Tecsys Inc
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Earnings Call Transcript

Earnings Call Transcript
2022-Q3

from 0
Operator

Good

morning,

everyone.

Welcome

to

the

Tecsys

Third

Quarter

Fiscal

2022

Results

Conference

Call.

Please

note

that

the

complete

third

quarter

report,

including

the

MD&A

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,

March

3,

2022, 8:30

AM

Eastern

Time.

I

would

now

like

to

turn

the

conference

over

to

Mr.

Peter

Brereton,

Chief

Executive

Officer

at

Tecsys.

Please

go

ahead,

sir.

P
Peter Brereton

Thank

you.

Good

morning,

everyone.

Joining

me

today

is

Mark

Bentler,

our

Chief

Financial

Officer.

We

appreciate

you

joining

us

for

today's

call.

In

the

third

quarter,

we

delivered

excellent

results

fueled

by

strong

demand

for

our

solutions

and

the

continued

success

of

our

transformation.

Our

customers

are

not

only

staying

with

us,

they

are

growing

with

us

and

transforming

their

own

businesses.

In

Q3,

I'm

thrilled

to

say

that

we

continued

to

deliver

another

great

quarter

with

double-digit

ARR

growth,

solid

backlog

and

a

strong

pipeline

across

all

industries.

We

continue

to

solidify

our

mission

of

equipping

our

customers

with

supply

chain

excellence.

Although

we

did

experience

some

delayed

projects

due

to

Omicron,

I'm

very

proud

of

the

work

our

team

did

by

closing

out

the

quarter

strong,

expanding

on

the

depth

and

breadths

of

our

platform,

and

as

always,

investing

in

our

people

and

culture.

Today,

I'll

start

by providing

some

additional

color

on

the

results,

and

Mark

will

walk

us

through

the

financial

results

in

more

detail.

And

finally,

I'll

share

what

I'm

looking

forward

to

this

year

and

beyond.

We'll

follow

that

up

with

a

Q&A

session.

There

are

two

key

indicators

that

I'd like

to

highlight

which,

despite

currency

headwinds,

are

contributing

to

our

track

record

of

solid

growth.

Revenue

where

I'll

touch

on

growth

and

quality,

and

our

pipeline

where

I'll

touch

on

market

conditions.

First,

it's

important

to

note

that we

have had

consistent

consecutive

growth

on

a

quarterly

basis

for

the

last

three

years.

As

we

continue

to

emphasize,

SaaS

revenue

is

scaling

up

relatively

quickly

due

to

our

ongoing

strategic

shift

to

SaaS

in

all

of

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.

The

strong

revenue

performance

is

fueled

by

the

continued

strength

of

our

pipeline.

Companies

in

every

sector

are

working

diligently

to

digitize

their

supply

chain,

to

maintain

competitive

advantage,

and

we

are

there

for

them.

If

the

last

few

years

have

taught

us

anything,

it's

that

the

supply

chain

is

absolutely

critical.

Companies

are

now

taking

this

knowledge

and

bolstering

technology

to

become

nimbler

in

the

face

of

new

potential

future

uncertainties.

And

we

are

seeing

the

effect

of

that

trend

not

only

with

new

prospects,

but

the

growth

in

utilization

from

our

existing

base

of

customers.

With

that

said,

we

continue

to

invest

in

innovative

solutions

to

further

drive

benefit

to

our

customers,

and

we've

realized

the

significant

milestone

in

the

introduction

of

an

AI-driven

augmented

cluster

building

application

at

our

customer,

Werner Electric. This

application

intelligently

groups

together

picks

of

various

orders

and

simulates

multiple

pick

paths,

and

then

chooses

the

optimal

combination

to

reduce

travel

time

and

boost

the

efficiency.

We

expect

to

see

a

15%

to

20%

cost

saving

just

in

travel

distance

alone.

We

believe

this

to

be

very

timely,

as

our

customers

continue

to

be

challenged

with

labor

shortages.

As

we

mature

our

AI

strategy,

we

see

ample

opportunity

to

take

full

advantage

of

the

data

our

system

generates

to

create

customer

value.

Our

momentum

is

strong.

And

to

maintain

this,

we

realized

that

people

of

Tecsys

are

the

most

critical

asset

we

have,

and

we

are

allocating

higher

expenses

for

retention

as

well

as

recruiting

efforts

and

attracting

new

employees.

Mark

will

now

provide

further

details

on

our

financial

results

for

the

third

quarter

and

the

first

nine

months

of

our

fiscal

year.

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Thanks,

Peter.

As

indicated

at

the

beginning

of

the

call,

our

financials

and

MD&A

are

available

on

SEDAR.

I'll

focus

my

summary

here

just

on

a

few

of

our

key

metrics

and

areas

where

I

will

provide

some

additional

color.

We're

pleased

with

our

strong

performance

in

our

third

quarter

ended

January

31, 2022.

Total

revenue

was

a

record

CAD 35.4

million,

11%

higher

than

CAD 31.9

million

reported

for

Q3

of

2021.

As

many

of

you

know,

a

significant

portion

of

our

revenue,

about

65%

is

denominated

in

US

dollars. And

as

a

result,

movement

in

currency

exchange

rates

has

an

impact

on

our

reported

revenue

and

growth.

During

Q3

fiscal

2022,

currency

exchange

movements

negatively

impacted

our

reported

revenue

as

the

value

of the

US

dollar

was

weaker

compared

to

the

same

quarter

last

year.

In

fact,

on

a

constant

currency

basis using fiscal

2022

currency

rates,

our

third

quarter

revenue

grew

by

about

16%

compared

to

the

same

quarter

last

year.

We

continue to

experience

strong

and

diverse

revenue

streams,

underpinned

by

a

49%

increase

in

SaaS

revenue

which

was

up

from

CAD 4.7

million

in

Q3 2021

to

CAD

7.0

million

in

Q3 2022.

On

a

constant

currency

basis,

SaaS

revenue

was

up

about

56%.

I

also

want to

note

again

that

we're

at

the

precipice

of

a

significant

milestone

in

our

transition

as

a

SaaS

business,

with

our

SaaS

revenue

currently

representing

46%

of

our

total

recurring

revenue

streams

in

Q3

fiscal

2022,

and

we

have

line

of

sight

SaaS

crossing

over

the

50%

threshold

within

a

matter

of

months.

That's

about

a

three-year

timeframe

into

our

SaaS

transition.

Our

annual

recurring

revenue

at

January

31, 2022

was

CAD

59.5

million,

up

17%

from

CAD

50.8

million

at

January

31, 2021.

On

a

constant

currency

basis,

that

increase

was

about

19%.

Professional

services

revenue

for

the

third

quarter

was

CAD 12.9

million,

up

5%

from CAD

12.3

million

reported

for

the

same

quarter

last

year.

Again,

currency

movements

created

headwind

on

revenue

growth

here,

which

would

have

been

9%

on

a

constant

currency

basis.

Moving

on

to

bookings

in

the

quarter.

