Tecsys Inc

TSX:TCS

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, everyone, and welcome to Tecsys Fourth Quarter and Full Year Fiscal 2021 Results Conference Call. Please note that the complete annual and fourth quarter report, including MD&A and financial statements, were filed on SEDAR after market closed yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. 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 the call is being recorded on Wednesday, June 30, 2021, at 8:30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir.

[Peter Brereton, CEO, President & Director]

Thank you, and good morning, everyone. Thank you for joining us on today's call. It goes without saying that fiscal 2021 was a year like no other. Over this time, COVID-19 has had a profound effect on the entire world. Unprecedented challenges tested our business and industry in ways we could never have imagined last year at this time. The entire Tecsys team came together not only to successfully navigate these challenging times, but also to position the company to emerge from this global crisis even stronger. As we will cover in detail, we closed Q4 with our, pardon me, ninth straight record quarter in terms of revenue and the strongest pipeline in company history. I want to thank all our employees and partners around the world for the hard work and dedication they demonstrate every day to support our customers, one another and their communities. It has been inspiring to see the organization rally together. Throughout, our team is focused on serving our customers, delivering on our commitments and bringing new accounts into our customer community. I'm incredibly proud of what Tecsys has been able to accomplish, reflected in our ability to sustain growth trajectory before, during and now after the pandemic even stronger both year-over-year and quarter-over-quarter. After market closed yesterday, we issued our fiscal 2021 fourth quarter and year-end financial results, and a copy of those results is available on SEDAR and on our website at tecsys.com. The full year results are audited. Joining me today is Mark Bentler, our Chief Financial Officer. I will start by summarizing the key events of fiscal 2021 and results of operations. Mark will then walk us through the financial results in more detail. And finally, I'll comment on our outlook, followed by a Q&A session. First, I'd like to review the continued positive momentum in our transition to a SaaS-oriented organization. The appetite for SaaS continues to accelerate, and we are very pleased with the progress we are seeing. Transitioning to SaaS has been a strategic initiative for Tecsys, and we continue to see strong results and stronger momentum. SaaS revenue growth was up 107% in Q4 and up 113% year-over-year. 82% of software bookings were SaaS in fiscal '21 versus 77% prior year. SaaS revenue now represents 36% of total cloud, maintenance and subscription revenue, up from 22% last year. The pace at which our SaaS business has expanded is a healthy blend of new customers or new accounts and existing accounts choosing to renew their engagement with Tecsys and convert to a SaaS environment. We see this as a strong endorsement of our SaaS offering and more holistically of our sustained value to our customers. We plan to continue this two-pronged approach of SaaS first selling to prospects and SaaS migration selling to base accounts. With regard to bookings, Q4 SaaS bookings were the second highest quarterly SaaS bookings in company history with only Q4 of last year being higher, and those were essentially pre-COVID sales driven. This impressive SaaS momentum solidifies our thesis for value creation on a macro level. We have learned that not only does SaaS improve the quality of our revenue streams, it has also made it easier for both new and existing clients to buy our software solutions. We see this positive trend continuing and along with our pipeline, believe this bodes well for the future. The growth of our partner network continues to provide excellent opportunities to Tecsys. We continue to invest in building a world-class strategic alliances program and to provide for our partners better governance, co-marketing opportunities and assets, accreditation tools and resources. Our success in fiscal '21 was influenced and amplified by our growing lineup of partners, and we are very pleased with our channel success as a vehicle for global influence, efficient scalability and rapid brand propagation. We are seeing early dividends of our investment in this effort. In fiscal '20, partner influence new account wins represented 22% of bookings. This jumped to 46% in fiscal '21. The effects of the pandemic offered Tecsys what we perceive to be an acceleration of market opportunities. We have responded to this by increasing investment in channel and direct sales development and marketing programs to boost our ability to gain more market share rapidly. This is proving to be a successful strategy. We continue to dominate in the health care supply chain space. We anticipated the stress of COVID on the health care sector and on their supply chains, in particular, would provide additional opportunities for us to partner with new and existing customers to address immediate and long-term challenges. In this respect, we delivered. We helped a major U.S. health system establish an emergency off-site warehouse to manage its unprecedented volume of PPE and COVID-related supplies. We supported multiple accounts to enact their emergency preparedness plans within their warehouses. We ramped up services for pop-up and reserve warehouses, and our consolidated service model was applauded a significant value-add in the face of these disruptions by long-term partners, Parkview Health, Mercy Health and others. At the end of the day, Tecsys proved to be among the best cloud-based solutions available on the market, and we were able to turn that into revenue. Meanwhile, the retail sector continues to undergo widespread slowdown with significant bandwidth still dedicated to short-term tactics over midterm strategy. Retailers pursuing digital transformation at different paces has widened the gap between retailers able to satisfy customers through e-commerce channels and those still struggling to adjust to post-pandemic digital adoption rates. We expect this market to come to life as the retail industry as a whole reemerges from hibernation. We believe that retailers will invest heavily to bridge this digital gap, and that as the retail industry shifts from survival mode to revival mode, our investment in R&D as well as sales and marketing will position us favorably moving forward. The complex distribution market remains a solid source of growth in revenue with positive momentum towards SaaS deployments. In addition to several new marquee logos, including Canada's largest health care logistics provider and a Canadian bank, we have secured new bookings from an international automaker and a global logistics provider among other notables. We have also migrated customers to SaaS environments, including 1 long-time customer who reinvested in Tecsys in order to expand operations from North America to Europe, demonstrating a solid endorsement of the Tecsys platform. While we tend to look at year-over-year performance, we are seeing a number of positive in-year trends that are particularly important as COVID eases and the economy opens up again. The pipeline shift that we noted last quarter towards more new business versus base business is now manifesting in new customer business driving 73% of SaaS ARR bookings in Q4. Included in that new business were 2 new IDN wins in the quarter. Our sales pipeline continues to suggest that solid new business bookings should continue. All 3 sectors contributed to our performance this year with expansions and renewals by existing customers shoring up the slower pace of new account growth. Our ARR is up 18% year-over-year on a constant currency basis but was impacted by the weakening U.S. dollar since about 2/3 of our ARR is in that currency. Adjusted EBITDA is up by $5.9 million or 58% year-over-year. As our business grows, we continue to add to our head count to keep pace with our global head count up 27% over last year. We continue to invest in operations fairly aggressively. In Q4 alone, we expanded sales and marketing head count by 12% and continue to invest in development, delivery and support capacity. We should note that this will add to our run rate cost, unfavorably impacting profitability, especially as exchange rates have shifted quite substantially, creating some margin headwind and travel costs are certainly expected to go up as COVID restrictions ease. We continue to navigate remote and in-person work and anticipate a well-balanced return to work in the weeks and months to come. While remote implementations have been successful, once travel is more normalized, we need to evaluate how best to preserve customer satisfaction and speed up our time to go live. We are observing some degree of customer fatigue with a full implement from home model, and we need to make sure that we do not overburden customer resources to maintain customer satisfaction levels. Mark will now provide further details on our financials for the year and the quarter.

