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Tecsys Inc
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Good afternoon, everyone. Thank you for standing by. Welcome to the TECSYS Third Quarter Fiscal 2019 Results Conference Call. [Operator Instructions] Please note that the complete first quarter report, including MD&A and financial statements were filed on SEDAR aftermarket yesterday February 28, 2019.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 Friday, March 1, 2019, 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.
Thank you, and good morning, everyone. We appreciate you joining us for today's call. Joining me today is Mark Bentler, our CFO. I'll start by summarizing the key events of the quarter and Mark will then review our Q3 financial results. We'll then take your questions.Yesterday, we issued our unaudited 2013 (sic) [ 2019 ] third quarter financial results and a copy of those results is available on our website at tecsys.com. The third quarter of 2019 continued the trends we've seen throughout the fiscal year with increasing contract bookings and it was the second quarter in a row with record bookings. We had $17.1 million in contract value bookings, a 42% increase over $12 million in Q3 of last year. This compares to $16.2 million in bookings we reported last quarter, a record at the time, and an increase of 42% over Q2 of 2018. For the first 9 months of fiscal year 2019, contract bookings are up 32% to $44 million and are now equivalent to about 90% of our fiscal 2018 full year. This has pushed backlog to over $58 million organically and over $69 million with OrderDynamics.This continued growth in bookings further validates our previous statements that health care organizations have fully returned to the market to find solutions that optimize their supply chains and ultimately improve patient care. It also demonstrates that we are a key supplier in providing these solutions.In fact, we had a 7-figure SaaS deal win in the quarter with a midsized IDN and year-to-date IDN bookings are up 136%. This has been a key contributor to that $69.3 million backlog. Backlog is up 65% over Q3 2018 and up 39% organically. Our more active partnership with Workday has been a factor in this increase, and we were pleased to be named recently as a select partner for our supply chain solutions.We certainly are very pleased with this progress, but I will reiterate my previous comments on the timing of revenue recognition from these projects as several of these project bookings are for a large projects, they often start quite slowly as it typically takes time for our customers to align resources and ramp-up the projects. Typically, we would say it takes 12 to 24 months to convert a booking into revenue. For some of these bookings, the time frame could be 24 to 36 months. For example, in fiscal year 2018, we signed a contract with a hospital network to provide a point-of-use in overall supply chain solution. Excluding licenses, total bookings on this transaction were just over $4 million. The project has started slowly at the beginning of fiscal 2019 and will deliver in phases. Through the first 9 months of 2019, we have recognized approximately $0.6 million of the $4 million backlog. The project involves rollout to several hospitals and will continue for an additional 24 months or more.As we announced on our last call, this past quarter, we acquired OrderDynamics, a leading provider of distributed order management software. This is a very complementary acquisition as their solution which enables companies to increase the efficiency of their incoming consumer orders across multiple channels to increase retail sales, reduce operating costs and improve customer -- shopper satisfaction, integrates seamlessly with our supply chain management solutions.Our sales team has been introducing the OrderDynamics solutions to several of our customers since the acquisition and serious discussions are under way about implementations.We continued our growth focus in the quarter and just one day after its close, we announced the acquisition of PCSYS, a Danish technology company focused on supply chain management solutions. They have established a leadership position in the Scandinavian area and have a great client list and generates steady revenue and earnings. They're also a great cultural fit with us and have an interesting product line that we are considering for launch in North America. This is a great opportunity to build on the initial presence we have established in Europe and to fully participate in this attractive market. Both of our teams have begun working together to identify and act on cross-selling opportunities.To bolster this significant growth, we added Bill King as Chief Revenue Officer to our management team at the end of the quarter. Bill comes to us from Oracle Corporation where he was Vice President of Key Global Accounts. He is an experienced sales leader and has a track record of building successful teams and achieving strong sales growth. Bill's role is to help us capitalize on all of the opportunities we have to grow by building out our sales team and extending our global reach. He will also enable the rest of the sales team to focus exclusively on targeting new customers and growing the penetration of our base accounts. So the third quarter of fiscal 2019 was a very busy one for us with contract wins, acquisitions and creating new opportunities that position TECSYS for continued growth. Mark will now provide some detail on our financials for the quarter.