SaaS

bookings

are

reported

on

an

annual

recurring

revenue

basis

and

increased

by

133%

to

CAD 2.3

million

in

Q3

2022,

compared

to

Q3 2021

which

was

at CAD

1.0

million.

SaaS

bookings

were

highlighted

by

the

addition

of

a

new

hospital

network,

as

well

as

significant

base

business

from

our

customers

across

all

verticals.

We

also

signed

another

new

hospital

network

in

the

first

days

of

Q4.

Professional

services

bookings

were

CAD 9.3

million,

down

11%,

compared

to

CAD

10.5

million

in

the

same

quarter

last

year.

We

had

some

professional

services

booking

slip

into

Q4,

about CAD

4

million

signed

in

the

first

few

weeks

of

Q4.

This

highlights

again

the

lumpiness

and

impact

of

timing

on

reported

quarterly

bookings.

We

still

like

bookings

as

a

metric

because

over

time

we

believe

it

provides

a

good

leading

indicator

of

business

performance

and

growth

prospects.

SaaS

remaining

performance

obligation,

also

known

as

RPO

or

SaaS

backlog,

was

CAD 78.5

million

at

the

end

of

Q3

fiscal

2022,

up

36%

from

CAD 57.6

million

at

the

same

time

last

year.

On

a

constant

currency

basis,

that

growth

was

37%.

SaaS

backlog

was

up

8%

sequentially

compared

to

the

second

quarter

of

fiscal

2022,

at

6%

constant

currency.

The

increase

was

driven

by

significant

multi-year

SaaS

bookings

during

the

quarter.

Professional

services

backlog

at

the

end

of

Q3

fiscal

2022

was

CAD

29.5

million,

that's

down

about

22%

compared

to

CAD 37.8

million

at

the

same

time

last

year,

and

down

from CAD

33.1

million

at

October

31, 2021.

As

noted

above,

timing,

especially

in

large

deals,

can

have

a

pretty

significant

impact

on

reported

backlog

at

any

point

in

time.

Our

professional

services

backlog

remains

robust

and

we

expect

our

delivery

team

to

continue

to

be

very

busy

in

the

quarters

ahead.

For

the

third

quarter,

total

gross

profit

was

CAD

15.2

million,

that's

down

CAD 0.2

million

compared

to

CAD

15.4

million

in

Q3

of

2021.

As

a percentage

of

revenue,

gross

margin

was

43%,

compared

to

48%

in the

same

quarter

last

year.

That

decline

was

a

result

of

unfavorable

exchange

movements,

changes

in

the

revenue

mix

and

investment

to

support

growth.

Net

profit

for

the

quarter

was

CAD 0.9

million

CAD

0.06

per

fully

diluted

share,

compared

to

CAD 1.8

million

in

Q3

last

year

which

was

CAD

0.12

per

fully

diluted

share.

Adjusted

EBITDA

was

CAD

2.7

million

in

Q3 2022,

compared

to

CAD

4.0

million

in

Q3 2021.

The

decrease

in

profit

and

adjusted

EBITDA

compared

to

the

third

quarter

last

year

was

primarily

due

to

an

unfavorable

foreign

exchange

impact

of

approximately

CAD 1.6

million.

Turning

now

very

briefly

to

our

results

for

the

first

nine

months

of

our

fiscal

2022.

Our

total

revenue

was

CAD 102.9

million,

up

13%

compared

to

CAD

90.7

million

in

the

same

period

last

year

and that's

up

19%

on

a

constant

currency

basis.

SaaS

revenue

for

the

first

nine

months

of

fiscal

2022

was

CAD

19.2

million,

up

41%

from CAD

13.7

million

in

the

same

period

last

year

and that's

up

49%

on

a

constant

currency

basis.

Our

SaaS

bookings

were

up

23%

compared

to

the

first

nine

months

of

last

fiscal

year.

Our

profit

for

the

first

nine

months

of

fiscal

2022

was

CAD 1.9

million

or

CAD

0.13

per

fully

diluted

share,

compared

to

CAD

5.2

million

or CAD

0.35

per

fully

diluted

share

in

the

period

last

year.

Adjusted

EBITDA

was

CAD 8.4

million

in

the

first

nine

months

of

the

current

fiscal

year,

compared

to

CAD 12.3

million

for

the

same

period

last

year.

Foreign

exchange

movements

had

a

negative

impact

of

approximately

CAD 4.6

million

on

profit

and

adjusted

EBITDA

in

the

current

nine-month

period

compared

to

the

same

period

last

year.

We

ended

the

third

quarter

with

strong

balance

sheet

position.

At

January

31, 2022,

we

had

cash

and

cash

equivalents

and

short-term

investments

of

CAD 36.9

million,

compared

to CAD

45.9

million

at

year-end.

And

we

had

debt

of

CAD

8.7

million,

compared

to

CAD

9.6

million at

year-end.

Cash

provided

by

operations

was

CAD

0.9

million

in

Q3,

and

our

DSOs

or

days

sales

outstanding

and

accounts

receivable

remain

reasonable

at

58

versus

47

at year-end,

and

45

at

the

same

time

last

year.

Recall

that

our

Q4,

so

that's

next

quarter

for

us,

tends

to

be

a

high

point

for

cash

from

operations

due

to

some

seasonality

in

our

non-cash

working

capital,

in

particular

related

to

annual

tax

credit

refunds.

I'll

now

turn

the

call

back

over

to

Peter

to

provide

some

outlook

comments.

P
Peter Brereton

Thanks,

Mark.

The

positive

growth

trends

are

continuing

for

Tecsys

as

we

move

through

fiscal

2022.

Our

consistent,

strong

financial

performance,

new

accounts

and

the

expansion

of

our

existing

accounts,

and

most

notably

our

solid

pipeline

are

continuing.

The

market

conditions

give

us

confidence

that

we

are

well positioned

to

continue

capitalizing

on

this

opportunity.

As

mentioned

earlier,

we

are

laser

focused

on

retaining

the

great

people

we

have

while

attracting

new

talent

to

stay

ahead

of

this

changing

market.

We

continue

to

see

demand

for

adding

additional

talent,

and

we

are

starting

to

see

what

appears

to

be

some

potential

positive

signs

in

the

labor

market

after

what

has

been

a

fairly

choppy

past

number

of

months.

We

are

mindful

of

our

delivery

capacity

and

we

continue

to

invest

on

that

front.

We

are

also

continuing

to

invest

in

our

channel

relationships.

In

both

cases,

we're

taking

proactive

steps

to

manage

for

continued

growth.

While

we're

optimistic

that

the

worst

of

the

pandemic

is

behind

us,

it

has

taught

all

of

us

to

be

prepared

for

the

unknown

and

to

be

adaptable

to

overcome

– adaptable

enough

to

overcome

curveballs.

Tecsys

has

never

been

in

a

stronger

financial

position

to

weather

future

sudden

market

volatility

if

it

were

to

occur.

In

summary,

I

want

to

remind

analysts

and

investors

about

our

three

key

operational

themes

for

the

remainder

of

fiscal

2022,

which

have

not

changed

from

our

previous

analyst

call

as

we

enter

the

fiscal

year.

