Tecsys Inc

TSX:TCS

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, everyone. Thank you for standing by, and welcome to Tecsys Second Quarter Fiscal 2021 Results Conference Call. Please note that the complete second quarter report for the quarter ended October 31, 2020, including MD&A and financial statements, were filed on SEDAR after markets closed yesterday. All dollar amounts are expressed in Canadian currency are prepared in accordance with the international financial reporting standards. Some of the statements in this conference call, including the question-and-answer period may include looking-forward statements that are based on management's beliefs and assumptions. Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Thursday, December 3, 2020, at 8:30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir.

[Peter Brereton, CEO, President & Director]

Thank you, and good morning, everyone. Joining me today is Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call, and we hope that everyone on this call, along with their families, is safe and stayed safe heading into the holiday season. As you know, Tecsys is a leading global provider of supply chain solutions that equip the borderless enterprise for growth. I'm pleased to report that after market closed yesterday, we reported our seventh consecutive quarter of record revenue, which was helped by a 142% increase in SaaS revenue. Our trailing 12-month SaaS bookings are up 159% compared to prior trailing 12 to a large extent, driven by an explosion of business coming from our customer base. You will see that the results we are discussing today continue many of the positive trends we have been reporting throughout this calendar year. Even during the pandemic, demand for Tecsys software has proven resilient because our software makes supply chains resilient. Our solutions deliver flexibility, which is especially important these days. During lockdowns, we can help our clients switch from in-store to home delivery and curbside pickup. For retailers with dark stores, we can help enable micro fulfillment. For clients managing PPE shortages, we build disaster relief emergency warehouse solutions with low training onboarding. And for all the others, many of whom are the backbone of our economies, we simply equip them with the reliable and agile supply chain platform that they need to get the job done every day. In all verticals from convergent complex retail to health care, companies are realizing more than ever that their supply chains need to be nimble enough to react to challenges and disruptions as they occur. Our global sales pipeline is brimming with demand from companies looking for the supply chain agility and resilience that our software delivers. Our pipeline conversion is solid across all verticals. Among the notable bookings this quarter, we closed new business with a significant Canadian health care-focused 3PL. Booked significant add on business with 2 U.S.-based hospital networks that expanded broadly into our point-of-use products. And booked a complex distribution customer migration to our SaaS platform. Looking at overall trends for a minute, our Q2 bookings were heavily skewed toward base accounts with significant base account bookings in both health care and complex distribution. Back in our Q4, ended April 30, 2020, bookings were heavily skewed toward new accounts. Looking at our current pipeline, there's actually a fairly equal weighting of opportunities in base and new accounts. So while there's no question that the pandemic severity has impacted deal timing, particularly in new accounts, we believe that these data points demonstrate both continued positive execution of our strategy as well as prospect and customer affirmation of our product offering. As the opportunity in our customer base continues to grow significantly, we are supporting this growth through increased investment in customer success as well as cloud operations and customer care. I'm now going to turn the call over to Mark, who will provide further details on our financials for the quarter and year-to-date.

[Mark J. Bentler, CFO & Secretary]

