Tecsys Inc

TSX:TCS

Earnings Call Analysis

Tecsys Shows Strong SaaS Growth Despite Market Challenges

Tecsys reported a robust 34% growth in SaaS revenue for Q2, totaling CAD 16.1 million, driven largely by healthcare expansions. Annual recurring revenue reached CAD 100 million, with SaaS bookings up 20% year-to-date. Though overall revenue increased only slightly to CAD 84.7 million, excluding hardware, it rose 11%. Adjusted EBITDA improved significantly to CAD 2.9 million. Looking ahead, Tecsys maintains guidance for fiscal 2025 SaaS revenue growth between 30% to 32% and updated total revenue guidance to flat. Furthermore, adjusted EBITDA margins are projected at 8% to 9% for this fiscal year, rising to 10% to 11% next year.

Strong Growth in SaaS Revenue

Tecsys reported a remarkable 34% year-over-year growth in SaaS revenue for the second quarter of fiscal year 2025, totaling CAD 16.1 million. This growth underlines the company's successful transition to a SaaS model, which now accounts for 38% of total revenue, up from only 23% two years ago. The total SaaS bookings landed at CAD 3.7 million for the quarter, equating to a 20% increase year-to-date and a 28% increase on a trailing 12-month basis, reflecting robust performance across key verticals, particularly in healthcare.

Milestones and Metrics

Two significant milestones were highlighted: annual recurring revenue reached CAD 100 million, and remaining performance obligations (RPO) surpassed CAD 200 million, indicating a strong foundation built on continuous bookings and renewals. Adjusted EBITDA for the quarter was CAD 2.9 million, up from CAD 1.0 million a year prior, representing a healthy growth trajectory. The net profit in Q2 was CAD 758,000 compared to a net loss of CAD 340,000 in the same quarter last year.

Solid Financial Position

At the end of the quarter, Tecsys maintained a solid balance sheet with CAD 28.3 million in cash and short-term investments and zero debt. Alongside this, the board approved a quarterly dividend of CAD 0.085 per share. The company is active in share buybacks, having repurchased CAD 2.1 million in shares during Q2, demonstrating a commitment to returning value to shareholders.

Revised Revenue Guidance

While Tecsys is confident about its SaaS revenue growth, maintaining its guidance for a 30% to 32% growth in SaaS revenue for fiscal 2025, total revenue guidance has been revised to expect roughly flat growth. This adjustment is attributed to unpredictability in hardware revenue and a rapidly evolving business model affecting professional services. Adjusted EBITDA margins are projected to be between 8% and 9% for fiscal 2025, with expectations for growth to 10% to 11% in fiscal 2026.

Market Opportunities and Challenges

The company remains positive about its growth potential, especially in the healthcare vertical, despite the ongoing saline shortage impacting supply chains. The healthcare sector provides a compelling value proposition, with strong demand and opportunities for expansion and migration deals. Investments in converging and general distribution also display potential market opportunities, with expectations that most markets served will remain largely unaffected by current tariffs.

Focus on Customer Satisfaction and Strategic Partnerships

Tecsys emphasizes enhancing customer satisfaction and success, adhering to the philosophy of 'customers for life.' The company is actively refining its SaaS offerings to improve user experience. Furthermore, strategic partnerships with firms like Deloitte and growing partner influence, which currently contributes to approximately 30% to 33% of deal flow, is expected to increase over time. This strategy is intended to deepen partner relationships while exploring new opportunities.

Looking Ahead

As Tecsys approaches the latter half of the fiscal year, which historically brings the majority of annual bookings, the company is optimistic about the strength of its future pipeline. Peter Brereton, the CEO, expressed confidence in the ongoing momentum and the ability to capitalize on rearranged priorities stemming from market uncertainties. The pipeline remains robust, particularly within the pharmacy segment, showing a third of its overall healthcare pipeline coming from this area.

Earnings Call Transcript 2025-Q2

[Operator]

Good morning, everyone. Welcome to Tecsys Second Quarter Fiscal Year 2025 Results Conference Call. Please note that the complete second quarter report, including MD&A and financial statements were filed on SEDAR+ after market closed yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. The company has added a companion presentation to today's call, which is available on their website at www.tecsys.com/investors.