First,

we'll

continue

to maintain

focus

on

developing

and

growing

our

SaaS

revenue

model.

We

will

likewise

continue

to

optimize

our

internal

processes

and

resources

to

complement

this

shift

to

SaaS to

maintain

high

levels

of

customer

satisfaction.

Secondly,

we'll

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

continue

to

make

our

SI

partners

more

and

more

successful.

Thirdly,

we

plan

on

investing

in

all

of

our

sales

channels

to

exploit

the

momentum

in

the

opportunities

coming

at

us.

We

also

continue

to

expand

and

refine

our

omni-channel

business

platforms

to

service

evolving

needs

in

our

healthcare

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.

With

that,

we'll

open

up

the

call

for

questions.

Thank

you.

Operator

Thank

you.

[Operator Instructions]



Our

first

question

comes

from

the

line

of

Gavin

Fairweather

of

Cormark.

Please

go

ahead

with

your

question.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

Well, hi,

good

morning.

I

thought

we

could

start

out

on

the

healthcare

side.

And I

think

last

quarter

you

referenced

kind

of

the

next

20

[indiscernible]



(16:17)

roughly

identified

and

deals

[indiscernible]



(16:20)

being

worked

in

the

pipeline.

I

know

those

deals

can

be

kind

of

unpredictable

on

how

they

move

[indiscernible]

(16:26)

any

color

on

how

those

deals are

maturing

and

moving

into

the

[ph]

pipeline

(16:31)?

P
Peter Brereton

Sure.

Overall,

Gavin,

that –

like,

overall,

the

healthcare

market

is

almost

on

fire

these

days.

We

are

seeing

a

lot

of

activity

in

that

segment.

We're

seeing

a

lot

of

deals

moving

through

the

pipeline.

It's

interesting.

I

feel

like

the

biggest

change

in

a

way

in

the

last

year

is

we've

moved

from

sort

of

management

teams

trying

to

convince

the

board

that

they

need

to

do

this

and

invest

in

their

supply

chain

technology

to

now

the

shoes

on

the

other

foot,

the

boards

are

asking

the

management

teams

sort

of

what

they're

doing

about

supply

chain

and

how

soon

they're

going

to

get

a

good

platform

in

place.

So,

it's

turned

around

and

accelerated.

This

quarter

was

weird

from

the

standpoint

that

– especially

for

healthcare,

to

some

extent

across

all

segments,

but

especially

for

healthcare.

This

quarter

was

really

only

probably

a

little

less

than

two

months'

long.

The

Omicron

wave

came

through

and

it

hit

different

areas

of

the

country

at

different

–

slightly

different

times.

But

basically,

the

bulk

of

our

clientele

in

healthcare

were

massively

distracted

for

anywhere

between

one-third

and

half of

the

quarter. So,

we

felt

like

it

was

–

it

felt

like

a

very

short

quarter

from

the

standpoint

of

actually

getting

deals

done.

But

the –

and

you

saw

that

in

some

of

the

deal

slippage

that

Mark

referred

to,

I

mean,

the

professional

services

bookings,

big

chunk

that

signed

in

just

in

the

first

week

of

February.

That

normally

would

have

been

Q3

stuff.

And

even

the

additional

network

that

signed

in

the

first

week

of

February

that

would

– that

normally

would

have

been

Q3

stuff,

but

it

was

all

just

sort

of

Omicron shortening

up

the

quarter.

But

overall,

to

answer

your

question,

the

activity

in

that

market

is

stronger

than

we've

ever

seen

it.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

That's

very

helpful.

And then, maybe

I

thought

we

could

zero

in

on

the

services

side.

And

I

know

it's

kind

of

the

holiday

quarter

and

I

think

you

referenced

Omicron

impacting

some

projects. Do

you

have

a

sense

of

the

amount

of

billings

that

maybe

slipped

from

your

third

quarter

into

future

quarters

and

should

we

expect

a

catch-up

there?

P
Peter Brereton

Yeah.

We

actually

expect

a

bit

of

a

catch-up.

It's

hard

to

quantify

exactly

how

much

slipped.

I

mean,

if

I

were

to

put

a

number

on

it,

I

would

say, it

was

at

least CAD

1.5

million

or

something

like

that.

We

just

had

too

many

projects

where

we

suddenly

got

to

mid-December

or

whatever,

and

they

– customer

calls

and

says, you know what,

we're

in

the

middle

of

Omicron

wave,

half

our

staff

is

sick.

Everybody

go

home

and

we'll

see

in

a

month

kind

of

thing.

So,

we

just

had

a

lot

of

that.

Now,

the

challenge,

of

course,

is

while

we

do

expect

some

catch-up

in

Q4,

to

some

extent

we

can

only

catch

up

so

much

because,

of

course,

we're

capacity

constrained.

So,

we've

added

head

count

in

that

– on

our

professional

services

side.

But

the

supply

is

not

infinite

there.

So,

we

certainly

expect

a

strong

Q4

in

pro

services.

As

you

know,

as

it

largely

seems

like

the

–

seems

like

whatever

the

vaccinations

didn't

get,

Omicron

got

to

it.

It

seems

like

we're

kind

of

out of

the

woods

on

this

now,

but I

would

guess,

Mark,

I

don't know

if

you

would

agree,

I

feel

like

maybe

CAD 1

million,

maybe

CAD

1.5

million,

it's

somewhere

in

that

range.

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yes,

I

think

that's

reasonable.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

That's

great.

And

then,

maybe

I

thought

we

could

just

chat

on

the

labs

module

which

commercialize,

I

guess,

in

January.

We

haven't

talked

about

it

a

ton

in

the

past.

Can

you

maybe

just

walk

us

through how

you

think

about the

stock

market

size,

the

distribution

for

that

module

and

overall just

your

thoughts

on

growth

for

[indiscernible]



(20:17)?

P
Peter Brereton

You

know

what,

sorry, Gavin,

I

didn't

pick

up

which

module

you're

referring

to.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

The

labs

module,

the

clinical

labs

module. Sorry.

P
Peter Brereton

Oh, okay.

Sure.

Yeah, I

mean

that –

that's

still

very

early

stage.

I

don't –

I

mean,

I

would

say

you're

probably

not

going

to

hear

much

from

us

about

labs

for

– in

any

significant

commercial

way

for

probably

another

year

or

two.

I

mean,

our

focus

is

– at

this

point,

is

more

getting

– continuing

to

gain

traction

in the

pharmaceutical

module

for

in-hospital

pharmacy.

In

fact,

our

goal,

if

you

look

at

what

we're trying

to

get

done,

we're

saying,

we

want to

try

and

get

to 100

IDNs

within

the

next

few

years.

And

we

want to

make

sure

that

at

least

10 of

those

IDNs

are

deploying

our

pharmacy

module.

Because

our

feeling

is

that

if

we

can

get

at

least

10 of

them

deployed

using

our

pharmacy

module,

that

will

sort

of

set

us

up

for

a

second

wave

to

go

back

through

the

entire

customer

base

and

adding

the

pharmacy

module.

So,

that's

our

goal.