[Mark J. Bentler, CFO & Secretary]

Thanks, Peter. We're pleased to be able to report record revenue for both the fourth quarter and fiscal year '21. Recall that our fourth quarter and fiscal '21 year ended on April 30. I will now review the quarter and then after that, the year-to-date performance in more detail. In the fourth quarter of fiscal '21, total revenue was a record $32.4 million, 17% higher than $27.7 million reported for Q4 of '20 in spite of foreign currency headwinds. The weaker U.S. dollar, partially offset by the company's hedging of U.S. revenue, gave rise to a net unfavorable foreign currency-related revenue variance of $1.3 million in the fourth quarter of fiscal '21 compared to the same quarter last year. Our largest revenue streams, cloud, maintenance and subscription revenue and professional services revenue, both experienced strong double-digit growth. Driven primarily by SaaS deployments, our cloud, maintenance and subscription revenue increased 30% year-over-year to $13.8 million in Q4 '21 from $10.6 million in Q4 of the prior year. SaaS revenue in the fourth quarter of fiscal '21 was $5.5 million, up 107% or over $2.8 million compared to the fourth quarter of last year. SaaS revenue represented 40% of total cloud, maintenance and subscription revenue in Q4 of '21, and that's up from 25% in the same quarter of last year. Professional services revenue for the fourth quarter was $12.1 million, up 12% from $10.8 million reported for the same quarter last year. In the fourth quarter of fiscal '21, proprietary products revenue, which we define as revenue from internally developed products, including proprietary software sold as perpetual licenses and proprietary hardware technology products, amounted to $1.3 million. That's down $0.4 million or 21% compared to the same period last year. This decline resulted from a decline in perpetual license revenue as we continue to focus on SaaS. Third-party products revenue increased in the fourth quarter by 19% to $5.0 million from $4.2 million reported in Q4 of '20. As mentioned by Peter earlier, fourth quarter SaaS bookings measured on an ARR basis were the second highest quarterly SaaS bookings on record at $3.5 million. Second only to the fourth quarter of fiscal 2020, which was 14% higher at $4.1 million and which were largely pre-COVID-driven sales. Importantly, Q4 fiscal '21 SaaS bookings were up $2.5 million or 252% sequentially from Q3. Perpetual license bookings in the fourth quarter of fiscal '21 were $0.8 million compared to $1.4 million in the fourth quarter of fiscal '20. Professional services bookings in Q4 '21 were down 58% to $8.7 million from a very high $20.7 million in Q4 of '20. Professional services bookings are in part linked to SaaS subscription bookings and license bookings and are subject to timing. Q4 2021 bookings were negatively impacted by timing of signature on a large professional services order associated with the fourth quarter SaaS deal. The SaaS order was signed in the fourth quarter of fiscal '21, but the professional services order was signed in the first quarter of fiscal '22. Q4 of 2020 bookings were also positively impacted by a large multiyear professional services order associated with the Q4 2020 SaaS deal. At April 30, 2021, our professional services backlog stood at $33.6 million. That's down slightly from $35 million at April 30, 2020. Our professional services backlog remains solid, and we believe this backlog will continue to support strength in professional services revenue in the coming quarters. Total ARR at April 30, 2021, was $52.5 million, up 9% compared to $48.1 million at April 30, 2020, and up 3% from $50.8 million at January 31, 2021. A significant amount of SaaS backlog in ARR is denominating currencies other than Canadian dollars, as Peter mentioned. Foreign exchange movements, primarily the weakening U.S. dollar, had a $1.5 million and $3.9 million negative impact on ARR during the quarter and year ended April 30, 2021, respectively. On a constant currency basis, ARR grew 6% sequentially from Q3 to Q4, and 18% for the year ended April 30, 2021. Recall that SaaS backlog represents revenue that we expect to recognize in the future related to SaaS performance obligations that are unsatisfied or partially satisfied at the reporting date. This is also sometimes referred to as SaaS remaining performance obligation, or RPO. On April 30, 2021, SaaS backlog was $65.7 million. That's up 26% from $52.0 million at April 30, 2020, and up $8.1 million or 14% sequentially compared to January 31, 2021. For the fourth quarter, total gross profit increased to $15.7 million, up 22% from $12.9 million reported for Q4 of '20. Total gross profit margin increased to 49% in Q4 of 2021 compared to 46% reported in Q4 of 2020. This increase is driven by higher service margin and tempered by a lower mix of license and higher mix of third-party hardware. Switching now to our expenses for the fourth quarter. Operating expenses increased to $13.1 million, higher by $0.8 million or 6% compared to $12.3 million in Q4 of 2020. While we continue to invest in our -- for growth, we also continue to see lower travel costs in Q4 of 2021. With COVID-19 travel restrictions currently easing up in the United States and Canada, we expect