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 5, 2024 at 8:30 AM Eastern Time.

I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys.

[Peter Brereton, executive]

Thank you. Good morning, everyone. Joining me today is Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call.

We continue to see strong SaaS revenue growth, which was up 34% in our second fiscal quarter, and SaaS bookings were solid across our market segments. This quarter, we also reached 2 key milestones that I want to highlight. First, our annual recurring revenue reached CAD 100 million, reflecting the strength of our SaaS model. And second, our SaaS RPO surpassed CAD 200 million, a testament to the solid foundation we're building through bookings and renewals. We see these metrics as indicators of our business health, reflecting steady progress toward our long-term value creation goals.

I'd like to take a moment to summarize the key events of our Q2 and first half results for fiscal '25. Mark will then walk us through the financial results in more detail. And finally, I will comment on our outlook, followed by a Q&A session. If you're following along on our companion presentation, I'll be speaking to Slide 3. In terms of SaaS bookings, we landed at CAD 3.7 million for the quarter, matching a strong comp from Q2 of last year. This translates into year-to-date SaaS bookings up 20% over last year and up 28% on a trailing 12-month basis, driven by participation across all of our key verticals.

Healthcare drove our Q2 bookings activity, led by significant migration and expansion deals. This performance came despite major disruptions in the healthcare market, notably the saline shortage resulting from Hurricane Helene's impact on Baxter's North Cove plant in North Carolina. That plant supplies roughly 60% of the saline in the U.S. and taking that plant offline has been a significant distraction to the healthcare market.

In converging distribution, we recently announced that Atwoods Ranch & Home selected Tecsys' OrderDynamics product for retail order management. And we closed deals across the quarter or in the quarter across our geographical markets, including North America, Europe and Australia. Our RPO is up 39% year-over-year, reflecting steady bookings and renewals. Adjusted EBITDA strengthened to CAD 2.9 million, up significantly from Q2 last year and up 32% year-to-date.

Additionally, we've continued to buy back shares under our normal course issuer bid, spending CAD 2.1 million on share buybacks in Q2. In October, we rolled out version 24.2 of Elite, our flagship product. This release focuses on tools that help customers solve real-world problems with better data. I'm highlighting this release because it captures what we're trying to do with our solutions, using data to deliver value in new and innovative ways.

In a very noisy AI space, we're identifying and delivering what we call purpose-driven innovation with specific use cases that have a real impact on our customers' businesses. We believe that innovation with this lens makes our solutions essential to an organization's operations and opens doors to new business opportunities. The importance of these advancements was reinforced last month with our inclusion as a leader in the 2024 WMS Technology Value Matrix published by Nucleus Research, a global technology research and advisory firm. Also just released Gartner's top 25 healthcare supply chains for 2024, we're proud that 40% of the providers on the list are Tecsys customers.

We're also accelerating our market access across a thriving partner ecosystem. Co-marketing with Locus Robotics, OneView Commerce, TraceLink, Exotech and Sedlak, along with our recent inclusion into the Shopify App Store highlights our growing reach and value in the market. This effort is proving valuable with about 1/3 of our deals being partner influenced over the last 12 months.

Since our last results call, we've shared the stage with Vanderbilt Health, Advent Health, TriVenture Logistics and Australian retailer, Forever New, on joint webinars. Forbes also published a highlight or a spotlight on the work done at St. Luke's Health in [ Boise ]. You may recall from last quarter, I mentioned that we're ramping up user groups and industry workshops. I'm happy to share that our most recent Pharmacy Summit took place in Newport Beach, California in October, and it was a great success, helping to drive innovation in the pharmacy supply chain. We're working on our next summit taking place in spring of 2025 in Philadelphia.

And so as we continue to invest in the products we sell and in our go-to-market strategy, Tecsys is proving to be among the best cloud-based solutions available in the markets that we serve. The steady growth we have experienced affirms our vision and strategy for shareholder value.

Mark will now provide further details on our second quarter and year-to-date financial results as well as financial guidance on several key metrics.