I

mean,

this

market

is –

as

you

know,

is

a

pretty

cautious

market.

So,

it's

really,

I

would

say,

the

pharmacy

module,

it's

taking

up

the

bulk

of our

expansion

in

terms

of

trying

to

get

some

real

traction

there.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

Got

it.

And

then

lastly,

before

I

pass

the

line,

I

know

you've

been

doing

some work

kind

of

internally

to

optimize

your

software

for

running

on

a

staff

delivery

consultant.

Can

you

just

provide

a

bit

of

an

update

on

that

dev

project

in

terms

of

timelines

and

maybe

just

touch

on

[indiscernible]



(21:58)?

P
Peter Brereton

Sure. I

mean,

there's

the –

from

the standpoint

of

project

to

make

our –

take

our

software

to

be

sort

of

much

more

SaaS

native,

that

work

continues.

And

there's

a

way

in

which

you're

always

wrestling

with

technical

debt,

right.

I

mean,

it's

just

the

nature

of

the

software

development

space.

It

sometimes

drives

me

nuts.

[indiscernible]



(22:26)

product

that

I

still

think

of

is

brand

new.

We

develop

the

product

within

the

last

three

years

and

I

start

hearing

from

R&D

that

there's

some

technical

debt

that

they

have

to

go

back

and

work

through.

And

it's

just –

it's

the

nature

of

the

rapidly

evolving

sort of

cloud

space

that

some

of

this

stuff

changes

all

the time.

But

it

certainly

looks

to

us

as

though

the

heavy

lifting

will

be

done

pretty

much

by

the

end

of

this

calendar

year.

I

mean,

we're

–

we've

introduced

all

kinds

of

new

security

capability.

We're

shifting

the

underlying

database

to

run

off

a

much

lower

cost

database,

so

that

we

will

be

able

to

support

the

[indiscernible]



(23:06)

database

in

AWS.

So –

and

we're –

we've

added

all

kinds

of

scalability

capability.

We've

got

a

very

large

go-live

that

happened

in

January

over

a

thousand

users

at

a

single

site

and

it's

performing

very,

very

well

in

the

cloud.

So,

we're

pretty

happy

with

where

we're

at

on

that.

And

we –

as

I

say,

we

think

the

heavy-lifting

will

kind of

be

done

by

the

end

of this

calendar

year.

From

the

standpoint of

impact

on

margins,

the

shift

in

database

will,

over

the

next

year,

we

think

got

somewhere

around

3 percentage

points

to

5

percentage

points

of

margin

to

the

SaaS –

to

our

SaaS

numbers.

But

really

only

on

new

accounts.

It'll

take

more

time

to

move

existing

accounts

over

on

to

that.

So

– but

still

that – and

we

believe

that

will

start

to

show

up

significantly

by

the

end

of

our

next

fiscal

year.

The

other

margin

shift

that

I

think

you're going

to

see

in

the

coming

couple of

years

is

we've

probably

only

got

another

maybe

six

months,

probably

a

couple

of quarters.

I'm

going

to

ask

Mark

to

comment

on

this

when

I'm

done.

But

another

couple

of

quarters

of

continuing

to

build

out

the

bench

on

our

cloud

and

DevOps

support

team.

So,

that's

what

keeps

suppressing

the

margins

at

this

point.

It's

even

though

the

revenue

is

growing

pretty

significantly,

up

more

than

50%

this

quarter

constant

currency,

we're

continuing

to

build

out

that

bench

and

get

a

deeper

and

deeper

bench

of

expertise

and

capability

to

operate

the

– operating

24/7.

We're

a

couple

of quarters

away

from

having

that

pretty

much

done.

So,

at

that

point,

the

cost

starts

to

flatten

out

and

the

revenue

just

continues

to

rise.

So,

Mark

does

that...

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah,

I

think

that's right.

[indiscernible]

P
Peter Brereton

(24:56) what you're seeing?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

...in

the

next.

I

think

that's

right.

We've

got

this

quarter

and

probably

the

first

half

of

next

year

to

get

to

that

place.

And

the

other

thing

that's

going

on

in

there

is

investment

in

security

that'll

be

going

on

over

that

time

period

as

well,

of

course,

where

we're

faced with

some

pretty

difficult

hiring

environment

too,

but

–

so

timing

may

be

impacted

by

that,

but

I

think

that's

right.

Our

plan

is

to

bring

in

those

resources

and

have

the

skill

created

by

the

first half

of

next

fiscal.

G
Gavin Fairweather
Analyst, Cormark Securities, Inc.

Got

it.

That's

super

helpful.

Thanks so

much.

P
Peter Brereton

Great,

thanks.

Operator

Thank

you.

Our

next

question

comes

from

the

line

of

Amr

Ezzat

of

Echelon

Partners.

Please

go

ahead

with

your

question.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Hi,

it's

Amr.

Peter,

Mark, good

morning

and

thanks

for

taking

my

questions.

My

first

one

is

on

heart...

P
Peter Brereton

Hi,

Amr.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Hi.

So,

my

first

one

is

on

your

capital

deployment

strategy.

The

stocks

come

off

quite

a

bit since

December

despite,

I

think, a

12

quarters

of, like,

record

revenues

now.

You've

got

a

decent

cash

position

under

levered

balance

sheet.

So,

like,

I'm

wondering

what

was

the

board

thinking

on

buybacks

versus

maybe

increasing

the

dividend

and

M&A.

Can

you

share

some

thoughts

there?

P
Peter Brereton

Yeah.

I

mean,

I

think,

Amr,

I

mean,

the

focus

of

the

board

and

our

management

team

is

basically

hang

on

to

the

war

chest

and

look

for

the

right

acquisition.

I

mean,

we

continue

to

generate

enough

cash

to

continue

to

slowly

add

to

our

cash

pile

as

well

as

pay

the

dividends.

But

our

–

the

– a

lot

of

that

money

was

actually

raised

at

CAD

17

a

share.

So,

even

though

the

stock's

come

down

from –

in

the

60s,

I

mean,

it's

obviously

come

down

along

with

everyone

else.

Misery

loves

company,

so

I

try

to

make

myself

feel

better

by

looking

at

other

people's

stock.

But

it

–

we

feel

like

the

opportunities

for

acquisitions

are

getting

a

little

bit

better.

The

private

equity

market

has

not

cool

off

to

the

same

extent

that

the

public

markets

have.

But

there's

still

sort

of

a

little

bit

more

realism

creeping

into

that

side

as

well.

So,

even

though

our

stock

is

down,

we

think

there

may

be

some

potential

opportunities

on

the

horizon.

So,

it's

really

–

I

know

we've

sort

of

sat

on

that

cash

for

quite

a

while,

but

it's –

we

do

feel

like

it

needs

to

be

there

to

be

ready

to

deploy

for

the

right

acquisition.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Okay.

Now,

that's

good

color.

And

just

a

follow-up

on

Gavin's

question, like,

Peter,

you

mentioned

during

COVID,

there

was

obviously

an increased

openness

and

urgency

to

have

conversations

on

supply

chain

management

software

and

investing

in the

supply

chain.