Thanks, Peter. Third quarter revenue increased to $18.8 million, up 9% from $17.2 million in the same period of fiscal 2018. OrderDynamics revenue contributed $1.3 million to the increase and a further $400,000 came from the stronger U.S. dollar in the quarter. However, the stronger dollar also impacted cost of sales and operating expenses negatively by about $200,000.Breaking down the revenue. Services revenue was $7.3 million, in line with Q3 of fiscal 2018. In Q3 of '19, we saw a decrease in customization services revenue, partially offset by $300,000 in professional services revenue from OrderDynamics. Proprietary product revenue increased to $1.6 million, up 67% from $900,000 the previous year, mainly as a result of higher proprietary software revenue.Third-party product revenue was $1.3 million compared with $1.9 million in the same period of fiscal 2018. Lower equipment revenue, partially offset by an increase in third party software revenue, was the reason for the decline.Cloud, maintenance and subscription revenue increased by 23% to $8.1 million in the quarter from $6.6 million in Q3 of '18. OrderDynamics contributed $900,000 to the increase, which was also driven by higher maintenance revenue on new license sales, price increases and higher hosting revenues.Consistent with our stated strategy, we are increasingly seeing market demand for software sales being booked as software as a service contracts. SaaS bookings comprise roughly 40% of our Q3 software bookings. While this establishes a stream of recurring revenue, it will impact comparable quarterly revenue and operating profit in the medium term. But we have example in Q3 of fiscal 2019, we signed a contract with the health care organization worth $1.8 million in SaaS over a multi-year period and another with a 3PL provider worth about $400,000. While under the old model we would have realized a license fee for this software in the quarter, we booked no revenue from these contracts in Q3, but we'll see recurring revenue from these contracts over several future years.Turning to gross margin. We achieved $9.4 million in Q3 of fiscal 2019 or 50% of revenue. This compares to $8.1 million in the prior year quarter or 47%. Our higher product margin of $700,000 and our higher services margin of $600,000 filled the increase.As you heard in Peter's remarks, in the third quarter, there were several key growth initiatives with one-time cost that impacted operating expenses. Overall, operating costs were $11.1 million in the quarter, up 53% from $7.3 million in Q3 of fiscal 2018.Looking at these in detail. Sales and marketing expenses increased to $4.6 million, which includes $300,000 from OrderDynamics. A significant cost incurred in the quarter was a marketing rebranding program. Also contributing were higher recruitment fees and commissions compared to the same period in fiscal 2018. G&A expenses increased to $3 million from $1.4 million from the previous year period. The increase is largely due to the acquisition costs associated with OrderDynamics and PCSYS acquisition, along with $400,000 from stock-based compensation, travel expenses and employee-related costs.Operating losses for Q3 2019 were $1.7 million compared to operating profit of $800,000 in the prior year. The increase in operating losses was driven by $2 million of combined acquisition costs, OrderDynamics' operating losses, nonrecurring marketing rebranding program costs and stock-based compensation expenses.This, along with revenue timing related to significant SaaS software bookings negatively impacted operating results in the quarter. That said, we ended the quarter with cash and cash equivalents of $11.4 million compared to $13.5 million at April 30, 2018.I'll now hand the call back to Peter.
Thanks, Mark. In summary, we're pleased with the direction the company is heading. TECSYS core solutions have experienced strong bookings growth. We executed on 2 acquisitions in the last 4 months, which we believe will open new markets and fuel further growth and we are upbeat about our strengthening partnership initiatives. We also added a seasoned sales leader in Bill King. With that, I will open the call up for questions. Turn it back over to the operator.
[Operator Instructions] Our first question comes from the line of Nick Agostino with Laurentian Bank Securities.
I guess, first question, just as a clarification. Did I hear you guys say that SaaS bookings were 40% of total bookings in the quarter? Or did I miss a number in there?
40% of new account bookings.
New account bookings. Okay.
Yes. I mean, new account bookings were very strong in the quarter, but 40% of the new account bookings were SaaS.
Okay, understood. And then secondly, I also heard, I think, Mark, you said that there were several growth initiatives in fiscal Q3 with one-time costs. I know you -- I think you guys call out the market rebranding. Was there anything else in the quarter that was somewhat one-time in nature? More importantly, where I'm going with the question is, how should we be looking at OpEx going forward into, I guess, fiscal Q4, now that OrderDynamics is on side and, I guess, even including PCSYS in that guidance number?
