Tecsys Inc

TSX:TCS

Earnings Call Transcript 2022-Q2

[Operator]

Good morning everyone, and welcome to Tecsys Second Quarter Fiscal 2022 Results Conference Call. Please note that the complete second quarter report, including MD&A and the financial statements were filed on SEDAR yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards.Some of the statements in this conference call, including the question-and-answer period may include forward-looking 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 2, 2021, at 8:30 a.m. Eastern Time.I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer of Tecsys. Please go ahead, sir.

[Peter Brereton, CEO, President & Director]

Thank you. Good morning, everyone. Joining me today is Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call. For those that may be new to our story, Tecsys brings transformative supply chain solutions that resolve complex challenges for commercial distribution networks to customers around the world. Our markets include health care and pharmacy, e-commerce, retail and direct-to-consumer brands as well as general and converging distribution markets. We're the market leader in North America for health systems and hospital supply chain solutions with an end-to-end value proposition.I'd like to begin by summarizing key themes of the second quarter of fiscal '22 and then the results of operations. Mark will then walk us through the financial results in more detail. And finally, I'll comment on our outlook, followed by a Q&A session.There are 2 key indicators I'd like to highlight, which despite currency headwinds, are contributing to our track record of solid accelerated growth. Revenue, where I'd just like to touch briefly on growth and quality; and our pipeline, where I'll touch on market conditions. First, this is our 11th straight quarter of record revenue. As we continue to emphasize, SaaS revenue is scaling up relatively quickly due to our ongoing strategic shift to SaaS in all our markets. As we continue to mature this SaaS revenue model, we will increasingly create greater revenue visibility and improve the long-term quality of our revenue.This leads to my second point, our pipeline. As we report results into the second year of the pandemic, while our revenue performance continues to move in a positive direction, this only tells part of the story. And I'd like to reiterate the growing importance of supply chain as a strategic lever within organizations and how this is being reflected in our pipeline. Supply chains everywhere are in flux due to the pandemic and are strained due to the general e-fulfillment trends and shifting trade agreements. Everywhere we look in all sectors, companies are attempting to bolster technology to become nimbler in the face of new uncertainties, and we are seeing the effect of that trend.In August, we announced that since COVID disruption began, over 30 health care accounts have made major investments with Tecsys, helping to resolve operational shortcomings exposed by the pandemic. In September, we shared the news of the Australian retail chain and Woolworths Holdings subsidiary Politix, having leveraged Tecsys software to manage the complex back end supply chain processes behind their sales force technology. In both cases, we are seeing signs that organizations are investing in their supply chain agility and Tecsys solutions are the chosen vehicle for that agility. As a result, we are seeing momentum in our pipeline in all lines of business from both new and current customers. Some global customers who may have started with a single facility are now expanding to multiple jurisdictions, and others who may have started with a few modules are now expanding their Tecsys footprint to better equip their supply chains.Our Q2 bookings demonstrates that the impact of the bottlenecks that we were seeing in procurement and legal seems to be abating, and we seem to be returning to a normal deal flow. Our momentum is strong and while continuing to invest in the expansion of our own services organization, we are also investing in the expansion of our partner ecosystem. This is beginning to truly help us to respond to increased demand and proactively hedge against growth-oriented labor and delivery capacity bottlenecks.Mark will now provide you further details on our financial results for the second quarter and the first half of our fiscal year. Over to you, Mark.

[Mark J. Bentler, CFO & Secretary]