[Mark Bentler, executive]

Thank you, Peter. I'll start with Slide 4 and focus first on SaaS. SaaS revenue growth was 34%, reaching CAD 16.1 million. Highlighting the continued scaling of our SaaS business, SaaS revenue represented 23% of total revenue in Q2 of fiscal 2023, that was just 2 years ago, and now it represents 38% of total Q2 revenue. The strong underlying growth in SaaS revenue is somewhat muted by year-over-year fluctuation in hardware revenue. It's important to note that when hardware revenue is excluded, our overall revenue growth rate in Q2 jumps to 13%.

Professional services revenue for the second quarter was CAD 14.1 million, up 10% from last year. We anticipate that professional services revenue will remain variable, influenced by the timing of project deliveries and the level of involvement from our integration partners. For the second quarter of fiscal '25, gross margin was 48% compared to 44% in the same period last year. The key drivers here are increasing SaaS margins as well as strength in professional services margins in the current quarter.

Net profit in the quarter was CAD 758,000 compared to a net loss of CAD 340,000 in the same quarter last year. Basic and fully diluted earnings per share were CAD 0.05 in the current quarter compared to a loss of CAD 0.02 in the prior year quarter. Adjusted EBITDA, as Peter mentioned, was CAD 2.9 million in Q2 of fiscal '25. That compared to CAD 1.0 million in the same quarter last year.

Turning briefly to our year-to-date highlights, and that's Slide 5 in the companion deck. SaaS revenue for the first half of fiscal 2025 was CAD 31.4 million. That was up 33% from the same period last year. Our total revenue reached CAD 84.7 million, a 2% increase from last year. Excluding hardware, overall revenue grew by 11%. For the first half of fiscal '25, our adjusted EBITDA increased to CAD 5.5 million. That was up from CAD 4.2 million in the same period last year. And fully diluted earnings per share for the first half were CAD 0.10 compared to CAD 0.06 in the first half of last year.

We ended the quarter with a solid balance sheet. We had cash and short-term investments of CAD 28.3 million and no debt. As Peter mentioned, we used about CAD 2.1 million of cash in the quarter to buy shares back under our NCIB. Additionally, the Board yesterday approved a quarterly dividend of CAD 0.085 a share.

Turning to financial guidance on Slide 6 now of the companion deck. Tecsys is maintaining fiscal '25 guidance on SaaS revenue growth at 30% to 32% as well as fiscal '25 and fiscal '26 adjusted EBITDA margins at 8% to 9% and 10% to 11% respectively. Based on the ongoing unpredictability of hardware revenue and a rapidly evolving business model that's impacting professional services, Tecsys is revising fiscal 2025 total revenue guidance to roughly flat.

I'll now turn the call back to Peter to provide some outlook comments.

[Peter Brereton, executive]

Thanks, Mark. Tecsys second quarter results reflect the consistent execution and momentum we've built. As mentioned earlier, our existing footprint in key markets reinforces our confidence that we're well positioned to upsell and cross-sell within healthcare. Our value proposition in pharmacy is compelling and there is heightened interest in this area. We believe we are uniquely positioned to capitalize on this opportunity. We continue to see this as an important growth engine for us.

Our converging and general distribution business also represents a substantial market opportunity. We are ready to pursue new marketplaces and geographies within this space. The current discussion around tariffs could impact some of the sub-segments we serve in general distribution and we are following the developments closely. We believe, however, that most of the markets we serve will not be impacted and we will focus on those unaffected markets.

We will continue to invest to drive growth in a market that is changing; changes spurred by legacy systems, digital adoption and a shifting geopolitical landscape. We often see change acting as an accelerant for supply chain transformation. So we will find those opportunities and capitalize on them as they emerge. We are pleased that our pipeline is robust and we continue to see strong buyer intent across our verticals.

And so in summary, I want to remind analysts and investors of our key theme for fiscal '25. First, an emphasis on continuing to refine our SaaS software so that it is easy to use and upgrade and even easier to recommend to peers. Second, a continued strategic partnership approach, allowing us to tap into new opportunities and fuel our scalability around the world. Third, we are committed to harnessing the full potential of data to drive value and innovation across our solutions. A final point I'd like to stress, across our markets, we'll continue to prioritize customer satisfaction and success. We have long stood by the philosophy of customers for life. A big part of that formula is to deliver value quickly, stay connected and expand on the value delivered.