Yes. So I think you hit the keys of the unusual or nonrecurring items. It's really the step that's enumerated in the financials that you'll see in the MD&A. So the acquisition costs were clearly large and one-time and the marketing rebranding cost, I think, are the other significant number in there. And the sequential change in Q2 to Q3 costs, those are certainly the headlines, along with the OrderDynamics -- additive OrderDynamics operating costs, which were included for 2.5 months in this quarter from the date of acquisition.
Okay. I guess, Peter, I think, in the past, maybe if you go back a year ago before you did any of these acquisitions, you were suggesting that as you guys get closer to $100 million in sales and I would take that to be a comment, excluding acquisitions, that as you got closer to that, you saw your -- you would see your base business, I think, as you would double, say, that revenue, you expected your EBITDA to triple and that would imply margins from what I could calculate that would be well into the teens. Do you still -- given where we are today, excluding the acquisitions, do you still hold that to be true?
We're -- it is still very much our objective. At the same time, there's no question that the business is fairly suddenly and aggressively swinging to SaaS. So if you look in that, there's no question that is going to impact that objective. So if you look at this quarter, for instance, yes, you had about $800,000 of onetime acquisition costs and then you had about $400,000 of onetime marketing rebranding costs, there's $1.2 million. There was a few other sort of exceptional items in there that you can't really call one-time, but at the same time they certainly don't happen very often. There were some outsourced R&D that had to happen in the quarter, which was a big translation project. That only happens once every few years, but that hit the quarter for about $150,000. Recruiting costs were high as we brought in -- searched all over North America for a new chief revenue officer. So there were a few other semi-exceptional items. But the big one-timers in there were certainly the acquisition costs and the marketing rebranding. So that's about $1.2 million. But the challenge on the top line was there's -- the SaaS deals we signed in the quarter, had they come in as regular perpetual licenses, you would had an extra -- we estimated about an extra $800,000 in licenses in the quarter, which would have come in as both top line revenue and to a substantial degree drop right to the bottom line. So as we move forward from here, we're saying, adding PCSYS, PCSYS is running -- been running about $2 million a year of EBITDA. So to some extent, there -- the EBITDA coming in from PCSYS pretty much just offsets the negative EBITDA that OrderDynamics is running. So in a sense, you're back to where we started once you've got those 2 acquisitions in the picture. But you still are going to go through at least a few quarters here, probably 6 to 8 quarters in total where we're going to see that perpetual license revenue eroding down fairly quickly and being replaced by SaaS revenues. The fact that the bookings are so strong and, I mean, there's no question that bookings are running well ahead of what we were targeting for this year. The fact that bookings are running so strongly will offset that erosion to some degree. I mean, your -- professional services revenue was rising pretty strongly towards the end of the quarter and looks pretty strong going forward. The SaaS fees are -- there are recurring revenues, should be rising faster than we have been projecting. But that perpetual license fee, which is that sort of immediate money that drops in and hits revenue on bottom line is definitely going to go away a little faster than we thought. So it's -- I think it's very good news for the long-term value of the business, but in terms of will we be in the teens EBITDA as we pass the $100 million mark, probably not. And it won't be because of changing objectives on the expense side. It'll be more just because we're -- the revenue is twisting more to a long-term SaaS model and away from that upfront license fee model.
So basically over the next 2 years or so, don't focus too much on EBITDA, focus on sales or more importantly, focus on the bookings to, kind of, given an indication as to the strength of the overall business?
Yes, I would say bookings and rising recurring revenues, I mean, are sort of where the story is going to shift, to. I mean, we mentioned the health care side. I mean, we signed 2 new IDNs in the quarter. The health care bookings are growing at a phenomenal pace. But the revenue comes in over years rather than in that sort of big upfront chunk.
Okay. And, I guess, just last question. I missed the initial commentary. Just on the strength of the bookings, what was the breakdown between health care and complex distribution? Or if there was one?
I don't remember -- I don't -- do we give that out? I don't think we did.
We didn't.
What we did give you, and we -- I mean -- I guess, in a sense, you could reverse engineer it, but we could get that for you. I mean, the health care bookings -- I'll get it here. I want to give you the exact number.
Up 136%.
Yes. Up 136% over last year on a year-to-date basis. So over the first 3 quarters this year massive increase in health care bookings.
Okay. And then that was the bulk of what we saw in the quarter?