Thanks, Peter. We're pleased with our strong performance in our second quarter ended October 31, 2021. Before jumping into Q2 and first half results, as a reminder, last quarter, we began showing SaaS revenue separately from other recurring revenue, namely maintenance and support. We're also presenting license revenue as a separate line, including proprietary and third-party licenses in that revenue line. We're presenting hardware on a separate line, and this line, likewise, includes both proprietary and third-party hardware. And finally, we've combined reimbursable expense revenue with our professional services revenue line. We made these changes in order to highlight the areas of the business that are driving our performance and to create greater clarity in the underlying trends in our business.With that, I'll move on to the second quarter results. Total revenue was a record $34.3 million, 12% higher than $30.7 million reported for Q2 2021, and as Peter mentioned, our 11th straight quarter of record revenue. As many of you know, a significant portion of our revenue, about 65% to 70% is denominated in U.S. dollars. As a result, movement in currency exchange rates has an impact on our reported revenue and growth. During Q2 fiscal 2022, currency exchange movements negatively impacted our reported revenue as the value of the U.S. dollar was weaker compared to the same quarter last year. In fact, on a constant currency basis, using fiscal 2022 currency rates, our second quarter revenue grew by about 18% compared to the same quarter last year. This unfavorable currency movement materially impacted all revenue lines in the quarter.We continue to experience strong and diverse revenue streams underpinned by a 28% increase in SaaS revenue, up from $5.1 million in Q2 last year to $6.6 million in Q2 of 2022. On a constant currency basis, SaaS revenue was up about 36%. I also want to note that we're at the precipice of a significant milestone in our transition as a SaaS business with our SaaS revenue representing 44% of our total recurring revenue streams in Q2 fiscal 2022. And we have line of sight to SaaS crossing over the 50% threshold. It is particularly notable that we've reached this point quite quickly, in fact, about 3 years into our SaaS transition.Maintenance and support revenue for the 3 months ended October 31, 2021 was $8.2 million, down 1% compared to the same quarter last year. This decrease was a result of the negative impact of currency movements. On a constant currency basis, maintenance and support revenue actually increased by about 4% compared to Q2 last year. Our annual recurring revenue at October 31, 2021 was $56.9 million, up 12% from $50.9 million at October 31, 2020. On a constant currency basis, that increase was about 18%.Professional services revenue for the second quarter was $13.1 million. That's up 11% from $11.8 million reported for the same quarter last year. Again, currency movements created headwind on revenue growth here, which would have been 17% on a constant currency basis.Hardware revenue in Q2 fiscal 2022 was $5.4 million. That's an increase of $2.0 million compared to the same period last year, and this was driven by a solid backlog heading into the current fiscal year.SaaS bookings are reported on an annual recurring revenue basis and increased by 50% to $4.0 million in Q2 2022 compared to Q2 of last year, which was $2.7 million. SaaS bookings were highlighted by new customer signings in all our key verticals with 3 new hospital networks, 4 new general distribution retail customers and some solid base business uptake as well.Professional services bookings were healthy at $17.9 million comparing favorably to $11.5 million in the same quarter last year. License bookings were $1 million in the quarter compared to $1.9 million in the same quarter last year. SaaS Remaining Performance Obligation, also known as RPO or SaaS backlog, was $72.7 million at the end of Q2 fiscal 2022. That's up 21% from $60.2 million at the same time last year. On a constant currency basis, that growth was 28%. This notable increase was driven by significant multiyear SaaS bookings in the quarter.Professional services backlog at the end of Q2 fiscal '22 was $33.1 million, that's down about 16% compared to $38.7 million at the same time last year and down slightly from $35.1 million at July 31, 2021. Our professional services backlog remains robust, and we expect our delivery team to continue to be very busy in the quarters ahead.For the second quarter, total gross profit was $15.5 million. That's down about $0.5 million compared to $16 million at Q2 2021. As a percentage of revenue, gross margin was 45% compared to 52% the same quarter last year. The decline was a result of unfavorable exchange movements, investments to support growth and also change in revenue mix; the latter, in particular, with lower license revenue and higher hardware revenue.Switching now to our expenses for the second quarter. Operating expenses increased to $13.9 million. That's higher by $1.3 million or 11% compared to $12.6 million in Q2 of fiscal '21. Operating expenses increased as we expanded investment in sales and marketing as well as in research and development.Net profit for the quarter was $0.7 million or $0.05 earnings per basic and full diluted share compared to $2.1 million in Q2 last year, which was $0.14 per basic and fully diluted share. Adjusted EBITDA was $3.2 million in Q2 2022 compared to $4.8 million in Q2 last year. The decrease in profit and adjusted EBITDA compared to the second quarter last year was driven by an unfavorable foreign exchange impact of approximately $1.5 million as well as lower license contribution and higher expenses.Turning now briefly to our results for the first half of fiscal 2022. Our total revenue was $67.5 million. That's up 15% compared to $58.8 million in the first half of last year. And that would be up 21% on a constant currency basis. SaaS revenue for the first half of 2022 was $12.2 million. That's up 36% from $9.0 million in the same period last year, and that's up 45% on a constant currency basis.Our profit for the first half of fiscal '22 was $1 million or $0.07 per basic and $0.06 per fully diluted share compared to $3.3 million or $0.23 per basic and fully diluted share in the same period last year. Adjusted EBITDA was $5.7 million in the first 6 months of the current fiscal compared to $8.3 million for the same period last year. Foreign exchange movements had a negative impact of approximately $3 million on profit and adjusted EBITDA in the current 6-month period compared to the same period last year.Finally, we ended the second quarter with a strong balance sheet position. At October 31, 2021, we had cash and cash equivalents and short-term investments of $38.1 million. That compares to $45.9 million at the end of the year, and we had debt of $9.0 million compared to $9.6 million at the end of the year. Cash provided by operations was $0.6 million in Q2, and our DSOs or Days Sales Outstanding and accounts receivable remained solid at 56 versus 47 at year-end and compared to 73 at the same time last year.With that, I'll turn the call back over to Peter to provide some outlook comments.