And

I'm

wondering

with

the

COVID

pressures

easing,

do

you

feel

these

conversations

with

new potential

clients

are

still

very

constructive,

or

is

the

strong

level

of

activity

we

are

currently

seeing

coming

from

conversations

initiated

like

in

the

past

few

quarters

are

behind

of COVID?

P
Peter Brereton

Yeah.

I mean, the – I mean,

think

you're

sort

of

asking

sort

of

is

the

urgency

accelerating

or

decelerating.

I

mean,

it

seems

to

us

that

sort

of

a

whole

generation

of

business

leaders

has

just

learned

all

about

how

important

supply

chain

is

and

that

in

fact,

your

business

can

almost

fall

apart

if

you don't

know

where

your

stuff

is

or

when

it's

coming

in

and

have

the

ability

to

manage

it

real

time

and

react

in

real

time

and

so

on.

So,

we're

seeing –

I

mean,

if

we

just

look

at

our

pipeline,

like,

our

pipeline

is

up

massively

compared

to

this

time

last

year.

And

this

time

last

year,

we

were

already

a

year

into

pandemic.

So,

it

doesn't

seem

to

be

slowing

down.

It

seems

to

be

of

anything

accelerating.

Healthcare

is

moving

the

fastest

rate

now

in

that

they

seem

to

have already

sort

of

said,

okay,

you know what, we

can't

wait

for

the

pandemic

to

end.

We

just

got

to get

this

stuff

moving.

So,

there

we're

seeing

actual

deals

signed

and

so

on.

In

public

distribution

and

retail,

we're

starting

to

see

more

deals

moving

toward

a

close.

But

a

lot

of

the

activity

is

still

top

of

funnel

there,

where

it's

companies

that

have

realized

that

their

existing

platforms

are

not

capable

of

dealing

with

what

they

now

have

to

handle.

But

at

the

same

time,

they're

looking

at

the –

all

the

distractions

going

on

in

their

business,

not

only

directly

COVID,

but

there's

completely

screwed

up

supply

chains

they're

trying

to

manage

as

we

get

through

these

next

number

of

months.

I

mean,

they

can't

access

containers,

cost

of

containers

has

tripled

or

quadrupled.

In

some

cases,

their

landed

cost –

because

of

the

cost

of

moving

container

across

the

water,

their

landed

cost

is

higher

than

the

retail

selling

price.

So,

there's

all

kinds

of

issues

there

they're

dealing

with.

So,

it's

not

the

time

for

some

of

them

to

also

swap

out

their

core

operating

platform,

but

they're

trying

to

get

ready

to

swap

out

their

core

operating

platform

because

I

can

see

it's

not

handling

sort

of

the

new

world

we're

in.

So,

we're

anticipating

–

I

mean,

crystal

ball

gazing

is

already

always

dangerous.

But

if

judging

by

our

pipeline,

we're

expecting

sort

of

healthcare

to

be

in

the

lead

for

another

couple

of

quarters

and

then a

pretty

rapid

acceleration

on

the

complex

distribution

and retail

side.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Okay.

That's

all

great

color.

On

professional

services,

I

mean,

three

quarters

running

at

new

record

levels.

I

mean,

you

mentioned

your

capacity

constraint.

Can

you

maybe

give

us

or

remind

us

of

your

head

count

in

professional

services

and

how

many

– how

much

staff

are

you

adding?

P
Peter Brereton

Let

me

pass

that

one

over

to

Mark. We've

got

a

lot

of

open

positions,

that's

for

sure.

But

it's

an

interesting

thing

that

after,

I

think,

the

first

eight

months

of

the

year,

our

fiscal

May

to

December,

we

really

struggled

to

add

heads.

We

added

some, so

we had some

waves of

resignations

come

through.

And

so, then

a

lot

of people

were

restless

and

moving

around

and

so

on.

And

suddenly,

in

January

and

February,

that

seems

to have

turned.

And

even

as

we're

heading

into

March,

it

seems

to

be

remaining

very

positive.

So,

suddenly

we're

able

to

recruit,

retain

and

really

build

up

those

teams.

So,

we

don't know

if

the

wave

of

restlessness

is

kind

of

just

subsided

or

did

we

get

smarter,

I

don't

think

it's

really

that.

We

did

adapt

some

of

our

strategies,

but

somehow

something

shifted

in

the

market.

And

we're

finding

it's

suddenly

easier

again

to

add

talent.

But

I'll

let

Mark

give

you

some

of

the

numbers

there.

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

So,

Amr,

we're at

about

240, 245

professional

services

team

size

right

now.

And

that

would

be

up

about 20

heads

from

the

beginning

of

the

year.

As

Peter

mentioned,

we

had

our

quarter

one

and

our

quarter two

were

kind

of

bumpy.

We

had

some –

we

did

have

some

attrition.

We

had

people

leaving.

We

were

hiring,

but

our

head

count

growth

was

kind

of

slow

in

the

first

couple of

quarters.

It

almost

feels

like

kind

of

since –

even

since

the

first

of

the

year

that

we've

done

some

things,

we've

reacted to

that,

we've

looked

at

comp,

we've

become

as

competitive

as

we

think

we

need

to

be

to

retain

and

hire

the

right

people.

And

it

feels

like

the

winds

of

change

have

stopped

blowing

there

a

little

bit.

And

at

least

in

the

last

couple

of

months,

we've

seen

what

seems

like

a

more

stable

recruiting

environment

for

us

and

a

more

stable

retention

environment,

so

that

our

head

count

growth

in

the

last

couple

of months

has

been

out

of

pace

with

what

we

saw

in

the

first

sort

of

eight

months

of

our

fiscal.

So,

reason

to

– reason

for

some

positive

outlook

on

our

ability

to

scale

up

that

business

a little

bit

more

rapidly

in

the

coming

quarters.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

And

where

do you

want

to

take

that

245

number

in

the

next

couple

of quarters?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah,

we

would

increase

that

by

another 30

heads

in

a

heartbeat.

And

then,

up

from

there.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Great.

And then,

maybe

one

last

one.

I

mean,

you

guys

touched

on

margin

and

a

couple

of

moving

parts

over

the

next

few

quarters.

OpEx

is

flat

from

last

quarter

which

surprises

me.

Wondering

how

we

should

be

thinking

about

your

investments

in

the

business

going

forward,

as

well

as,

like,

you

guys

spoke

to

inflationary

pressures,

specifically

on

the

next

couple

of quarters,

what's

a

good

sort

of

number

to

use?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah,

we

think we

are

going to

continue

that

investment

that you've

seen.

I

know

it

didn't

change

a

lot

in

the

last

quarter.

But

it

has

been

inching

up

quarterly

across

the

year.

And

as

we

look

ahead

and

think

about

what

we're

doing

and

think

about

investing

in

the

product

and

investing

in

the

sales

and

marketing

team

and

programs,

we

expect

that

part

of

the

OpEx

to,

to

continue

to

tick

up

like

you

saw

in earlier

quarters.

A
Amr Ezzat
Analyst, Echelon Wealth Partners, Inc.