travel costs to increase in the coming quarters. As Peter mentioned, we also expect run rate cost to increase as we continue to invest for growth. Profit from operations was up 343% to $2.6 million compared to $0.6 million reported for Q4 last year. The increase in profits was a result of higher levels of professional services and cloud, maintenance and subscription revenue as well as lower travel costs. All this provided stronger margin contribution and was partially offset by lower product margins, higher R&D costs and higher sales and marketing costs. Adjusted EBITDA was $3.9 million in Q4 of '21, up 101% compared to $2.0 million reported for Q4 of last year. Again, strong cloud, maintenance and subscription as well as professional services contribution were the performance drivers. Net profit was $2.0 million or $0.14 per basic and fully diluted share in Q4 of '21 compared to $0.4 million or $0.03 per basic and fully diluted share reported for the same period in fiscal '20. Now I'll provide details on full year fiscal 2021 performance. Total revenue in fiscal year 2021 was $123.1 million, up 17% from $104.9 million reported for the previous fiscal year. This growth was organic and was led by SaaS and professional services revenue. In comparison to fiscal 2020, the company's partial hedging of U.S. revenue more than offset the decline in the value of the U.S. dollar, giving rise to a net favorable foreign currency-related variance of $0.4 million. Lower reimbursable customer-related travel in fiscal 2021 due to COVID-19 gave rise to an unfavorable reimbursable expense revenue variance of $1.8 million compared to fiscal 2020. Adjusting for these 2 items, fiscal '21 revenue growth would have been approximately 19%. Cloud, maintenance and subscription revenue was $52.9 million, up 29% from $41.1 million reported for fiscal year 2020. This increase was driven primarily by SaaS. SaaS revenue, which is included in cloud, maintenance and subscription revenue, increased to $19.2 million in fiscal 2021, up 113% from $9.0 million in fiscal 2020. SaaS revenue in fiscal 2021 grew to 36% of total cloud, maintenance and subscription revenue, up from 22% in fiscal 2020. SaaS subscription bookings increased 9% to $9.5 million in fiscal 2021 compared to $8.8 million in fiscal 2020. In the first 2 quarters of fiscal '21, a greater proportion of our bookings were from base customers. We saw this trend shift in Q3 and Q4 with a higher proportion of our bookings coming from new customers. Professional services revenue increased to $47.4 million in fiscal year '21, up 17% from $40.6 million in fiscal 2020. Professional services bookings were down 12% to $44.8 million in fiscal 2021 compared to $50.7 million in the same period last year. As I mentioned previously, our professional services backlog remains solid, and we believe this backlog will continue to support strength in professional services revenue in the coming quarters. For fiscal year '21, proprietary products revenue declined 3% to $5.2 million from $5.4 million in fiscal 2020. Perpetual license bookings in fiscal '21 were $4.3 million compared to $4.7 million in fiscal '20. We expect the license bookings will generally -- be generally lower in the future as the shift to SaaS continues, and this will have a negative impact on operating profit in the near term. For the full year fiscal '21, third-party products revenue increased 10% to $17.5 million from $15.9 million in fiscal '20. Total gross profit increased to $60.6 million. That's up $10.3 million or 20% in fiscal '21 compared to $50.3 million in fiscal 2020. The total gross profit margin increased slightly to 49% compared to 48% reported for fiscal 2020. The increase was driven by higher services margin of 52% in comparison to 51% last year, partially offset by a lower product margin of 37% in fiscal '21 compared to 40% in fiscal '20. Now turning to our operating expenses. For the full fiscal year '21, operating expenses were $49.9 million, an increase of 10% compared to $45.6 million reported for the previous fiscal year. This increase is mainly attributable to added personnel expenses, partially offset by lower travel costs. We continue to invest in sales and marketing as well as R&D to support growth, reduced travel spend during the year, which was driven by COVID-19 travel restrictions, resulted in a year-on-year decline in operating expenses of approximately $2 million. For the full fiscal year 2021, profit from operations was up 127% to $10.7 million compared to $4.7 million reported for fiscal 2020. For fiscal '21, adjusted EBITDA was $16.2 million, up 58% compared to $10.3 million reported for fiscal 2020. Net profit for fiscal '21 was $7.2 million or fully diluted EPS of $0.49 a share compared to $2.3 million or $0.18 per share for fiscal 2020. Finally, we ended the year with a strong balance sheet position. At April 30, we had cash and cash equivalents and short-term investments of $45.9 million compared to $37.5 million at April 30, 2020. We had debt of $9.6 million at April 30, 2021, compared to $10.8 million last year. And finally, net cash from operating activities for fiscal '21 was $19.1 million compared to $10.0 million last year. I will now turn the call back over to Peter to provide some outlook comments.