Thanks, Peter. We are pleased that our results for the second quarter continue to show momentum across all segments. I will now review the quarter and year-to-date performance in more detail. Recall that our fiscal 2021 second quarter ended on October 31, 2020. Total revenue in the second quarter was a record $30.7 million, 18% higher than $26.0 million reported for Q2 2020 and 9% higher sequentially over $28.1 million reported in Q1 of 2021. Cloud maintenance and subscription revenue increased by 33% year-over-year to $13.4 million in Q2 2021, up from $10.1 million in Q2 of 2020. As Peter mentioned in his opening remarks, the increase was primarily driven by a 142% increase in SaaS revenue, which was $5.1 million in Q2 of fiscal 2021, up from $2.1 million reported in the same quarter last year. This increase in SaaS revenue was driven by SaaS bookings in recent quarters and benefited from transaction volume-based SaaS fees recognized in the quarter. Additionally, approximately $0.5 million of the increase was related to a customer cancellation, which had the effect of pulling anticipated future revenues into the quarter. Without this $0.5 million revenue impact, SaaS revenue in the quarter would have been $4.6 million, up about 119% compared to the prior year period. To provide just a bit more color, this cancellation was a complex distribution based customer that recently underwent a turnover of management with the new management deciding not to invest in the project. While we acknowledge, of course, that our projects are typically quite transformational, we are implementing transactional systems of record that affect the core of our customers' businesses, we do not see this cancellation as an indication of any type of underlying trend. In fact, our net customer retention over the last 12 months through October 31, 2020, has been very high at 112%, up from an already positive 106% for the 12 months ended April 30, 2020. Moving on now to professional services. Our professional services revenue increased by 16% to $11.8 million in Q2 2021 compared to $10.2 million in Q2 of 2020. Proprietary products revenue amounted to $1.9 million in the second quarter of fiscal '21, up $0.2 million or 11% compared to the same period last year. Proprietary products revenue was driven by license revenue. While we expect license revenue to decrease over time as we continue to shift to SaaS, we do still see some customers that are deciding to consume our products on a perpetual license basis as opposed to via SaaS. We expect this to continue in the short term, but the long-term trend is clearly towards SaaS. Third-party products revenue decreased to $3.5 million, $0.1 million or 2% lower in comparison to $3.6 million for the same period last year. Solid bookings continued during Q2, SaaS subscription bookings, which we measure on an ARR, annual recurring revenue basis were $2.7 million, which is a 15% increase over $2.4 million reported in Q2 of last year. Professional services bookings were up 19% to $11.5 million in the second quarter of fiscal '21 compared to $9.7 million in the same period last year. Perpetual license bookings, finally, in the second quarter of fiscal '21 were $1.9 million compared to $1.4 million in the second quarter of fiscal 2020. Our annual recurring revenue, or ARR, as of October 31, 2020, was up 26% to $50.9 million compared to $40.5 million at the same date in 2019. Of course, for us, SaaS is the key driver for ARR growth. And as we've indicated over the last quarters, we began to focus on what we call contracted SaaS backlog as a key performance indicator. As of October 31, 2020, our contracted SaaS backlog was $60.2 million, up 16% from $52 million at April 30, 2020. As disclosed in our notes to our financial statements, we anticipate that in the second half of fiscal 2021, we will recognize $8.9 million of currently existing SaaS backlog as revenue. Moving to professional services. At October 31, 2020, our professional services backlog stood at $38.7 million, up 2% sequentially from July 31, 2020. We believe this backlog will support continued strength in professional services revenue in the coming quarters. Gross margin was 52% in the second quarter, up compared to 50% in the prior year quarter. Total gross profit increased to $16 million, up 23% from $13.1 million in Q2 of 2020, due in large part to higher combined cloud maintenance and subscription and professional services gross profit of $2.9 million. Overall, gross margin also benefited from strong license revenue and the pulled in SaaS revenue mentioned previously. We expect to continue to invest in our broad cloud maintenance and subscription and professional services business to support growth, and this could negatively impact total services margins in the near term. We believe that point of investment here in the short-term will continue to differentiate us in the market and will set up for margin expansion in the future as the business continues to scale. Operating expenses increased to $12.6 million, higher by $1.8 million or 16% compared to $10.8 million in Q2 of fiscal 2020. As we've mentioned in the past quarterly earnings calls, we are investing in growth, and we expect to continue this investment in the coming quarters. And it's also worth noting that our nonreimbursable travel expenses have declined materially in recent quarters as a result of COVID-19, impacting most notably on sales and marketing expense. This has had a positive overall impact on operating expenses and profit, and we expect this trend to continue in the near term. Profit from operations in Q2 2021 was $3.5 million compared to $2.2 million in Q2 of 2020. Net income was $2.1 million or $0.14 per share on a fully diluted basis in Q2 of 2021 compared to a profit of $1.4 million or $0.11 per share for the same period in fiscal 2020. Adjusted EBITDA was a record $4.8 million in Q2 2021, up 31% compared to $3.7 million reported in Q2 of 2020. We ended the quarter with a strong balance sheet. At October 31, 2020, we had cash and cash equivalents and short-term investments, in line with our expectations of $30.5 million. This compared to $36 million at July 31, 2020. We had net debt of $10.2 million compared to $10.5 million at July 31, 2020. Net cash from operating activities, excluding changes in noncash working capital items was $4.1 million for the second quarter of fiscal 2021, up 75% from the same period last year. Changes in noncash working capital items reduced cash by $4.6 million in the quarter, and this was driven primarily by cash collection timing and seasonality. We're not seeing any material change in collections stemming from the impact of COVID-19. Turning briefly to the results for the first half of fiscal year through October 31, 2020. Total revenue was $58.8 million, up 17% and from $50.3 million reported in the previous fiscal first half. SaaS subscription bookings increased 85% to $5.1 million in the first 6 months of fiscal 2021 compared to $2.7 million in the first half of last year. Net profit for the 6 months of fiscal '21 was $3.3 million or $0.23 per share compared to a profit of $1.1 million or $0.09 per share for the same period in fiscal 2020. Adjusted EBITDA for the 6 months of fiscal '21 was $8.3 million up 47% compared to $5.7 million reported for the same period last year. On December 2, 2020, we declared a quarterly dividend of $0.065 per share, payable on January 8, 2021, to shareholders of record at the close of business on December 17, 2020. This represents a $0.005 increase per share from our previous quarterly dividend and continues our trend of annual dividend increases. I will now turn the call back over to Peter to provide some outlook comments.