Great.

I'll

pass

the

line

and

congrats

on

a

strong

quarter.

P
Peter Brereton

Thanks,

Amr.

Operator

Thank

you.

Our

next

question

comes

from

the

line

of

Nick

Agostino

of

Laurentian

Bank

Securities.

Please

go

ahead

with

your

question.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Hi.

Yes.

Good

morning.

I

guess

first

question, just

to make

sure

I

heard

correctly,

Peter,

did

you

say

that...

P
Peter Brereton

Yeah?

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Sorry,

yeah. Did you say that...

P
Peter Brereton

I

think,

Nick...

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Sorry,

can

you

guys

hear

me?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yes,

we

can. Yeah.

P
Peter Brereton

Kind of breaking

up

a

bit,

Nick.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

I'll

try

to

speak

closer

to

the

mic.

I

just

want

to confirm

it

was

one

IDN

win

in

the

quarter,

and

then

one

follow-on

IDN

win

after

the

quarter.

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

That's

right.

P
Peter Brereton

That's

right, Nick.

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah,

we

had

thought

there

was going

to

be

two.

But

at

the

last

minute,

there

was

again

some

distraction

in

one

of

the

IDNs we're

about

to sign

and

it

slipped

into

the

first

week

of

February.

So,

there

was

one

truly

in

the

quarter

and

one

just

outside

the

quarter.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Okay.

Great.

And

then,

on

the

commentary you

guys

made

earlier

in

the

press

release

with

regards

to

Omicron

impacting

December

and

January,

you've

given

the

color

on

the

healthcare

side,

was

there

any

– were

you

observing

the

same

impact

on

the

other

segments

of

the

business?

Or

was

that

commentary

totally

skewed

just to

healthcare?

P
Peter Brereton

No,

it

was

right

across

the

board.

Like,

when

account,

for

instance,

in

the

sort

of

Detroit

region

where

I

mean,

there

was

a

full

six

weeks

in

the

quarter

where

they

were

just,

I

mean,

they

could

barely

keep

the

lights

on

and

so

many

people

out with

Omicron.

So,

that

whole

projects slowed

down

massively.

So, it

was

pretty

well

right

across

the

board.

I'm

not

sure

anybody

was

spared.

I

mean,

the

further

– further

south

you

went

in

the

US,

the

less

the

impact

was.

There's

no

question.

But

–

but

still

I

don't

think

there

was

a

single

sector

that

was

spared.

Our

retail

clients

were

the

least

affected.

But

of

course,

retail

is

still a

pretty

small

segment

for

us.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Okay.

That's

good

color.

And

then,

going

back

to

the

commentary

you

provided.

You

said

the

focus

is

on

the

pharma

module

getting

traction

there.

First,

just

to make

sure

I heard

correctly.

You

said

you

hope

10

of

the

next

100

IDN

wins

include

pharma

module

or

was

it

10

of

when

you

get

to

100 IDNs

that

you

hope

that

initial

100 includes

those

10

or

includes

10?

P
Peter Brereton

Yeah.

It's

when

we

get

to

100,

we're

currently

sort

of

just

blowing

past

50

kind

of

now.

So,

if

–

we're

hoping

that

by

the

time

we

get

to

100,

we'll

have,

at

least

10%

of

them

will

be

running

the

pharmacy

module

because

we're

really

seeing

– I

mean,

we

look

at

this

overall

market

and

we

said,

okay, there's

311

IDNs

we're

directly

targeting.

So,

call

it

a

CAD 620

million

ARR

market.

As

we

look

out

over

the

long

haul,

we're

kind

of

saying,

it's

probably

not

reasonable

to

expect that

we'll

win

more

than

half

of

the

market.

So,

it

feels

like

the

market

ceiling

is

maybe

around

150 IDNs

kind

of

thing.

So,

we

want

to make

sure

that

as

we

sort of

get

through

that

effort

to

take

a

big

chunk

of

that

market

for

the

rest

of

the

supply

chain

requirements

that

we've

got

a

second

wave

to

go

– to

ready

to

roll

as

this

wave

starts

to

sort

of

wind

down,

whatever

that

would

be,

five

or six

years

from

now

kind

of

thing.

So,

we're

saying,

let's

make

sure

that

we

don't lose

sight

of the

fact that

we

want

to have

a

solid

pharmacy

base

within

the

next

few

years,

so

that

we

can

start

that

tat

second sort

of

path back through

these

networks

following

the

wave

we're

in

now.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Okay.

But

I

guess

maybe

if

you

can

just

expand

on

is

there

an

overhang

here,

so

something

that

that

is

stalling

maybe

the

take-up

on

that

pharma

module,

you

guys

have

certainly

been

developing

product

for

quite

a

few

years.

The

commercial

rollout,

I

think,

is

at

least

one

year

on

– has

been

in

existence

for about – getting

close

to

one

year.

Is

there

sense

that

things

are

maybe

stalled out

for

a certain

reason,

maybe

to

the

pandemic?

And –

or

is

the

observations

you're

making

on

the

pharma

side

very

similar

to

what

you would

have

observed

on

the

med-surg

side,

so

we

should

expect

a

similar

type

of

adoption

curve?

P
Peter Brereton

It is – I

think

you're

right

on

both

points.

It

is

similar.

Like,

when

we

first

got

into

for

instance

OR,

we

were

three

or

four

years

commercial

before

it

started

turning

into

any

kind

of

a

wave.

They're

just

– everyone

wanted

to

see

it

running

for

a

couple

of years

before

they

were

ready

to

adopt

it.

So,

we

had

to

get

the

first

couple

of

networks

up

and

live

and

happy

and

saying

good

things.

And

then

even

then,

it

took

a

couple

more

years

before

people

were ready

adopt

it

for

themselves.

So,

it

is

following

that

same

pattern.

At

the

same

time,

there's

no

question

the

pandemic

has

affected

it.

Our

second

pharmacy

client

that

was

rolling

out

the

pharmacy

module,

the

pandemic

has

delayed

their

project

by

probably

12 to

15

months.

So,

the

pandemic

is

definitely

affecting

it.

But

it

overall

is

following

the

same

kind

of

pattern

what we've seen

in

the

past.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Okay. And

then,

maybe

just

some

commentary

you

alluded

to

expanding

the

[indiscernible]



(41:24) supporting

the

Sis.

Can you just

give

us

an

update on

where

things

stand

with

the

workdays

with

the KPMGs,

as

far

as

how

much

of

their

pipeline

they're

contributing

that

continues

to

grow?

And

if

you've

seen,

I

believe

Workday

has

been

historically

more

healthcare

centric;

and

KPMG,

I

believe,

has

been

more

retail

centric,

have

– has

either

one

been

successful

or

showing

signs

of

– of

cross

selling

or

crossing

over

to

other

markets

specifically

on

the

Workday

site?

P
Peter Brereton

No,

I

would

say, Workday

is

still

predominantly

healthcare

and

has

remained –

it's

actually

remain

more

healthcare

focused

than

I

thought

it

would.

But

we're

now

seeing

activity

in

a

number

of

counts

again

with

them.