Certainly on the new accounts, I think, again I have to give you the exact number but off the top of my head, I would say the bookings in the quarter were probably 2/3 health care.
Yes. 60% of those new accounts were health care.
Our next question comes from the line of Amr Ezzat with Echelon Partners.
I just want to circle back on one of Nick's questions. Can you give us a sense of what's -- like that 40% SaaS new bookings was like last year?
The SaaS bookings from last year?
Last year it was -- I mean, I couldn't give you off the top of my head the Q3 number. I know the full year number last year was about 5%.
Okay. So that's very helpful. Then how much of your bookings in the quarter are related to OrderDynamics?
Very little. Q3, for them, I mean, they're -- I mean, we're now crossing them over into the broader marketplace, but their marketplace that they've been pursuing over the last number of years is largely retail. And retail doesn't do much buying in an -- over the Christmas period. So in November, December, January, I mean, they're focused on Black Friday and then they're focused on Christmas and Boxing Day sales and everything else and then, sort of, coming up for air in January. So the -- I think that the total $17-some million bookings, like one -- just over $1 million, I think was...
I think it was even less.
Yes, even less than $1 million we have for OrderDynamics.
Great. Great. Then Peter, your opening comments with regards to the translation of bookings into revenues, I guess, these comments were very helpful. But I'm just looking to getting sense of how that cycle looks for OrderDynamics and PCSYS. I suspect it's a much faster cycle?
Yes and no. The services cycle -- like if OrderDynamics signs a 5-year SaaS deal with $300,000 in professional services. Those professional services, yes, that revenue is absorbed much more quickly but typically the project is completed within sort of 90 to 120 days. So it really hits the -- the pro services hit very fast. On the other hand, they do no perpetual license sales. So 100% of their license bookings are SaaS with either 3 or 5-year agreements. If you look at PCSYS, PCSYS is on a more traditional license model at this point. So their software sales was -- well, software and hardware sales, because they also sell hardware, are typically booked and shipped in the same quarter within services rendered over the next sort of 4 to 6 months. So they would be -- they would have the most rapid overall revenue recognition of the 3 years in business now.
Okay, that's helpful. Then on OrderDynamics, do you guys have a more refined time line, I guess, when you expect it to start contributing to earnings?
We're still on the track we're on. We're saying that we'll -- we believe you'll see there the losses decline over the next 12 to 18 months and we're saying that by somewhere around 18 months out we expect it to turn positive. I mean their recurring revenue growth has been strong. They've got a great pipeline. So we're, at the same time there we -- it's a business that needs -- does need some continued investment as we -- and that's a very rapidly evolving market space they're in.
Understood. Then how is the integration going? You mentioned in your prepared remarks that you guys are having serious conversations with potential clients for OrderDynamics. Is that suggest for like the DOM system or these clients looking to integrate both your complex distribution legacy systems, including a DOM system?
Yes. This would be integrating like implementing DOM integrated into our complex distribution solutions. So these are companies that have been running our complex distribution solutions for a number of years. They have traditionally been selling through retail to the end consumer, but they're now finding that in some cases that that's no longer the most effective path to consumer. They're beginning to do a lot of direct-to-consumer sales through Amazon or through their own web portals or other portals. And suddenly they're into the high volume, low value, direct-to-consumer fulfillment and are finding that they're clearly missing a distributed order management platform to manage the shipment payment processing as well as the customer returns. So that's what OrderDynamics is very good at. And so it looks like we're -- as we thought that would be, it looks like there's a very strong crossover into our complex distribution space just based on the way those market spaces are now converging.
Great and maybe just one last one on PCSYS. I noticed in the MD&A, you guys like speak about a $1 million earn outs. Can you guys like share with us the sales of EBITDA targets related to that earn out?
Really -- yes, really just what we have already disclosed. I mean, we've said there, the business is roughly a CAD 15 million rev business with a -- with roughly a $2 million EBITDA. And the earn out is really just tied to sort of proving out those numbers. I mean, assuming that the business continues to run on the basis that it's been running at and they achieve certain objectives around software sales and recurring revenue and so on, but it's really just tied to sort of proving out the model on which the valuation was done.
Okay. So that's for the year -- for their year ended like September 30, 2019?
Exactly.
But it's not $2 million in EBITDA, because I think that was their trailing-12 month in 2018, right?