[Peter Brereton, CEO, President & Director]

Thanks, Mark. After 7 consecutive record revenue quarters, our pipeline suggests to us that demand remains elevated in all of our business segments into the foreseeable future. The pipeline has grown again this quarter and sales cycles remain active. These dynamics continue the trend seen in recent quarters. Our pipelines are fueled by change. And this recent Black Friday period has provided another proof point. Some interesting data we've been able to collect from these recent events. The global volume on our distributed order management platform increased by approximately 140% compared to last year for the Black Friday to Cyber Monday period. All areas of the world increased from the U.S. and Canada to Europe and Australia. France was the only exception where Black Friday has been postponed by a week and will ultimately drive these numbers even higher. This data shows that COVID-19 has had a profound impact on shifting consumer shopping behavior towards digital commerce and the Tecsys supply chain software is proving capable of handling this type of dramatic change. Our investments in channel and direct sales development and marketing programs are helping us to capture more opportunities as demand increases. Partners are influencing a growing proportion of our pipeline growth and we had another new partner influenced hospital network go live on our platform since our last earnings call. We believe that it is starting to become clear that our partner ecosystem is set to have an impact on our growth. We will continue to invest in these areas. We will also continue to invest in research and development to ensure that we continue to have world class products, catering to the needs of our customers as well as our expanding partner ecosystem. We believe that based upon the bookings that Mark just detailed, the outlook for the remainder of fiscal 2021 appears to be strong. We are more confident than ever that we have the solutions that deliver the agility and resilience that our customers need to be able to react to rapidly changing supply chain dynamics. In summary, I want to remind analysts and investors about our 4 key operational themes for the remainder of fiscal '21. First, the 142% growth in SaaS revenue this quarter validates our continuing focus on developing and growing our SaaS revenue model, which is helping to scale annual recurring revenue streams rapidly. Recurring revenue has grown to be the largest revenue stream for the past 2 quarters, which is an excellent foundation for future performance. Notwithstanding, some clients will always choose to buy using capital budget. So from time to time, in future quarters, you may see fluctuations in revenue caused by the sale of onetime perpetual licenses. Secondly, we continue to expand our partnership ecosystem, which is key for us to scale rapidly into the post-COVID market opportunities. We now have partners working effectively with us in both North America and Europe. We will continue to invest so that we can enable them more quickly and efficiently. From accelerated training programs to improve onboarding tools, we're determined to make our SI partners successful. Thirdly, we plan on continuing to invest in all of our sales channels to exploit the significant opportunities presented to us. And finally, we will continue to expand and refine our omnichannel business platforms to service the evolving needs in our health care supply chain, converging distribution and retail market segments. These efforts will help us to not only minimize customer churn, which is already very low, but it will also help us to expand revenue from current clients as we saw happening this quarter. Remember, change is what drives our business, and the COVID-19 pandemic has accelerated the monumental change that was already underway and continues to turn the traditional supply chain on its head. With that, we'll open the call up for questions. Thank you.

[Operator]

[Operator Instructions] Our first question is from Amr Ezzat with Echelon Partners.

[Amr Ezzat, Analyst]

Peter, Mark, congratulations on another solid quarter. I've got a few questions for you. The first one is, as we look at growing list of geographies entering new lockdowns, do you guys foresee any impact on your operations? Or has the ecosystem fully adjusted, be it suppliers, clients and you guys?

[Peter Brereton, CEO, President & Director]

The main thing we're seeing ever is that in areas where the pandemic is severe, there's no question that it's impacting new account business. I mean, if you look over our last few quarters, and I tried to sort of allude to that in the script. But if you look over our last few quarters, I mean Q4 new account business was pretty strong, but that was sort of momentum being carried through from the early -- I mean, the quarter, the pandemic sort of only kicked in, half way through that quarter. So your new business was quite strong. We then actually saw more reasonable new business in the summer months as the pandemic abated. As it came back more strongly in the fall, we definitely saw a new business slow down. It's been more than offset by existing business where the relationship already exists, and we already sort of know the people. It's already a trusted relationship. It seems to have virtually no effect on business. And so our second quarter was extremely strong on the base side. When we look at the next -- the second half of the year, we look at what's in pipeline. The -- I mean, I mentioned in the script that the pipeline looks reasonably balanced, it's actually larger on the new account side, but we're assuming that some of that will have -- we'll see some pandemic affect just some delays in decisions and so on, based on pandemic. So that's why we're saying they're pretty much balanced. So it definitely affects new account signings, the whole new account decision-making process, et cetera, but it seems to be temporary. It hits a given area for 6 weeks. It's really bad for 6 weeks. Then it's sort of a base again in that region. And everybody picks up speed. And it seems now, too, that with the vaccine on the horizon, people are trying even more to just get back to business as usual and are saying, okay, we're sort of -- we're in the last 6 months of the worst of this thing. And let's just plan for the future.