There

is

in

total –

our

total

pipeline

is

up

to

about

27%

now

partner

influenced.

Interestingly,

we

looked

at

the

last

year

and

we

can

see

that

we

entered

the

year

with

about 21%

partner

influenced

in

our

pipeline.

And

yet

if

you

look

at

closed

deals,

30%

of

the

closed

deals

were

partner

influenced,

which

again

sort

of

highlights

that

fact

that

when

you

have

a

partner

involved

in

the

account,

your

win

rate

goes

up.

So,

your

percentage

of

one

deals

ends

up

being

more

partner

influenced

than

your

pipeline

actually

is.

But

we're

seeing

good

headway

there.

We're

still –

I

would

say

though,

most

of

our

active

partners

are

either

in

healthcare

or

in

pure

retail.

We're

having

really

good

success

with

–

right

now,

in

the

healthcare

space.

We've

mentioned

accounts,

companies

like

Deloitte

and

KPMG

that

are

working

with

us

in

healthcare.

And

we've got – and

of course,

we've got

the

workday relationship,

and

we

recently signed

a

partnership

agreement

even

with

Infor.

Infor

used

to be

sort

of

more

of

a

competitor

to

us

in

the

healthcare

space.

And

we

signed

a

partnership

agreement

with

them

to

cooperate

in

the

space.

So,

that

is

going

very

well.

Retail,

we've

always

had

partners

around

the

world,

European,

North

American,

even

Asia

Pac

partners

there. And

the

complex

distribution

space

is

the

space

where

I

think

we

still

lag

in

terms

of

partners.

And

it's

something

that

our

partner

team

is

putting

a

really

focused

effort

into

is

to

try

to

build

out

who are

more

of

an

SI

network

around

complex

distribution.

So,

we're

probably,

I

would

say,

we're

two

years

behind

healthcare

in

where

we

are

in

complex

distribution.

N
Nick Agostino
Analyst, Laurentian Bank Securities, Inc.

Okay.

I

appreciate

the

color.

Thanks

for

the

questions.

Thanks

for

the

responses. I'll pass the mic.

P
Peter Brereton

Thanks.

Operator

Thank

you.

Our

next

question

comes

from

the

line

of

Andy

Nguyen

of

Raymond

James.

Please

go

ahead

with

your

question.

A
Andy Nguyen
Analyst, Raymond James Ltd.

Hi.

This

is

Andy

on

for

Steven

Lee.

I

just want

to

start

with

the

questions

on

if

there's

any

metrics

you

can

share

that

showed

the

impact

of

the

investment

in

sales

and

marketing

as

we're

not

seeing

the

significant

impact

on

the

earnings

and

deal

count

yet?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

I

mean, Andy,

I

think

probably

what

you

want

to focus

on

there,

what

we

focus

on

is

really

around

SaaS

ARR

bookings,

and

those

are

up

23%

this

year

compared

to

last

year

for

the

nine-month

period.

So,

once

you

start

looking

at

enough

quarters

there,

the

sort

of

the

lumpiness

goes

out

and

you

kind

of

start

to

see

the

trend.

So,

that's

number

one.

Number

two

and

Peter

mentioned

this

during

his

comments

a

bit,

we're

seeing

some

really

robust pipeline

and

pipeline

activity.

And

we

invested

quite

a

bit

in

particular

in

healthcare

and

our

sales –

sales

and

marketing

bringing

AEs

for

healthcare,

et

cetera.

And

we

are

starting

to

see

these

[indiscernible]



(45:34) the

newer

AEs

successfully

closing

deals. We've

had

a

couple

closed

in

a

couple

of recent

quarters

from

newer AEs

that

have

been

around

for

sort of

less

than

two

years.

And

if

we

look

in

our

pipeline

right

now

and

focus

on

who's

in

those

deals

in

our

pipeline

and

where

the

growth

is

coming

from,

we

see

a

great

penetration

from

the

new

AEs

that

we've

brought

on

in

the

last

–

within

the

last

two

years

that

are

driving

a

nice

chunk

of

that

pipeline

growth.

So,

it's

building. We

see

it

in

growth

in

pipeline

and

we're

seeing

it

in

results

in

SaaS

ARR

bookings.

A
Andy Nguyen
Analyst, Raymond James Ltd.

Yeah.

Thanks,

Mark.

Just

touching

on

that

pipeline

point,

at

what

percentage

of

the

pipeline

is

influenced

by

the

partner?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah,

it's

–

I

think

Peter

mentioned

27%.

I

think

it's

actually

slightly –

maybe

we're

rounding

there,

but

I

think

it's

slightly

higher.

It's

28%

right

now

and

that's

up

from

low

20s

a

couple of

quarters

ago.

A
Andy Nguyen
Analyst, Raymond James Ltd.

Yeah.

Thank

you.

And

my

last

question

is this.

So,

I'm

looking

at

the

free

cash

flow

year-to-date,

and

I

know

– I

think

you had

touched

on

the

primary

reason

for

the

decrease

in

free

cash

flow

is

the

timing

of

the

ARR.

But

I

think

year-to-date

it's

down

by

76%

comparing

to

last

year.

So,

I'm

just

wondering

why

is

it

down

so

much

and

could

we

expect

Q4

to

be

muted

as

well?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

I

think

– I

mean,

I

think

if

you

look

back

and

you

see

those

DSO

numbers

that

I

quoted

and you

look

back

at

our

history

there

a

little

bit, there

was –

a

year

ago,

we

were

in

this

sort

of,

I

would

say,

unsustainably

low

DSO

level

in –

kind

of

in

the

40s.

And

so,

we –

in

order

to

go – but

before

that,

we

were at –

DSOs

were

up.

And

six

months

before

that,

three

quarters

before

that,

DSOs

were

up

in

the

high-60s

and

in

the

low-70s.

So,

you

saw

last

year

that

that

kind

of

decrease

in

DSOs

went

from

70

down

to

the

mid-40s.

So,

you

had

this

kind

of

one-time

influx

of

cash

and

that's

the

comp

that

you're

looking

at.

That's the

last

year

comp

you're

looking

at.

Right

now,

our

DSOs

are

in

the

high –

mid-high

50s,

which

is

–

I

mentioned

it,

I

call

it

a

reasonable

level.

We'd

like

to

bring –

we'd

like

to

see

the

number

down

in

the

low

50s

rather

than

in

the

mid-high

50s,

but

it's still

a

reasonable

number.

But

it's

grown

up

from

the mid-high

40s

up

to

the

high

50s.

And

so,

that

consumes

some

cash

along

the

way.

We

don't

feel

like

we

have

any

kind

of

an

AR

problem.

I

know

as

we

look

at

the

–

as

we

look

at

the

balances

and

in

our

expectations

for

collections

and

our

write-off

history

has

been

just

phenomenal.

So,

we

don't

see

any

issues

there.

We

–

like

I

said,

I

would

expect

that

DSO

number

comes

back

down

into

the

lower

50s,

that's

going

to

create

some

less

strain

on

usage

in

working

capital.