With that, we will open the call up for questions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Amr Ezzat with Ventum Capital Markets.

[Amr Ezzat, analyst]

Maybe the first one is unrelated to the quarter. In your updated investor deck this morning, I see that you guys have raised your projected SaaS margins for fiscal 2027 and fiscal 2028 to 70% and 75%. And I believe the previous range was 68% and 70%. Could you walk us through the key dynamics behind this revision and what's driving that increased profit?

[Peter Brereton, executive]

Sure, Amr. I mean, as we've gone through the transition -- well, let's put it this way, we've invested pretty heavily in the back end of our whole product line, the whole sort of server side and the back end public cloud infrastructure side of our product. And as we have, and we're now in a position where we've got a substantial portion of our user base, our SaaS user base running in that much more modern public cloud infrastructure platform, we're already seeing margins on those clients in the 75% and even north of 75% range.

So we've now sort of done an analysis to say, okay, and how long is it going to take the clients that are on the older infrastructure that are pulling down the average margins? How long is it going to take them to migrate forward into the newest infrastructure that is better for them and better for us? And as we've completed that analysis, we can see that over the next couple of years, we're going to end up in a position where the vast majority of the clients running on our SaaS platform are sitting in that more modern, more efficient infrastructure.

So as a result, we can see -- because we already have a whole cohort of clients that's in that sort of 75% or above margin environment, we can see that that transition to that for the rest of them is just going to move the average up there considerably quicker than we originally anticipated.

[Amr Ezzat, analyst]

Perfect. That's fantastic color. On the revised guidance, I think, Mark, you cited the hardware revenues, which I think everybody understands. Then you go a rapidly evolving business model affecting professional services. Can you clarify why professional services are being impacted more than maintenance and support? I would have expected maintenance and support to be the culprit, I guess, as opposed to PS. And I see your number on PS for the quarter, it's not bad. It's like within the 14% to 15% that you said like last quarter.

[Mark Bentler, executive]

Yes. So 2 sort of parts of that question. One is around maintenance and support and one is around professional services. You're spot on, on maintenance and support. That decline, we expect to happen just as the transition to SaaS continues and legacy maintenance and support customers migrate on to the SaaS platform. And Q2, in that regard, had a little bit of a blip in it in terms of some third-party maintenance recognition timing in the comparable quarter from the prior year. But if you look at the year-to-date sort of trend on maintenance and support, it was down about 5%. And that's kind of how we think about that line kind of moving out in the future directionally, more so than that steeper 13% decline in the current quarter.

But in terms of professional services, I think what's kind of changing in our world there is primarily a couple of things. #1, our partner ecosystem continues to evolve and we think that's going to continue. And that means some proportion of our professional services are going to be delivered by ecosystem partners. And we actually love that. We like that model. We want that to happen. There's a lot of synergy around creating that environment and opportunities arise and the word gets out broader. Some of these partners are quite entrenched with customers and prospects. And so it's just kind of a helpful way to develop growth in general for our platform, for our top-line SaaS revenue growth. So that's one thing, the partner ecosystem dynamic.

The other thing I think, Amr, is that what we're learning and as we get better at this and invest more in the platform that Peter was just describing earlier, as we invest more in that platform, what we're finding is that it's easier and easier to uplift these customers. When they're on the latest technology stack in our mainline Elite product offering, the upgrades are -- yes, they're much easier than the legacy upgrades of being on old legacy on-prem software that you're moving versions on where you had massive upgrade projects. And we actually see that as a really good thing. And again, it's supportive of our top-line SaaS revenue growth, but it will mean that there will be a moderation of professional services revenue growth going forward we expect. We don't expect to decline, but we expect it to not be growing nearly as quickly as our SaaS revenue.

[Amr Ezzat, analyst]

Understood, understood. That's very good color. Then I might have missed Peter's comments in the front end on health, the industry being, I guess, pre-occupied, but there were notable client wins that you guys like spoke to during the quarter in health, right?

