was in years past on project services.

That's purposeful and so I just bring that back as a key theme. We want to get to SaaS ARR. That is happening now at a good clip. We see that expanding going forward and then we see it expanding with leverage in terms of the sales marketing motions directly as well as the idea of what our partners can add to our leverage on the sales and marketing side. So growth continues to be focused and we will think about a balanced Rule of 40 discipline, but ultimately how that flutters between growth and EBITDA will be something that is generally opportunistic as we think about it. Now is the time. We've put in the investments. We've actually now come to market. There's a lot of excitement. We'd be remiss not to lean-in and push on that. But it's going to still be done through that Rule of 40 posture and the discipline that we've demonstrated so far.

[Adam Wilk, analyst]

Understood. That's it from me. Thank you very much and keep up the great work.

[Operator]

This concludes the question-and-answer session. I would like to turn the call back over to Mr. Bill Wood for any closing remarks.

[William Wood, executive]

Yes. I appreciate the questions and I really appreciate the continuing support of our investor community. Excited about new dollars coming into the story that maybe we just didn't have enough breadcrumbs of performance to bring them in and bring them to the table. That's an exciting development for us and we're very pleased that we're looking at an investor community that's been really incredibly supportive of our efforts. And I guess coming through a 4-year anniversary just a couple of days ago for me coming into the company, I couldn't be more proud of what Sylogist has been able to accomplish over that time not to my credit, but to the credit of the team and how much we've really stayed true to our mantra. If we can get our customers at a good point, get our technology at a good point, there's very little to hold us back as we think about growing our footprint within the 3 sectors.

So that is at a higher state of excitement for me than ever before. I continue to think about our team being the best in the business. I feel like the foundation we've laid at this point positions us well for really good things ahead. And I appreciate the support of our investor community and certainly our Board, which is at it all time. I guess I've never felt more supported, but I say that to a Board that has now got really good expertise, really good wisdom, really good perspectives of companies at scale, technology companies, SaaS companies, the commercial side, the financial side. So I also want to give credit to our Board and appreciation to our Board. Our Board punches above its weight class, I think our management team does the same and I think Sylogist from the standpoint of our execution is really hitting on our cylinders very well. So thank you for your time today. Thank you for your continued support. Be well.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.