[Peter Brereton, CEO, President & Director]

Thanks, Mark. The positive growth trends we saw in fiscal 2021 are continuing into fiscal 2022. Not only are we reporting record financial performance, but it's encouraging to see the uptick in new accounts, expansion of existing accounts and the overall strength of our pipeline. The market conditions give us confidence that we are well-positioned to continue capitalizing on our market opportunity.I'd also like to take this opportunity to thank the TSX for including us in the TSX 30. That was exciting news for us. And I'd like to thank our shareholders and our employees for making this possible. In case you didn't see that release, in September, Tecsys was included in the TSX 30 with a 3-year dividend adjusted share price appreciation of 181%.As an indicator of future performance, we can look at the strength and depth of our current pipeline. We are seeing solid opportunity cycles and great activity across all segments, both among current customers and new prospects. We are mindful of our delivery capacity, and we continue to invest on that front. We are also continuing to intensify our channel relationships. In both cases, we're taking proactive steps to manage for continued growth.As we enter the second half of fiscal 2022, we continue to feel confident that the remainder of '22 is on a solid growth trajectory, underscored by positive trends in our KPIs. While COVID may still present additional curve balls, Tecsys has never been in a stronger financial position to weather future [ uncertain ] market volatility, if it were to occur.In summary, I want to remind analysts and investors about our 3 key operational themes for the remainder of fiscal 2022, which have not changed from our previous analyst call as we entered the fiscal year. First, we'll continue to maintain a focus on developing and growing our SaaS revenue model. We will likewise, continue to optimize our internal processes and resources to complement the shift to SaaS to maintain high levels of customer satisfaction as well as improved margins.Secondly, we will continue to expand our partnership ecosystem. This is key for us to scale rapidly into the market opportunities that I mentioned earlier. We now have partners working effectively with us in both North America and Europe. We'll continue to invest so that we can enable them more quickly. From accelerated training programs to improved onboarding tools, we are determined to make our SI partners very successful.Thirdly, we plan on investing in all of our sales channels to exploit the momentum and opportunities coming at us. We also continue to expand and refine our omnichannel business platforms to service evolving needs in the 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 will also help us to expand revenue from current clients as we saw happening again this quarter.Remember, change is what drives our business and the lasting effect of the COVID-19 pandemic on supply chains has accelerated the monumental change that was already underway and continues to turn traditional supply chain on its head.With that, we will open the call up for questions. Thank you.

[Operator]

[Operator Instructions] And our first question is from the line of Amr Ezzat with Echelon Partners.