[Peter Brereton, executive]

Sorry, what was the question? There were what?

[Amr Ezzat, analyst]

There were not any notable client wins that you could speak to during the quarter in health, right? You were mentioning -- I missed the front end comment on...

[Peter Brereton, executive]

Yes. No, I would agree with that. There were not. I mean, there were some notable expansions, notable migrations. We're actually pretty pleased and frankly relieved with the overall activity we were able to book in healthcare in the quarter. But -- I mean, August is pretty quiet. And as we came into September, that Baxter client got taken out. I mean, I was at a healthcare conference in mid-October and quite a number of probably, I don't know, 50 or 60 heads of hospital supply chains were at the conference. And most of them were spending several hours every day trying to figure out how to navigate the shortage of saline.

I mean, you may have read, they've literally gone to using Gatorade in hospitals to help dehydrated people rather than using an IV drip because they just don't have enough saline. So Gatorade in a long straw and you hopefully just wait for someone to rehydrate. So it is a tough situation. There's an over-concentration in the supply chain around certain key low margin products and saline is certainly one of them. That plant is expected to be back -- it's coming back online now. They're already shipping product out of that plant, but it's going to take another couple of months for that plant to really -- to basically catch-up in the supply chain. In the meantime, there's no question the market is somewhat distracted.

[Operator]

Your next question comes from Gavin Fairweather with Cormark.

[Gavin Fairweather, analyst]

Maybe just on the political landscape, Peter, you referenced it in the prepared remarks a little bit. But maybe you could just expand a little bit in terms of what you're hearing from your distribution and healthcare clients given the shifting landscape down south?

[Peter Brereton, executive]

Yes. The actual hospital market space seems to be pretty relaxed about the sort of the changing administration. Last time Trump came to power, he was talking about tearing up the Affordable Care Act. There's no such talk this time. Like that time 8 years ago really did distract the healthcare market. We had quite a slowdown for about a year. This time, there's really no talk of that. Mike Johnson mentioned once the potential to tweak that act. But in the last 8 years, the Affordable Care Act has actually become quite popular in the U.S. So nobody really wants to touch it. So the hospital side seems pretty chill about it all.

The general distribution side is more distracted. I mean, we're seeing -- just -- I think just while they wait to see how this settles out, what are the tariffs going to do, where are the tariffs going to land. My view is that marketplaces like electrical, we do a fair bit of business in electrical, that's not likely to be affected. Most of that stuff is made in the U.S. and used in the U.S. Wine and spirits, not that likely to be affected. The U.S. is a major exporter in that market. But on the other hand, electronics, home furnishings, clothing, these are all markets that may be affected. And if suddenly costs go up anywhere from 10% to 25%, you will see slowdowns in those markets.

So we're watching it closely. We're seeing boards that are just sort of continuing searches and projects and whatever, but actually slow rolling the final signatures, while they wait to see how this settles out. But as I say, there's lots of sub-segments within general distribution that are, in our opinion, will be unaffected and it seems in the opinion of those markets they'll be unaffected. And those seem to be rolling ahead quite nicely. So it will be a bit of a game for a while on the general distribution side of making sure we're focused on the hotspots and not investing in marketing to the distracted segments. But we're -- I mean, that marketplace is so big that we're quite confident it's not going to affect our numbers.

[Gavin Fairweather, analyst]

Okay. That's super helpful. And you talked about the healthcare distractions in your Q2. I think you also said that the pipeline was pretty healthy and buyer intent was healthy. So do you expect to be able to maybe catch-up a little bit in the back half of the year? Maybe you can just discuss kind of the overall pipeline for us.

[Peter Brereton, executive]

Yes. I mean, the overall pipeline looks very strong. I mean, the back half of our year is usually by far the strongest half of the year in terms of bookings. So -- and we certainly anticipate that again. That said, of course, at that point, I'm crystal ball gazing. So you can't really count on that. But as we look at -- I mean, even if you look at last year, our second half was -- I don't remember in total, I think it was about 60% of our bookings, maybe 65% of our bookings in the second half of the year. And that's not untypical. So we're looking at our year-to-date bookings up 20% year-to-date compared to last year in spite of the distraction in healthcare. So we're actually feeling pretty okay about that and the pipeline is very active. So we're pretty confident looking forward.