Yes, that's right. It's a number that's approximately $2 million for that 12-month period.
Yes.
September 30.
Our next question comes from the line of Pardeep Sangha with Haywood Securities.
With regards to the onetime acquisition cost, I mean, PCSYS kind of -- just wondering, if there's any onetime acquisition cost that might go into this next quarter here?
There will be some acquisition costs that are rolling over in the Q4 and in terms of order of magnitude, it won't be what you saw in the current quarter but there will be not inconsequential acquisition costs showing up.
Okay. And then we've seen the backlog increasing last couple of quarters. So just want to get a better sense of kind of your belief to sort of -- I know you said in the past you had some capacity. You believe in sort of address and implement all these -- all those backlog and sort of also gives us a sense of how much ramping up you've been doing already maybe in the last quarter or 2 so in anticipation of all these contracts that you'll be rolling out here in the next 12 to 24 months?
Yes. We have not been really ramping up services over the last 3 quarters. We've been waiting for the extra capacity that we've had in services to increase, I mean, to sort of get absorbed. We're approaching that point. We do think there's a fair bit of room to grow the professional services revenue without adding a lot of heads. So we do think there's some -- sort of some upside there. We're also seeing more rapid uptake on the -- in the partner community, partly just because of the increased booking volume. I mean, this past quarter a couple of the deals were definitely -- that definitely came in as a result of some partnerships. And in the current quarter, for instance, if I look at the pipeline in the current quarter, we've got a number of deals that are partner-driven deals and in those cases, those partners will be very actively involved in doing the implementation. So we're seeing -- we think between the partner community and what we've got already in our services bench, we have what we need to deal with this the backlog. At the same time, there's no question, we are back, sort of, starting now. We are back ramping up services to some degree just based on what we see in the pipeline in future much higher market activity.
Okay. And then also just if you can talk a little bit about the integration of these 2 acquisitions, OrderDynamics and PCSYS. Are they going to be running somewhat like as independent entities? Or just give us a sense of that. Or are they going to be totally integrated and if there's some sort of an additional integration costs or some sort of one-time severance-type of cost that we might expect or just give us a sense of that whole integration, sort of, process and what might that entail?
Yes, I mean, to start with the most recent one, PCSYS. I mean, with PCSYS there's not -- just the fact that they're 6 hours away from a time zone standpoint and halfway around the other side of the world kind of geographically, there's not a lot of, sort of, direct, sort of, obvious integration to be done there. I mean, the intent is to use them as a -- to use them as our foothold in, sort of, the neutral European countries and begin to offer our product lines there. We've already been making calls on some of the health care opportunities over there jointly with working with PCSYS and where they've got the local market presence and we've got the product line and the expertise in health care. So there will be joint sales work and we'll be using them as a base of operations over there. We also intend to shift a telephone support center that we'd had in the U.K. We will be relocating that over to Copenhagen where we now have the larger office and the management structure in place and someone to run that. So that's under way. In terms of OrderDynamics, I mean, OrderDynamics, we're still figuring that out as we go. And they very much are pursuing their own vertical in the retail and distributed order management fulfillment space. The convergence of our complex distribution marketplace and it turns out to some extent our health care marketplace with that whole DOM business means that at some point it will probably make sense to have this whole thing much more tightly integrated. But today, they are, in essence, our retail division with some crossover sales into our other divisions and other complex and health care remain as their sort of stand-alone vertical group. So we're looking at that today. I wouldn't be surprised if over the next year or 2 to see it more tightly integrated. But today, it's -- they pursue -- they stand as our retail group.
Okay. And then lastly, if you just provide some commentary with regards to the sales team, sort of, organization and -- you brought in a new Chief Revenue Officer and I think that in the past, you've talked about some shuffling around of how the sales team is set up and now you got OrderDynamics and you've got PCSYS as well. Just give us a sense of, sort of, how this whole sales organization is, kind of, set up. Is it by -- and then sort of what you're -- what you -- how you see this, kind of, going forward?
Yes. I mean, right now, Bill has Greg reporting in to him. Greg's running the health care group and at this point he's still running the complex distribution group. At some point, I think complex distribution will be split off but just as part of the ramp-up there, Greg has still both of those groups. Bill has the basic health team reporting to him as well as all the back office functions, CRM, and so on. And he is also working with -- although the person who heads the retail sales group is reporting into Nick who runs OrderDynamics, he is very much sort of dotted line into Bill with -- to get all the back office functions integrated and begin the cross-pollination sales teams. So I think as you look down the road, it's logical at some point that Bill will have a dedicated health care head, dedicated complex distribution head and dedicated retail head reporting to him in addition to the back office functions.