[Amr Ezzat, Managing Director of Research]

Peter and Mark, congrats on another strong quarter. My first question is on the new restrictions we're starting to see in different jurisdictions with the new virus strain. Do you see that impacting you guys at all, be it on the delivery front or bookings?

[Peter Brereton, CEO, President & Director]

Hard to say, we're -- I mean, we came through the early and much more surprising and drastic phase of the pandemic relatively unscathed. We did see a slowdown in bookings, of course, for a few quarters there. So it's hard to predict. We're sort of watching this Omicron one to see how serious it turns out to be. We've certainly learned how to navigate around travel restrictions. I think from a -- we're doing a fraction of the travel that we used to. You can see that actually, even in our reported numbers, I mean the travel costs are down substantially. So we don't anticipate a major hit there. But I mean, I think the whole world is trying to figure out what the next 2 weeks looks like, and I guess it could have some impact, certainly. But so far, we've come through quite a number of months of pretty severe pandemic and have learned how to get business done in spite of it.

[Amr Ezzat, Managing Director of Research]

Great. Great. Maybe, Peter, you can give us an update on your capital deployment strategy. My sense from the last couple of calls is you're squarely focused on the organic side. Has that evolved at all? Are you seeing valuation levels that are more conducive to M&A?

[Peter Brereton, CEO, President & Director]

Yes, I mean, we continue to look for the right opportunity to buy a footprint in Europe. So that search continues. I would say that as time has gone on and valuations have somewhat sort of stabilized, there -- it certainly looks like there may be some possibilities there. So we're continuing to scratch at that. The -- and the other area we continue to look is in the U.S. area for potential, sort of, small niche health care components that could complement our suite. So we continue to look at both. Berty continues to build out a pipeline for both. But certainly, at this point, I would agree with your assessment. Our focus and the focus of our management team is on growth. The business at current growth rates, sort of, doubles every few years, and that creates a lot of focus to make that or demand's a lot of focus to make that happen. So the focus is still clearly on the organic side.

[Amr Ezzat, Managing Director of Research]

Fantastic. Maybe one last one for me. Can you give us an update on your revenue split between your different verticals?

[Peter Brereton, CEO, President & Director]

I'll let Mark take that one.

[Mark J. Bentler, CFO & Secretary]

Yes, sure. So the ARR split is pretty similar to what it was last quarter and we're at about 35% health care and about 65% complex distribution.

[Amr Ezzat, Managing Director of Research]

Congrats again.

[Peter Brereton, CEO, President & Director]

Thanks.

[Operator]

Our next question is from Gavin Fairweather with Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

I thought I'd start out on the IDNs that you added in Q2, nice to see kind of 3 new logos coming up forward. Maybe you can just discuss the profile of some of those new customers in terms of their size and whether they're thinking, kind of, end-to-end out of the gate or starting with point-of-use or CSC?

[Peter Brereton, CEO, President & Director]

Yes. We actually had a, sort of, the full variety that size-wise these are all sort of medium-sized IDNs. They're part of the 300 IDNs that we target in the upper end of the market. So they're all sort of good-sized networks. In terms of what their purchasing, it literally ranges from one starting with a CSC and others starting -- I believe the other 2, if I remember correctly, are starting on the point-of-use side. But in every case, the intention is to go full end-to-end, but starting in a couple of segments of their businesses. So they were all sort of pretty -- what we would see is sort of good average size IDNs. As you know, Gavin, our average sized footprint or average sized deal has moved up pretty significantly in the last few years, and these ones sort of fit right into the current average.

[Gavin Fairweather, Analyst of Institutional Equity Research]

That's great. And then maybe just a couple on the sales pipeline. I guess now you would be kind of through 50 in terms of the IDNs that you're working with, maybe in the low 50s of your 100 target by fiscal '25. I know that, given that you have kind of longer sales cycles, I guess I'm curious kind of how many of, you might have visibility on, that are kind of thinking through kind of supply chain implementations over the next few years?