[Gavin Fairweather, analyst]

Okay, great. And then maybe just lastly on hardware. I mean, we've discussed kind of the chip shortage, backlog dynamic and how that kind of unlocked last year. I'm curious if there's anything else going on? Like are you selling less modules with hardware attached? Like I'm thinking about point-of-use in particular. Is that -- are you ending up selling more pharmacy versus point-of-use and that's also having an impact? I guess, I'm just curious if there's anything other than that chip shortage unlock.

[Peter Brereton, executive]

Yes. I mean, the problem with that, Gavin, is those are so lumpy. Like we'll go -- and it's partly why we just said, you know what, we're going to -- it looks like overall revenue is going to be closer to flat and just kind of leave it at that for now because it's so hard to predict. I mean, we've got deals in the pipeline that if they move forward, some of them will come with CAD 1 million to CAD 2 million worth of hardware just tied to a single deal. On the other hand, as you're saying, it's mainly pharmacy that moves, while there tends to be less hardware sales associated with pharmacy. There's other vendors that really sell direct to a lot of the hardware for pharmacy and we don't want to get into that business at all.

So it is very hard to predict. So we still have lots of opportunities that are buying our point-of-use hardware. And certainly on the WMS side, we've got -- we end up reselling hardware there for warehouses. So -- but we're just saying it's going to continue to bounce around. It's not strategic for us. If customers end up deciding they'd rather buy direct from a manufacturer, that's okay with us too. So our expectation is, though, that on average, it's going to kind of remain where it is -- roughly where it is now.

[Gavin Fairweather, analyst]

Okay, helpful. And then lastly for me, just on the Pharmacy Summit, which you did down in Newport Beach. Can you just talk about the attendance that was there? Were those all existing customers? How many prospects were there? And how are the follow-ups going?

[Peter Brereton, executive]

Yes. I mean, it was pretty exciting. We had I guess in total there's about 100 people showed up, but there were clients that came from right across the clients and prospects in the country. Literally East Coast to West Coast, they flew out there and joined us in California for that summit. We did have a number of existing customers were there. St. Luke's was there and Baptist Health was there and others to talk about what they were doing, how they were doing it and to take questions.

We had an industry speaker that was there. She did a great job chairing the conference. So that was quite a success. I was -- the healthcare conference I referenced earlier that I was at in October was actually the week after the pharmacy event. And the feedback I was getting at that conference was also very positive. So we're seeing, at this point, roughly 1/3 of our pipeline in healthcare is pharmacy, which given the fact that we've -- this thing really only started to pick-up speed about 18 months ago, we're pretty pleased to see the mix going to that level and the pace of the pipeline in that particular area.

So all in all, pretty pleased. We're looking forward to the one in Philadelphia, which is also starting up a lot of interest. There's some -- I mean, some people couldn't make it to the California one just because of the distance and some just because of the timing. So I expect we'll also see a pretty good turnout in Philly. I would say, by the way, if -- I know there's a number of analysts on the phone. If one of you wants to -- if a couple of you want to come to the one in Philly, let us know, we'd be happy to set it up for you to attend that summit.

[Operator]

Your next question comes from Suthan Sukumar with Stifel.

[Unknown Analyst]

This is [ SA ] speaking on behalf of Suthan. I guess, my question would be on partnering really. How much did it contribute in the quarter? Is the strategy to expand the pool of partners or perhaps go deeper with the existing partner base? And maybe lastly, how are you investing in partner training? And just overall, how that is going?

[Peter Brereton, executive]

Yes. I mean, our partner activity continues to go -- yes, good -- well, your question is well put. We're intending to go deeper more than wider at this point. I mean, we're already doing a lot of work with RiseNow in the healthcare space, also some work with Deloitte, some with KPMG. We probably have -- I mean, there's other partners that are doing more ancillary work as well, but those are the ones that we're sort of doing more in-depth work with.