And

then,

the

seasonality

of

our

Q4

such

that

it

tends

to

be

a

high

cash

quarter

for

us

both

around

our

billing

cycles,

but

also

because

of

our

tax

credits

and

the

cash

flow,

the

one-time

a

year

tax

–

cash

flow

that

comes

from

those

tax

credits

is

in

our

Q4.

A
Andy Nguyen
Analyst, Raymond James Ltd.

Got

you. Thank

you.

I'll

come

back

in line.

P
Peter Brereton

Thanks.

Operator

Thank

you.

[Operator Instructions]



And

at

this

present time –

actually,

we

do

have

one

question,

it

comes

from

the

line

of

John

Shao

of

Finance –

my

apologies,

National

Bank

Financial.

Please

go

ahead.

J
John Shao
Analyst, National Bank Financial, Inc.

Hey,

good

morning,

guys.

I

just

have

a

quick

question

on...

P
Peter Brereton

Hey,

John.

J
John Shao
Analyst, National Bank Financial, Inc.

...hardware

revenue,

17%

quarter-over-quarter

increase

that

looks

really

decent.

So,

I'm

just

curious,

how

should

we

read

about

this

quarter-over-quarter

increase

given

the

fact

that

the

supply

[indiscernible]



(50:14)

is

still

fragile

today?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

I

missed

the

very

beginning

of

that,

John,

which

–

were

you talking

about

a

revenue

line

there?

J
John Shao
Analyst, National Bank Financial, Inc.

Hardware

revenue,

the 17%

quarter-over-quarter

increase.

Just

how...

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

J
John Shao
Analyst, National Bank Financial, Inc.

Yeah,

how

do you

look

into

that

number?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

Yeah,

that's

–

it's

a

tricky

one,

John,

and

it's

a

tricky

one

for

us

to

call.

That

was

a

big

outsized

quarter

for

us.

If

you

look

at

our

history,

now

it

was

a

– of

a

large,

outsized

quarter.

We

have

–

still

have

some

pretty

robust

pipeline

there

and

some

pretty

robust,

I

should

say

we

have

some

pretty

robust

backlog

there.

Some

of

that

stuff

is,

we

do

have

some

I

would

say

some

trickiness

with

supply

chain,

getting

this

stuff.

It's

the

vast

majority

of

what

goes

through

there

is

third-party

stuff.

We

do

have

a

little

bit

of

proprietary

stuff

that

we

put

together

and

sell

there.

And

we

have

a

supply

chain,

some

supply

chain

issues

on

that.

So,

it's

kind

of

hard,

it's

kind

of

– it's

even

hard

for

us

to

determine

with

a

level of

accuracy

when

that

backlog

is

going

to

ship.

So,

I

think,

long

story

short,

I

think

that

what

you

saw

in

that

Q3

was

an

outsized

hardware

quarter. But

we

do

have

some

pretty

reasonable

backlog

for

that

now

still

today.

J
John Shao
Analyst, National Bank Financial, Inc.

Okay,

thanks.

Another

question

on

the

– it's

on

the

gross

margin.

43%

for

the

quarter,

which

is

down

from

45%

from

last

quarter.

So,

I'm

just

curious,

how

should

we

see

that

–

how

should

we

see

the

trend

of

the

gross

margin

in

the

upcoming

quarter?

And

how

much

is

this

– is

this

quarter's

gross

margin

decline

related

to

the

FX?

M
Mark J. Bentler
Chief Financial Officer, TECSYS, Inc.

Yeah.

Yeah.

So,

a

couple

of

things

there

like

that

48% –

43%

sort

of headline

gross

profit

margin

number

compared

to

48%.

So,

there's

a

5%

swing

compared

to

last

year.

If –

so,

I'd

dissect

that

in

a

couple of

different

ways.

Number

one,

if

you

look

at

our

SaaS

maintenance,

support

and professional

services

margin,

it's

– it

was about

47%

in

that

quarter.

So,

just,

like,

in

an

absolute

sense,

it's

a

higher

number.

It's

a

more

robust

number.

That

sort

of

level,

I

think,

is

probably, we're

still

sort

of investing

there.

So,

I

don't

think

that's

an

unusual

margin

level

for

the

near

term

there.

What

is

going to

make

the

thing

move

around

is

the

mix.

So,

that,

our

headline

number

was

43%,

but

our

SaaS

maintenance,

support

and

professional

services

number

was

47%.

So,

the

hardware

number,

which

is

the

lower

margin

number,

is

diluting

that

profit

margin

down

to

43%.

And

then,

number

two,

if

you

compare

the

43%

to

the

48%,

there's

like

a

5-percentage

point

swing

in

that

headline

number.

And

as

I

mentioned

in

the

in

the

comments,

there's

three

things

in

there.

There's

FX,

there's

mix

and

there's

investment

like

there's

also

cost

increase

investment.

And

if

you

look

at

how

those

contributed

out

5%,

FX

is

about

2%

of

that

5%,

2

percentage

points

of those

5%,

revenue

mix

is

about

2

percentage

points

of

those

5%

and

cost

investment

is

about

1

percentage

point

of

those

5%.

J
John Shao
Analyst, National Bank Financial, Inc.

Okay.

Thank

you

much.

Appreciate

the

color.

Operator

Thank

you.

[Operator Instructions]



And

at

this

present

time,

no

one

else

has

registered

for

any

questions.

Please

continue

with

your

presentation

or

closing

remarks.

P
Peter Brereton

Thank

you.

Well,

that

concludes

the

question-and-answer

session.

Just

one

overall

comment

to

make

I

think

with

regard

to

a

number

of

these

questions,

the

stock

market

has

continued

and

the

investment

community

has

continued

to

sort

of

shift

priorities

from

growth

to

profitability

and

with

probably

more

recent

emphasis

on

profitability

and

maybe

less

on

growth.

And

so, in

that

sentiment

tends

to

move

around

a

little

bit.

We

continue

to

run

a

long-term

game

plan

here

that

calls

for

a

heavy

emphasis

on

growth,

investing

in

growth

as

much

as

possible

to

drive

a

solid

growth

in

the

top

line

and

particularly

solid

growth

in

the

SaaS

members

while

trying

to

respect

a

reasonable

level

of profitability.

So,

that

continues

to

be

our

strategy.

We

continue

to hold

the

line

on

that.

And

certainly,

as

you

interpret

these

numbers

and

look

forward

to

future

quarters,

you

can

know

that

that's

what

we're

trying

to

do.

Sometimes

there's

lumpiness

gets

pushed

around

a

little

bit,

but

the

goal

is

primary

emphasis

on

growing

that

SaaS

number,

but

maintain

profitability

at

a

reasonable

level.

Okay.

But

that –

it

concludes

our

call,

and

thank

you

for

joining

us.

And

as

always,

if

you

have

additional

questions,

please

do

not

hesitate

to

give

Mark

or

I

a

call.

Thanks

and

have

a

great

day.

Operator

Thank

you.

That

does

conclude

the

conference

call

for

today.

We

thank

you

for

your

participation

and

ask

that

you

please

disconnect

your

lines.