[Peter Brereton, CEO, President & Director]

Yes. I mean we -- you never know exactly. There's changes that happen in these businesses. Sometimes, there's changes on boards of directors that suddenly change focus or change of CEO that suddenly changes focus. But from what we can see, we believe we know sort of where the -- we have the names of what we think are the next 20 that we expect to come in over the next year and half or so. So we'll see how that plays out. But certainly, this market is accelerating as we anticipated. I mean it was starting to accelerate, the pandemic hit, it slowed down for a bit. It's back to a decent clip. I mean here we are still in a pandemic really. And yet in the first 6 months of the fiscal year, we've already signed 5 new networks. So it's -- we love the momentum that's building there. And certainly, we think we know the names of the next 20 that will be joining us.

[Gavin Fairweather, Analyst of Institutional Equity Research]

That's great color. And then, I guess, I'm curious how much interest are you seeing on SaaS migrations out of the base? We've talked about it in the past, and you've gotten the odd one kind of here and there, but are you seeing increased appetite from the on-prem installed base [indiscernible]?

[Peter Brereton, CEO, President & Director]

We are. And probably in some ways, more -- a little bit more than we anticipated. So we'll see how that unfolds. Our focus have been on new accounts and sort of driving the new account SaaS business first, feeling that our existing account base was sort of quite happy to continue to run their existing software on-prem and just upgrade from time to time and so on. But there's a lot of threats out there. And a lot of companies are looking at -- with some of the ransomware issues happening and so on, are saying, "Hey, how fast can I get this stuff off my servers and into the public cloud and better protected?" and so on. So we're seeing an uptick in interest in that. And you're seeing it in the further dropping license fees. I mean license fees this last quarter down to $1 million. I mean Q2 is typically a fairly strong booking quarter for us. So to have the license fees down another 50% from Q2 last year, it kind of tell us that story. I mean because the last year and a half or so, the license fees have largely come from the base. And the base is starting to shift into SaaS conversions as their path forward. So I -- we think you'll continue to see sort of license fees driving closer and closer to zero. And the SaaS bookings replacing that as that base starts to move.

[Gavin Fairweather, Analyst of Institutional Equity Research]

That's great. And maybe one for Mark. The services gross margins, I guess, first half of your fiscal year, have kind of moved a little bit lower than where you were running kind of over the course of fiscal '21. Can you just maybe disaggregate that and to some underlying trends of play between building capacity for further pro-serve, delivery versus FX versus kind of the SaaS optimization that you guys are working on in the background?

[Mark J. Bentler, CFO & Secretary]

Yes. Yes, on the services side, that's really a combination of those 2 factors. One is -- and it's kind of -- they're kind of impacting in equal parts. It's the FX impact on the mismatch we have on the revenue side and USD on the cost side and CAD, that's putting some pressure on the comp. And then the other thing, and it's -- like I said, it's about roughly kind of a half and half impact. The other part of that is sort of scaling up the business for growth and investment in delivery capacity.

[Gavin Fairweather, Analyst of Institutional Equity Research]

And just on that last point, the last couple of quarters, you've been delivering around $13 million a quarter in services. Obviously, a big services bookings number this quarter. Do you feel like you have the delivery capacity to be delivering maybe $14 million, $15 million, $16 million in services in the quarter? Or is that kind of where we're going to be heading in the next few quarters?

[Mark J. Bentler, CFO & Secretary]

I would say in the next few quarters, yes, that's what we're -- from what we're seeing and the trends we're seeing, that's kind of where we're expecting this to go. We're growing headcount in services. You'll recognize that last year, we grew that team pretty significantly. At the beginning part of this year, we've continued to grow that team, although at a slightly slower pace. And that's not because necessarily we wanted to grow it more slowly, but it is a pretty competitive -- it's a pretty competitive hiring environment that we're seeing now over the last -- really, over the last couple of quarters. So we continue to recruit there and continue to build team to support what we expect to be continued increase in demand in services.

[Operator]

Our next question is from Nick Agostino with Laurentian Bank Securities.