In a way, that's probably enough partners. It's -- we want our partners to really get to know our product line, to be really committed to the product line and be able to run a substantial revenue stream against the product line. So that's probably enough for now. We'll continue to see if there's opportunity that makes sense to bring in additional partners. The deal flow -- the deals that are actually getting signed continue to be roughly 1/3, somewhere between 30% and 33% partner influenced. Over time, I would expect that to continue to rise. I wouldn't be surprised if in a year or so we're -- over the next couple of years at least we get that up to 50%, but it's somewhere in that 30% to 33% range now.

On the general distribution side, we're working with Avalon mostly. They do a lot of work in the electrical space with us. And we need to broaden our partner base in the general distribution space. There's -- we've got some interest from some partners there, but we really need to broaden that base and we'll continue to look for the right partners there.

[Unknown Analyst]

That's super helpful. Maybe just one last question from my end. Maybe if you can give us some color, and I think you've already added some color already, but maybe demand trends in end markets? And maybe some more color on sales cycles and how deal sizes have been trending?

[Peter Brereton, executive]

Yes. I mean, the deal size is more or less remaining pretty constant. I mean, on the new account side, we tend to see average deal size in healthcare comes in around 650 kind of thing and a little bit below that, probably 20% below that in general distribution is kind of your average deal size. The overall pipeline size and activity is pretty robust. We don't give specific numbers there. I do think there has been some wait and see during the fall pending the results of the U.S. election.

With that behind us and with it being quite a decisive result and uncontested and pretty clear in terms of who is going to be running things, that sort of to a certain extent relieves uncertainty. I mean, we can't -- obviously, we can't predict at this point what the Trump administration is going to do. But at least we know who is going to be running what and that gives a lot of businesses some degree of certainty in terms of being able to move ahead with some decisions. So we do feel like the whole market sort of collectively took a breath a little bit during the fall, but activity right now is pretty strong. So we're pretty confident. I don't remember if I got all your questions there. That was kind of a compound question.

[Operator]

[Operator Instructions] Your next question comes from Steven Li with Raymond James.

[Steven Li, analyst]

Peter, just your healthcare comments, I just want to make sure I got it. It was all expansions, there was no new IDN wins this quarter, right?

[Peter Brereton, executive]

That's right. No new IDN wins in the quarter. It was expansions and migrations. And we've actually got quite a number of new IDNs in the pipeline. But as I said, I think it was just flat or too much distraction. When you're running a supply chain in healthcare and you can't get saline, you can't really think about much else. So we're expecting that to sort of resume and catch-up over the next few months. We'll see.

[Steven Li, analyst]

Got it. And then just for comparison, what was the IDN, number of IDN wins in Q1, Peter?

[Peter Brereton, executive]

Mark, what was it? Was it 1 or 2? I don't remember.

[Mark Bentler, executive]

It was 1.

[Peter Brereton, executive]

1 in Q1, yes.

[Steven Li, analyst]

And in terms of pharmacy, the momentum in pharmacy, at this stage, how many of your IDNs has pharmacy? Is it still a small number, like less than 5?

[Peter Brereton, executive]

We're at 7 right now. And interestingly enough, the -- of the last sort of 6 that have signed, 3 of them were brand new accounts to Tecsys that literally came to us for pharmacy and 3 of them were base accounts that added on pharmacy.

[Steven Li, analyst]

And the 6 that came to you just for pharmacy, did they -- that's all they bought or they bought other stuff?

[Peter Brereton, executive]

Sorry, just to clarify, there is -- we've got 7 in total. So 6 that have joined in the last couple of years. And of the 6 that joined in the last couple of years, 3 were brand new and came just for pharmacy and 3 were existing accounts that added pharmacy. The 3 that came to us just for pharmacy, right now, that's all they're doing. They're just doing pharmacy. It is end-to-end. So they're doing a consolidated pharmacy service center right through the hospitals on the patient bedside. So it's a very comprehensive pharmacy, but it is -- they are only doing pharmacy at this point.

[Operator]

There are no further questions at this time. I will now turn the call over to management for closing remarks.

[Peter Brereton, executive]

Great. Well, thank you all for taking the time to join us. And as always, if you have additional questions, don't hesitate to reach out to Mark or I, and we will look forward to talking to you at the end of Q3. Thanks, and have a great day. Bye for now.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.