[Operator Instructions] Our next question comes from the line of Justin Keywood with GMP Securities.
Just around the comments on taking longer for the health care projects to become revenue. I'm wondering if there's a target conversion rate of backlog or bookings that we should look at.
Your -- yes, it's an interesting question, Justin. When we look at this, we've typically said the backlog gets fully consumed within 18 months. We are still doing a number of, of course, sort of small-to medium-size projects which are very much continue to follow that sort of 12- to 18-month guideline. It's really just the large projects that are coming in, that tend to have more of this 24- to 36- month time line. So I would think the overall impact on that, sort of, backlog conversion to revenue has moved up sort of 2 or 3 months kind of thing. When you average the big projects into all of the regular sort of more run-of-the-mill size projects, you're looking at that sort of 12- to 18-month average moving up to probably more like, call it, 15 to 21 months kind of thing.
The thing that's complicating that picture a little bit, Justin, is the bigger SaaS that's going into that TCV booking mix, that's multiple year stuff. If you think about bookings as 2 different things, one is sort of some recurring revenue in there and then some that's nonrecurring and all that's kind of services and license and that kind of stuff. I mean, I think the comment that Peter was making was with respect to that services chunk, not the SaaS stuff. So I think that the dynamic that we're starting to see is there's a big chunk of that order book growth that's going to come from and we've seen that happening come from multiple years SaaS deals, right? So those are going to have a longer time to revenue in that component of the backlog.
Okay. That's helpful. And then Q4 have seen some seasonal strength on the licensing side in the past. Should we temper our expectations just given the longer conversion cycle?
I think, Justin, you have to figure that the SaaS -- I mean, we're trying to figure this out. This is moving fairly quickly. I mean, we've had deals in the pipeline for Q4, for instance, that literally began the sales cycle with the client telling us they had every intention of buying a perpetual upfront license only to find that as we are close to contract that their board has now reviewed their overall technology acquisition strategy and has decided to move everything to SaaS. So we're seeing this thing, it's like it's suddenly really has reached the tipping point. So I would tend to say, in our own models looking forward, we're assuming now that sort of somewhere around half of new account bookings will be coming in at SaaS and with that number just continuing to move further. I mean, probably by a year from now, it will be 75%, like it's going to keep moving.
Okay. And then, on the one-time costs in the quarter for the adjusted EBITDA, there seems to be about $1 million that was added back but in the press release there you said operating profit was impacted by $2.3 million. Is that just more of a conservative calculation for adjusted EBITDA?
Yes. I think the $2.3 million would have in it the OrderDynamics operating losses as well. So there's -- the $1 million is basically the acquisition costs and stock comp expense. That's the delta between EBITDA and adjusted EBITDA.
Okay. And then just one last question. Given the PCSYS will be closing subsequent to the quarter and with your cash balance and I saw that there was a new credit facility implemented. What's your view on using debt going forward? And is there a target leverage ratio that you tend to stay under?
I think we're looking at -- we've got this new debt, it's $12 million term loan with a mandatory sort of pay down on it. It's a 5-year loan. And I think our expectation is we're -- we still have Berty who's focused on M&A and acquisitions and looking and building the pipeline. But I think in the short term, we're thinking about more about integration, what we have right now than an active acquisition in the very short term. If an opportunity comes up and debt financing is a good alternative, we could go that direction. I think the term loan that we have is got really interesting rates on it. I think you'll see that in our financial statement disclosure. So at that kind of level of cost of money, I guess, our view would be that headroom on the debt side is a little bit higher. On the other hand, the EBITDA equation there on cash flow to finance new debt is going to be part of the mix in the decisioning there.
Our next question comes from the line of Gabriel Leung with Beacon Securities Limited.
A couple of things. First, just a question of clarification. Peter, you said that you had signed 2 IDNs in the quarter. Is that correct?
That's correct. Yes.
Okay. Perfect. Second question for you, Mark. Can you, just given all the talk about all the discussion around, sort of, license revenues moving more towards SaaS, just remind us again if you look at sort of the 3 months proprietary products and maybe the 9 months as well, what proportion of that is license versus more Logi-D hardware type of thing?