[Nick Agostino]

Can you just speak to maybe the progress and conversations you're having when it comes to your pharma solution in your existing IDN base, maybe conversations you might have with the new IDNs? Obviously, you've talked about having visibility on 20 over the next year and a half. Maybe what conversations are looking like on pharma, both with existing and potential new [indiscernible] on the IDN side?

[Peter Brereton, CEO, President & Director]

Yes. It continues to be a relatively small portion. A lot of pharmacy in the hospital space is still in a very traditional mindset. So we still see -- overall, I would say, pharmacy is maybe 10% of the conversations that are happening with the networks right now. We're actually fine with that. We think, over the next couple of years, we'll probably add a couple more pharmacy implementations. As we sort of look at this over sort of the 5 to 10 year horizon, we're sort of expecting 80% to 90% of our bookings to come from the areas where we're already well-established in; CSD, cath lab, OR, nursing station, delivery, et cetera, with sort of 10% to 20% coming from the pharmacy side. And our expectation, though, is as you get out to sort of years 4 and 5, pharmacy starts to become more significant. So that's what we're working towards. We're continuing to invest in that. We're looking to produce -- we're still looking to produce some documentation showing what the savings are that drives. There's also -- we also need to continue to build up some of our own pharmacy expertise. So we're working on that as well.

[Nick Agostino]

And then you spoke earlier about the -- certainly the importance of the partner ecosystem. Can you maybe talk to -- are you having conversations at present to keep on adding back? And if so, any of those conversations or [ public mergers ] when it comes to SIs that you'll be engaging with? And then just if you can highlight maybe partner contributions in the quarter, specifically on the 3 IDN and maybe if they [indiscernible] ?

[Peter Brereton, CEO, President & Director]

Yes, I mean, in terms of conversations with SIs, I mean, it was continuing -- I mean, the point of it is, of course, the entire tech community is challenged with the workload right now. So the -- by and large, the SIs are not looking to create sort of brand-new partnerships. But what they are looking to do is satisfy their existing clients. And when their existing clients develop a need, they end up sort of looking around the marketplace to figure out who to work with for that particular need. So we are seeing that most, sort of, actively in health care. This past quarter -- I don't honestly remember, it was either one or 2 of them -- I'm mixing up with the first quarter in my mind here, but out of the 5 we've signed so far this year, 2 of them were brought to us by partners. And that's obviously a significant factor in continuing to expand our market presence. The beauty, of course, then is that those partners remain involved to assist with the implementation, particularly a lot of the client side work around project management and in some cases, interface work and testing and so on. So that is going very well.On the general distribution side, we continue to look for more boutiques. I mean we -- in some ways, we have our greatest success in the general distribution space with sort of smaller boutiques that focus very much on supply chain and often end up with sort of 15 or 20 clients of their own that they work with extensively over a period of time to implement various solutions. And we've got a couple of those now. But our -- Jamie O'Halloran, who heads up our partner initiative, that's something that he's working on quite extensively is building out that particular piece of the ecosystem. When we look at the next sort of 4 or 5 years, we can see that, that whole general distribution space is beginning to go into a technology renewal phase, replacing these sort of 20-year-old systems that were put in for Y2K. And in many cases, they rely on consultants that they know, to guide them as to which system to look at. So building out our presence in that ecosystem is critically important to being part of the play for these new accounts.Pipeline wise, right now, we're currently at about 25% of our pipeline is what we consider to be partner-influenced.

[Nick Agostino]

Okay. And then maybe just one last one for me. Obviously, 3 IDN [indiscernible] quarter. If I recall, that's probably towards the top end of what you guys have done historically. Is that -- is the 3 IDNs -- is that because of some of those legal bottlenecks that we saw last quarter, so maybe one spilled into the quarter? Or are you starting to see that [ no-ball ] impact and momentum really, really accelerating sales cycle on the health care side improving? And if so, maybe comment on the build side. And I think last quarter, you suggested that you might not need to grow your sales force as big as you originally thought you would go after for 100 IDNs in the next 3 to 4 years. Do you still stand by that, given the performance at this point?