[Amr Ezzat, Analyst]

Great. That's great color. So when I'm thinking about calendar 2021, in general, like what's driving that growth? Is it like the same fundamentals you spoke to? Or like I'm seeing for some of the companies that I'm looking at, like their clients have like unspent budgets in 2020, which is bolstering 2021 demand. Are you guys like seeing that as well?

[Peter Brereton, CEO, President & Director]

We haven't noticed that specifically, I would say. It's more just that -- it's the fundamentals kind of we've been talking, but I mean, on the health care side, there's a -- the pandemic. I mean, we already [indiscernible] of the larger hospital networks realizing that they needed to have strong end-to-end supply chain solutions implemented, and that was already driving rising demand. And then the pandemic came along and really highlighted that if you do not have a good supply chain solution, you're just lost in the face of this kind of an emergency.So that has sort of elevated the profile of our solution in the health care space. And in general distribution, and say that whole industry is changing. I mean everybody is retooling for direct-to-consumer. In some cases, they've just run their systems they put in time for Y2K. They've got 2 decades out of them, and it's time to upgrade. But in many cases, it's e-commerce. It's the direct-to-consumer trend that is causing everybody to retool from third-party logistics providers to brand owners, importers, distributors, they're all having to retool. And they -- what a lot of them are realizing is that the pandemic has put so many retailers under -- that they're not sure really the lot of that retail space is coming back. So the focus now is, again, get your product direct-to-consumer, you can't count on the retail channel. In the retail space itself, where, of course, we have a number of clients on the e-commerce platform. That market, I would say, is still quite distracted. I mean we're seeing good base business in there. We just had a very strong Black Friday to Cyber Monday period for the accounts that are on our platform. But on the new account side, there's definitely a lot of distraction. I mean, the guys that have 50, 100, 150, 500, in some cases, retail stores, brick and mortar stores, they're obviously quite distracted by the pandemic. So we're seeing some distraction there, but we're also seeing a lot of activity at the top of the funnel. So we're thinking that as you get into the January to April time frame, which is often when retailers sort of make decisions about their next sort of preparing for the next year kind of thing, it looks like it's going to be quite busy.

[Amr Ezzat, Analyst]

Great. Then am I right to assume looking at the U.S. elections that you're expecting probably, let's call it, a more muted impact as a result of these elections relative, like, to the last election?

[Peter Brereton, CEO, President & Director]

Yes. We don't -- I mean, in some ways, our -- the best outcome for us probably is a bit of a divided structure, right? If the -- in this case, if the Democrats have the White House and Congress and Republicans have the Senate, that just creates a stable environment, which in many ways is our best bet for health care. At the same time, even if the Democrats win the Senate, I'm not sure they're -- I mean, they were already the champions of the Affordable Care Act. So I don't think they're -- they might be planning to tweak it, but they don't seem to be planning any open-heart surgery on that act. So it -- so for us, it looks to us as though the next few years, we should have a fairly undistracted market.

[Amr Ezzat, Analyst]

Great. Just another one on -- like on the cancellation, I think you guys mentioned that it was very client-specific as opposed to a trend. But can you give us a color on what drove that? Was it consolidation or financial trouble? Or were they not satisfied?

[Peter Brereton, CEO, President & Director]

No, it was -- I mean we see this once in a while. We -- it didn't use to show through in our financials because we weren't SaaS. We were a perpetual license. So if they've already bought the license all that happens is sort of they don't use the professional services that they booked. So it never showed up. But we -- I mean, for years, we get one of these every couple of years. And it's typically somebody that thought they wanted a new solution, shock the market, bought a new solution, started getting into implementation and realized that the project was bigger than they thought it was. It's got more impact on their business. I mean we do sell, as Mark mentioned on the call, we sell core system of record applications. So it is a big change for any business that is implementing it. And if they're not -- if they -- if that didn't sort of register clearly enough with them ahead of time, they get into it and end up saying, you know what, we're not ready. We don't have the right people. We don't have the right staff. We don't have whatever, and they decide to just stay on their existing platform. So that's what happened in this case. I say, I think the last one that happened like this was a couple of years back, but it happens once in a while. It's just that now in the SaaS world, you're going to see these little lumps because they signed a 5-year agreement. If a year into the project, they decide to cancel, suddenly the next 4 years of revenue recognized.

[Amr Ezzat, Analyst]

Great. So maybe one last one. Some thoughts on M&A. Just wondering, in general, like how has COVID changed the M&A landscape for you guys in terms of valuations and the way you guys approach M&A in general, a lot of companies in the past wouldn't really purchased another one without breaking breads with the CEO of the targets, I'm just wondering like how critical are face-to-face meetings for you guys? And are they starting up?