Do we disclose that? That in the past, that split of proprietary?
Yes. No, we haven't ...
Technology and...
We haven't because we don't -- yes, we haven't disclosed that. What I would tell you is that the lion's share of it is software.
Okay. Perfect. And I guess the move towards SaaS is more at the -- it's a pushback as by the customer just to help, I guess, maybe reduce their upfront cost. Is that a big chunk part of the rationale?
Yes. It seems to be a part of just a push on the part of customers to even out all their expenses. I mean, once they go to a SaaS model, they don't have the server refreshes happening. They don't need as much IT staff. They don't -- a lot of the -- your revolver security and the backup that looked after for them as part of that agreement. And even from the standpoint of managing their process with us it just evens it out into a monthly fee that includes a lot of the what would otherwise be occasional sort of lumpy expenses as they sort of upgrade or add on and so on. So it just evens the whole thing out for them. And it seems like, sort of, some of the fears that were there a year or 2 ago are sort of, well, we don't want to put patient data in the cloud and that kind of thing. Those fears have just largely dissipated at this point. And I'd say -- it's -- we knew it was going to tip at some point. Every year, we sort of went into the year going well. Okay, we offer it both ways, but it seems like a rare exception that customers are actually selecting SaaS in the markets that we serve, but it seems to have suddenly hit that tipping point.
Are you seeing any opportunities where customers are coming to you and saying, we'd like to see more of a hybrid solution, some on prem, some managed by you guys?
Some of them -- I mean, we do have some deals we're doing where they are buying the license upfront, paying maintenance on it, but then paying us to host, I would say that's the only sort of hybrid we're seeing.
Okay. Got you. That's helpful. And maybe one last question for you, Peter. Obviously, the company has changed quite a bit in the last couple of months versus call a year ago, much broader product portfolio and geographic portfolio. You've also got a lot of integration work to do. You've added some new personnel, this will help out. I'm curious, as you look at TECSYS today, are there any areas where you feel you still need to bulk up on or some product or verticals that you'd still like to get into whether it's 12 or 24 months?
I would say the simple answer to that is no. We'll continue to look for really good acquisitions. I think the focus will probably be more in geography than product capability. If you look at the product suite at this point, we feel like we're now sitting on 2 very hot markets. Sort of health care is just going like crazy. Massive transformation in that market space and huge opportunity. And if we look at the convergence of the brand manager, wholesale or manufacture market, sort of that whole group and the retail space as they are all converging into this direct B2C fulfillment for a variety of reasons. In some cases, it's because the retailers are going out of business and their suppliers are suddenly having to be the direct path to the consumer. In other cases, because the retailers are actually doing very well but are pushing the load -- the fulfillment load back up to their suppliers. But one way or another, those market spaces are converging and that is turning what has been a fairly, sort of, slow and steady distribution market into a much hotter, more rapidly evolving space. So we think with our warehousing application, our complex distribution enterprise solution, transportation management and now distributed order management platform, that is now sitting in a very hot space with a very complete and compelling offering. So there's not really -- we don't -- we definitely don't want to widen the snowplough any further at this point in terms of product. We've got enough product and we've got 2 hot markets.
Got you. One last question either for Peter or for Mark. As I look at OrderDynamics and PCSYS, it looks like in terms of integration, there's going to be -- we shouldn't focus too much on cost synergies or restructure or that kind of thing. This is really more acquisitions in terms of broadening out the product and the geographic footprints. How should we think about it and that -- the leverage will come as their top line for both companies accelerate over the next couple of months and years?
Yes. I would say that's an accurate statement. There's some savings you get for sure. We're looking at leases and so on. But we got a lease ending late this summer with OrderDynamics in Toronto, for instance, where there may be some opportunities for savings there. They are in a pretty big office space there right now, bigger than they need and so on. So there may be a few, but they're sort of the exception more than the real. I mean, OrderDynamics is a growth story and the PCSYS is about geographic expansion.
I'm showing no further questions at this time. Mr. Brereton, I'll turn the call back to you.
Great. Well, thank you, everyone, for taking the time to join us today and if you have any additional questions don't hesitate to give us a call. We look forward to speaking to you in July when we announce our fourth quarter and year-end results. Thanks again. Bye for now.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.