[Peter Brereton, CEO, President & Director]

Yes. I mean the rate at which we're signing new IDNs, first of all, is -- I think there is a little bit of a catch-up that's happened there as we've sort of got through some of those procurement bottlenecks. At the same time, when I look at the pipeline, the pipeline is extremely active, and there's a greater number of opportunities in the short-term pipeline than, frankly, we've ever seen. So I don't -- it's hard to say. I mean as you know, our bookings tend to be a bit lumpy. But certainly, at this point, it feels like we're back to a run rate of -- if I take, for instance, the first half of the year, we closed 5 in the first half of the year. Can we do 5 in the second half of the year? From what I can see in the pipeline, it certainly looks like we can. So I think we're -- that's a fairly normal run rate at this point.Contributing factor, the whole market is moving more quickly. There's a lot more focus at a Board level throughout -- I mean, not only the hospital market, the general business market, but specifically within hospitals, the supply chain and supply chain management is certainly a board-level issue coming out of the pandemic. So that -- I think that's putting some heat under it. And then add to that, the fact that our health care sales team is twice the size that it's been even a year and a half ago. So we've grown that sales team substantially, which in turn means, of course, we're involved in many more conversations that, in turn, drive more opportunities to a close. So I think it's a combination. It's the market. It's the clearing of procurement bottlenecks, and it's the fact that our sales team is twice the size it was a year and a half ago.In terms of your last question, we're continuing to look at that in terms of how fast we grow that team. We still think, ultimately, to get to a point where you've got no more than 10 accounts per rep, that probably makes sense, but we're continuing to watch that. And we're going to let this initial investment in health care sort of mature for a bit on the sales side, although we will probably accelerate the sales team growth a little more on the converging distribution side as we're seeing that market opportunity also heating up.

[Mark J. Bentler, CFO & Secretary]

And I would just add to that, that we -- with the pretty significant investment that we made in the sales team up until this point of time, we are starting to see the productivity start to improve with these folks that have been around now for a number of quarters, have had time to weigh into the markets and know the product, know the way forward and have had time to sort of start doing some selling, and we're starting to see the productivity impact of that existing sales team. But we also believe that, that -- there's more productivity to come here. We're on the -- kind of on the front end of that improvement.

[Operator]

Our next question is from Andy Nguyen with Raymond James.

[Andy Nguyen, Associate]

I just want to touch on the free cash flow generation for the first half. I know as we returned into positive -- actually, cash flow from operations to positive this quarter, but still a bit underwhelming. Could you please touch on that, like, give us some more color as to what's going on in the background?

[Mark J. Bentler, CFO & Secretary]

Sure. Yes. I mean we expect positive cash flow from operations. We do have some seasonality in our cash flows, which tend to make Q1 our low point and Q4 our high point. So that's pretty normative for us. In the short term, our expectation is to continue to invest to grow the business, but to remain profitable. So that operating cash flow -- positive operating cash flow at some level is kind of our expectation. But we're not right now looking to drive that number up. We're looking to invest in the business to capture what we believe is very significant growth opportunity. We do -- as you would have seen, we just declared a dividend of $0.07 a share. That's going to be paid in January. And that follows a pretty long trend of paying out dividends, which you'd sort of expect to continue in general. And then finally, in terms of CapEx, if you look at CapEx, we've spent less than 2% of our revenue here. And that's what we sort of expect or what we'd see in the near term. I think as the business scales up over time, we're not a capital-intensive type of business, so I think that number as a percentage of revenue eventually goes down over time, but that's kind of the picture.

[Operator]

[Operator Instructions] Our next question is from John Shao with National Bank.

[Meng Shao, Associate]

I just have a question on the hardware revenue growth. I know on a year-over-year basis, it's quite strong, but if you compare to last quarter, it did a little bit. Is that just seasonality? Or is it because of any issues by your hardware providers? And also, did you see any challenges sourcing the hardware in the past quarter?