[Peter Brereton, CEO, President & Director]

We're -- I mean, we can -- there's really no change on the M&A front. I mean we continue to kick the tires of some different opportunities. We continue to look for opportunities that expand our geographic footprint. There's no question. I think it would be hard to finalize a major transaction without being able to get some type of face-to-face understanding of what business you're buying and so on. But it hasn't had any effect yet. And I mean, I think, in fact, we're all getting so used to the meetings on Zoom or RingCentral or Teams or whatever it is. I mean, yesterday, I had a meeting with our Board members that were in -- some in California, some in Texas, some in Toronto, et cetera. And 10 minutes after the call I was meeting face-to-face with the customer in Portland, Oregon. So we're all getting pretty used to that. And so I don't know that, that will have a major effect on it or not. I think it's really just back to the core issues of valuations are high right now. Our business is very busy organically. I mean, if you look at the booking trends, I mean, we're showing right now the actual revenue growth of sort of 18% this quarter, I think it was 16% last quarter. But if you look at the booking trends, I mean, look at the last 6 months, or look at the last 12 months, I mean, quarters are lumpy, but if you look at any kind of a slightly more extended time period, bookings are rising at least 50% a year. So the focus of the business is very much around growing the business to meet that organic demand. I mean, you can only continue to grow bookings at 50-plus percent and grow revenue at only 18% for so long. I mean, at some point, this whole thing has to start to catch up as we get into more of these projects and so on, right? So that's -- that is taking the lion's share of our focus. So we continue to poke around, look for good opportunities that would support our overall strategic plan. But I would say the organic growth right now is very hard, especially if you look at that point on the equipment side.

[Operator]

[Operator Instructions] And our next question is from the line of Gavin Fairweather from Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Just want to start out on the distribution side. I think this is the second quarter in a row where you called out a migration out of your kind of on-premise installed base. Can you maybe just refresh us on the size of that base, what proportion of that base is maybe at a vintage where they're thinking about an upgrade and looking at SaaS? And kind of how much of that is starting to percolate into your pipeline?

[Peter Brereton, CEO, President & Director]

Yes. There's actually -- I would say there's very little of it still in our pipeline. I mean, we did one in Q1. We signed one in Q1. We signed another one in Q2. And I wouldn't be that surprised if it remains at that kind of cadence for the time being. There's a lot of -- I mean we've got -- if you look at our complex distribution base, there's about 150 accounts out there that are sort of sizable enough to make to be sizable SaaS opportunities. I mean, we've got hundreds of other accounts there as well. But if I look at the ones that are sort of sizable enough that, that would be significant. There's about 150 of them out there. But the bulk of them are sort of still quite happy on their on-prem solutions that they've implemented over the years and are sort of we're keeping them posted on what's happening with the SaaS offering and so on -- and I would expect that sometime -- probably about a year from now, I think we're going to start to see a more rapid movement in that base. But right now, it tends to be people that were -- they were already going through a transition anyway. Maybe they were -- they brought in some new IT people that have sort of reassessed their whole situation and are looking to modernize the platform. So we're seeing that happen, but it's -- I think it's going to remain a relatively low case for a while, and the bulk of our SaaS business growth in SaaS will be new accounts.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Yes. Maybe just one from a higher level. I mean, just given kind of e-commerce here. I mean, distribution and retail, that space is moving so fast and there's so much opportunity going on. I guess curious for your kind of higher level take on just how that market is evolving? What you're seeing maybe a competitive perspective? And then maybe kind of touch on whether you've maintained your win rates in that space, which I think could be running around 40%.

[Peter Brereton, CEO, President & Director]

Yes. The win rate is remaining quite constant. We just looked at it again this last quarter. It held steady. So the -- we're seeing -- in fact, we're looking at potentially trying to pick up the investment as well on the sales side in that space. Because what we're seeing is that the market is moving. There is a lot of activity. We're seeing a lot of inbound leads coming in, in that space. We're seeing a lot of activity. The analysts are also reporting a lot of activity in that space. And the competitive landscape is relatively light. I mean, if you look at -- if you want to talk pure supply chain execution, you have your usual suspect. So you've got your Manhattan and beyond your solutions. You've got some other sort of lower end solutions. If you talk the broader supply chain platform, so you're really supporting sort of ER -- getting into sort of ERP for distribution or converging distribution. There -- again, the competitive landscape is relatively light. You've got NetSuite trying to sort of be all things to all people. You've got Oracle and SAP at the high end of the market. You've got Sage and Epicor with some stuff at the lower end of the market. Microsoft Dynamics rattling around in there, too. But if you look at the $200 million to $10 billion sort of market space, it's remarkably wide open. So that's in fact, if you go back to the sort of post Y2K, there were dozens of companies competing in that space. But most of them have been acquired and those bases are just being sort of maintained long term. But there's really -- those companies are all out of the new account business. So it's a remarkably open space. We've spent the last 6 or 8 months really building out our health care sales team. But we are looking at now ramping up the investment in the complex distribution and converged distribution sales team because we're seeing a lot of activity and competition, not very intense at all.

[Gavin Fairweather, Analyst of Institutional Equity Research]

That's helpful. And I think this quarter, you called out some of the transaction revenue helping you out -- or transaction-based revenue helping you on the staff line with maybe the Black Friday staff that you cited. Can you give us any sense of kind of the sensitivity to maybe that line to transactions running through and that help us out there a bit.

[Peter Brereton, CEO, President & Director]

Yes, I'll leave that one to Mark. So I can tell you though, it's not huge.

[Mark J. Bentler, CFO & Secretary]

Yes. It's not super material number at this stage, as Peter mentioned, it's going to be -- you're talking about hundreds of thousands of dollars across the course of a year there right now. So there is a little bit of -- it will create a little bit of variability in our profit line going forward, but it's not that material.

[Gavin Fairweather, Analyst of Institutional Equity Research]

Okay. Awesome. And then maybe just before I pass line. Peter, can you just give us an update on the pharmacy solution? I think you have 2 live now. Or maybe 1 live and 1 kind of going live. How is the data coming out of that? And where do you think you're at in terms of being able to take that down as reference information to sell it across the base?

[Peter Brereton, CEO, President & Director]

Yes. We're getting there on that. I mean we're -- you're absolutely right. We've got 1 live and 1 about to go live. The -- I would think if everything stays on track, we should be able to be talking about the second go live at our next call. But we're also seeing now increased activity. I mean there are multiple pharmacy solutions opportunities now in the pipeline. As we look at our next sort of 6 to 9-month pipeline kind of thing. So we're seeing activity in there. We're seeing the account that has gone live is now able to sort of chat with other hospital networks and talk about sort of what they're seeing and so on. They're not yet ready to sort of publish any of those results, but they're passing lots of anecdotal gains. So we are seeing very good opportunity there.

[Operator]

Our next question is from the line of Deepak Kaushal with Stifel GMP.

[Deepak Kaushal, Director and Technology & Communications Analyst]

I've got a couple as well, if I may. Peter, Mark, maybe I'll start with the health care side on COVID vaccine distribution. There's been a lot of talk about the industry gearing up to start to distribute these vaccines worldwide. I'm just curious what opportunities are you seeing at your level and how do you expect this big machine to kind of roll through and impact your business? Will it be licenses or onetime projects? Any kind of insight would help there?

[Peter Brereton, CEO, President & Director]

A great question, Deepak. I'm going to give you an answer that might sound really evasive, but I'm really trying not to be. We just don't know. Like we are engaged right now in vaccine discussions every single day with hospital networks, with large international systems integrators, with state level governments, like it is nonstop. And yet there's still a lot of destiny in that space far more than you would think based on -- I mean, if you read the press right now, it sounds as though sort of vaccine distribution has been turned over to the military, and there you go, problem solved. At the ground level, there's still a ton of work to be done and a lot of things has been figured out. And it's in each segment, right? So there's the distribution of -- and of course, it's cold chain. So you need proper track and trace. You need, and in fact -- this all comes under the drug Supply Chain Safety Act. So they're security act, so you've got careful management of the whole the pedigree of the product and then management of the cold chain. So you're talking sort of bulk distribution up at the sort of the start of the supply chain. And then you've got state level distribution, which is a logistical, massive logistical project to get the vaccine of every hospital, clinic, pharmacy, walk in center, shopping malls, wherever they're going to be given. And yet most of these vaccines require 2 vaccines, so you have to actually keep tracking the individual patients and make sure that the same type of vaccine gets into the same arm the second time. So there's a lot of process to be set up here. And that last phase, which is sort of the sort of final freezer to arm phase. We're also in discussions, right, I may have mentioned that earlier. So we're in discussions with each segment of the chain. And it looks as though within the next sort of 30 days, some of those projects are suddenly going to go into very high gear. But like we're not even -- like in our own internal planning for the second half of the year, we just have a giant question mark over that piece. We're sort of planning the whole rest of the business without it by recognizing that, that may come. And if it comes, it's going to come very fast and be quite large. So we just don't know yet. And there's still a lot of logistical issues to be worked out.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Interesting. That's very helpful. So -- but like as CEO, and when you think of the opportunity to change the business or improve the business dramatically in this process. Do you just throw more bodies at it? Do you work with systems integration partners on this? Like how do you prioritize how you go at this problem to maximize what's the opportunity for you guys?