[Mark J. Bentler, CFO & Secretary]

Yes, John, that question is on hardware revenue?

[Meng Shao, Associate]

Sorry. It's on hardware revenue, yes.

[Mark J. Bentler, CFO & Secretary]

Yes. Right. Yes, that's a pretty lumpy one for us. That's a pretty lumpy one for us, John. And I think it was -- it sort of tipped down a little bit, but it's still been pretty robust for us historically. There are still pretty robust levels of hardware going on here. And those deliveries are happening. We continue to book a reasonable amount of hardware. We had a pretty big backlog coming into the year. What -- kind of what the future you look like there, I mean, we still have very, very significant hardware backlog. We are -- on the other hand, we're starting to see the impacts of -- well, not sort of starting to see, but we're dealing with some supply chain issues in some areas of our hardware delivery business. So that can have an impact on sort of short-term volatility on delivery timing and things like that. But these kind of hardware levels that we've seen in the last couple of quarters, we've got backlog to support the continuation of that kind of level in general for the next quarter or 2.

[Meng Shao, Associate]

Okay. And my another question is on investment in your growth initiatives. I think it's almost been 2 quarters since those investments were started. Now if you look back, how would you summarize the return of the investments so far? Or is it still too early to tell?

[Peter Brereton, CEO, President & Director]

Are you referring to investment in sort of sales and marketing? Or were you referring more sort of across the board investments and growth?

[Meng Shao, Associate]

In the sales and marketing.

[Peter Brereton, CEO, President & Director]

Sales and marketing? Yes. I mean if you look at bookings, when we look at bookings this past quarter, we booked $4 million of SaaS, plus $1 million of license. In currency-adjusted terms, I mean, that was actually the second highest SaaS booking quarter ever. And in currency-adjusted terms, it was actually the highest SaaS booking quarter ever. So we feel like we're -- the investment is paying off. We invested in marketing early and then sort of brought on the investment in the sales team to take advantage of the additional lead gen and demand gen created by the marketing push. And we feel like it's paying off. I mean we're not only seeing the rise in bookings in this most recent quarter, but as I mentioned earlier, we're seeing a very strong pipeline. And we're pleased to see that the new account members that have joined the team in the last 12 to 18 months, they are on the board in contributing deals.So -- and I mean, to me, that's always one of the questions. We've been in this business for a long time. When you grow the sales team, you always have to ask yourself, are you just -- so are you just spreading the same results over more people or you're actually getting more results? But from what we're seeing, it's actually driving more results. The pipeline is moving more quickly. And the new guys are getting on the board. Meanwhile, the existing team is continuing to contribute. So I mean, I think it's kind of an interesting time period we're coming into now as it looks as though our base accounts are beginning to migrate to SaaS. New accounts are joining us and the size of the new accounts is such that every new account that joins us now brings with it substantial expansion opportunity, which, for those of you that have followed us for a while, you would know that on the general distribution side, that didn't used to be the case typically that we were dealing with smaller companies and sort of once you'd sold them, you were -- it was one and done. But that's no longer the case.The typical accounts we're signing now across the different markets are all much more substantial with good expansion opportunities inside them post the initial deals. So it certainly looks like it's paying off. We're pretty pleased with how it's going. Our investment from here, we are continuing to invest more in building out our cloud team and cloud capabilities. That's putting some weight on some of the cloud margins in the short term. But the cloud revenues, the SaaS revenues are scaling up so quickly. We think that will normalize again pretty soon.

[Operator]

And Mr. Brereton, it appears we have no further questions at this time. You may continue with your presentation or closing remarks.

[Peter Brereton, CEO, President & Director]

Thank you. So that concludes the question-and-answer session. And thank you for taking the time to join us on today's call. As always, if you have any additional questions, please don't hesitate to give myself or Mark a call. And goodbye for now, and we'll look forward to talking to you again next quarter. Thanks.

[Operator]

And that does conclude the conference call for today. We thank you all for your participation, and kindly ask that you please disconnect your lines. Have a great day, everyone.