[Peter Brereton, CEO, President & Director]

Yes. I mean, it will have to be done with SIs, right? There's just too much work to be done too quickly to get virtually any of this stand-alone. So our people will be very focused on, assuming we do win some of that business, our people will be involved primarily at the platform level, setting up the platform, configuring the platform and then training the SIs for the rapid rollout. We have produced an app that is specifically, it's sort of a point-of-use app which goes on the end of our supply chain platform and is specifically dedicated to that final fridge-to-arm phase to track the patient, track the dose and sort of very efficiently get it from the refrigerator to the arm with a super simple and efficient phone-based solution, Android phone-based solution for the clinician to use. So we rolled that out as well. We sort of rushed that through R&D, and that's out, being shown now in the marketplace and so on. So there's -- but to do this effectively, it's going to have to be a team effort. I mean, I remember when we won the project years ago to do the H1M1 rollout in the U.S., I mean, that ended up being a joint effort with the third-party logistics company providing the warehousing and transportation companies stepping up. I remember, AT&T ran fiber optic to that place in 24 hours, which was as opposed to the normal sort of number of months it takes to get that done and so on. So I mean, it's going to have to be the same kind of massive team effort to get it done. And obviously, I mean, it is a huge business opportunity for us, but relatively short term. I mean, as we saw with H1N1, I mean, it ends up being a massive project, but a year later, it's done, assuming it's successful, of course. So that's there -- that's our thinking. And it will -- there's no question, it could impact other projects in the business to some extent. But I think at the same time, everyone recognizes that -- the humanitarian crisis that's going on. And recognize this one needs to rise to the top.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. That's very helpful. We're looking forward to seeing how that gets rolled out and hopefully you can get in my arm very quickly.

[Peter Brereton, CEO, President & Director]

Mine too.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Everybody else's too, yes, everybody else's too. Just going to the pipeline, you've given some good color on the balance of new and existing. Any kind of metrics you can give us around size or sales coverage ratio or growth. We're just trying to get into context how big the pipeline is growing relative to what you're converting to revenue and bookings growth?

[Peter Brereton, CEO, President & Director]

Yes. I mean, we don't give out specific numbers around that. I can tell you, though, that the pipeline held quite steady in spite of the strong bookings. I mean, obviously, bookings come out of pipeline. So in spite of the strong bookings over the last 6 months, the pipeline held quite steady from sort of April to October and then surge some in November. So the total pipeline which -- and when we're measuring total pipeline, we are talking hundreds of millions of dollars when you look at the total pipeline. So it rose about another 10% just in November. So from late October to late November, I guess, was the measurements we were looking at there. So overall, the pipeline trend continues to move up. It's a little bit -- part of what's driving the bookings, of course, is that the pipeline -- I mean, you all look at pipeline size, but you also have to look at pipeline duration. And as we're continuing to seeing shortening sales cycles, you end up being able to convert more business out of a similar-sized pipeline just because the deals are spending less time in the pipeline, right? So your momentum is higher going through that pipeline. So that -- but overall, it's -- the pipeline, I'd say, is held steady for 6 months and then a bit of a nice pop in November -- October to November time period.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. And then a quick question for Mark, just on margins. You guys continue to come in ahead of what I expect 16% EBITDA this quarter. And I think you set out a 2025 target of 20% plus. Do you guys manage to that kind of target and will invest accordingly? Or you just let the numbers grow and see potential to surpass that? And then I'll pass along.

[Mark J. Bentler, CFO & Secretary]

Yes. It's a good question, Deepak. I mean we're -- the 16% that we saw in this quarter is a high number for us. We're -- our investment strategy and mix -- and our mix expectation of revenue is -- it was a little bit off in Q2. We had pretty significant license bookings in the quarter, which souped up the margin there. We had the 500 -- $0.5 million pull in on the SaaS, which souped up the adjusted EBITDA margin there. And we continue to invest in sales and marketing and in R&D from an OpEx perspective. So I think the prior targeting that we have discussed in a multiyear kind of scenario. The start that we have on the wall is 20% EBITDA margin or low 20% EBITDA margin level I mean that's still our drumbeat. And I think as we go through the next number of quarters, we'll -- there's a good chance that we could see some lumpiness that continues, as we alluded to you on the call, around license bookings that will impact that margin in an absolute way in the short term. But we're still thinking that, that target that we've talked about is still the target on the wall and we're still on the page of invest now for growth and EBITDA will -- EBITDA will flow.

[Operator]

Our next question is Nick Agostino with Laurentian Bank Securities.

[Nick Agostino]

So I guess, first question, just picking up on Deepak's question. How should we look at the shorter-term or the near-term margins? I think on the last call, you guys were still saying you're going to operate the business around 10% level. But we did see the last 2 quarters where you posted certainly above that level. I'm just wondering how -- I understand the longer term, how should we be looking at the near-term margins around the 10%? Or should we be thinking more 12%, 13%, especially -- and then adding to that question, as we hopefully get into this post vaccine era, how does that -- how does what you've been able to achieve in the first half of the year from a cost savings? How much of that do you think is going to be sticky in the near term?

[Peter Brereton, CEO, President & Director]

So from my perspective, the -- I don't look at what happened in this quarter as cost savings really flowing through. I mean there was -- arguably, there is the impact from travel, right? So our plan and outlook was travel costs would -- 6 months ago -- 8, 9 months ago, when we were planning this, travel was going to be x and now it's completely -- it's evaporated. So there's been some pickup there for sure. And we think that will continue at least for the short -- the very short term and it will come back. I don't think it'll come back at the same level, but it'll come back. It'll take another 2 or 3 quarters probably for that to start to turn. But it will start to turn. Meanwhile, we'll continue to invest in sales and marketing and R&D. We talked about our cloud and broader services organization that right now is the time to get that right. It's time to build the base and the infrastructure that can support and create delighted customers, and we're bringing them on and shift them over to SaaS and really critical that they're happy and successful in that process. And I think the numbers that you referred to that we had spoke about before as kind of targeted levels in the near-term are still sort of what we see in the near term. And it'll depend a lot on, like I mentioned, the lumpiness of perpetual licenses. And we do have some perpetual licenses certainly in the pipeline. So if that comes through, it could make that number a little bit bouncy, but our expectation is to continue to invest in the short term. Will it be as low as 10% in the next couple of quarters? Maybe. But that's kind of where we're at.

[Nick Agostino]

Okay. And then on the partner front, you guys alluded to earlier that they're bigger influence on the business. I know Workday has certainly bring -- brought some customers to you already. I'm just wondering on the KPMG side, can you just maybe remind us where are they as far as -- are they at a level now where they're able to contribute to the top line to your growth? Or are they still in a ramp stage from a learning perspective? And where do you see them having the -- when do you see them having impact? And really, what markets do you think that they'll be most beneficial?

[Peter Brereton, CEO, President & Director]

Sure. Yes, I mean, I think the KPMG is -- continues to work with us in the field. They're involved in a couple of deployments. I wouldn't say they're yet -- sort of at this point -- they have not yet at this point driven top line for us. But I think we're very close to that stage with them. But overall, if I back up and look at the overall picture, like at the end of Q1, we figured that our total pipeline was about 13% partner influenced. And partner influence is at -- it's a bit of a soft term. I mean, it doesn't necessarily mean that they brought you the deal. It just means that you're in the deal, and they are also in the deal. And -- but they are a factor in the deal. So that was about 13% in Q1. And as we ended Q2 and looked at it again, it was up to about 17%. So if you look at -- when you consider that 2 years ago, it was pretty much 0. We feel like it's starting to have a significant impact. And it not only affects the number of deals you get into, but it also affects your win rate in the deal and option also affects the time line, the length of the sales cycle. So we're pretty happy with where that's going. We continue to invest in that -- in building out that ecosystem. The person who joined us a few months ago now, 4 months going now maybe to focus specifically on further building out that ecosystem, he's doing a great job. So we're overall pretty happy with where that's going. I would think within the next quarter or so, we're going to be able to start talking about some other partners that have actually driven deals that are starting to impact our top line.

[Nick Agostino]

Okay. And then just one last question as a point of clarity. Because as you keep on investing as a term keep hearing. And I'm just wondering, I know that you've got some nice plans over the next few years to bring on more people from a headcount perspective to help on the sales side. I think you suggested you're going to do beef up on the complex distribution alongside your health care. And I guess my only question is, do you see that, that spend would be steady? Or do you envision a time period over the next couple of years where you might be accelerating it or vice versa? Taking a pause and I'll leave it there.

[Peter Brereton, CEO, President & Director]

We -- Nick, we expect it to be fairly -- just fairly steady. We feel like that's the most effective way to grow the sales team is to basically continue to hunt for great people to add to the team and when you find them, add them. So for instance, in this quarter we're in now, our Q3, we've already had a couple of new sales people start and we'll continue to do that. So I don't think you're going to see any real sort of stair-step there. I think it's going to be pretty steady growth in that number over a period of time. And I mean what there's -- as Mark has alluded to, there's a number of reasons why the EBITDA is coming in as high as it has. But like at a macro level, what keeps happening is every quarter, we keep overachieving on revenue and being slightly behind on our hiring plan. And we are working to find ways to accelerate the hiring further to sort of catch up with the revenue line to be able to take further advantage of the opportunities out there. But it's those 2 lines that are -- need to sort of -- I mean we obviously want the revenue line to grow faster than the cost line. But generally speaking, a lot of our revenue growth will be further enhanced by adding some of these people over time. So we continue to invest in people, additional people as we grow the top line. But say, quarter-after-quarter, it seems like that top line is growing faster than we're able to bring the staff on. So I guess we just end up apologizing to investors for too much revenue and too little cost.

[Operator]

And there are no questions at this time. I turn the conference back over to you.

[Peter Brereton, CEO, President & Director]

Okay. Thank you very much, operator, and thank you all for taking the time to join us today on this call. As always, if you have additional questions, please don't hesitate to give me or Mark a call. We'll be happy to have a follow-up discussion. Thanks, and have a good day.

[Mark J. Bentler, CFO & Secretary]

Thanks.

[Operator]

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.