[Peter Brereton, CEO, President & Director]

Thanks, Mark. We entered fiscal 2022 with the strongest balance sheet backlog and sales pipeline ever. As demonstrated by the bookings, which accelerated in the latter part of the year, we believe that the market conditions are growing more favorable as the economy normalizes and our position in our key markets is strengthening. We are well positioned at the nexus of 2 urgent market opportunities in health care and the digital economy, where the supply chain has become a significant focus for strategic improvement. This puts Tecsys in an enviable position to capitalize on the supply chain modernization that is now underway. With revenue streams and sales pipeline diversified across 3 sectors, we are encouraged by the potential for ongoing performance. The early signs of which appear in the latter part of the past fiscal year, in particular, with a return to strength in new customer bookings, showing a promising upward projection as the economy reopens. On the health care front, distressed fractures in the health care supply chain were intensified by the pandemic. The monolithic and outdated supply chain systems installed in the sector showed significant signs of weakness and provided additional opportunities for us to partner with new and existing customers to address immediate and long-term challenges. Looking forward, our own pipeline reveals the massive opportunity ahead. The objections to technology that once dominated the sales process have been largely replaced with strategic conversations about how to mitigate risk, drive efficiency and leverage data more successfully. In the face of unparalleled disruptions, Tecsys proved to be among the best cloud-based systems on the market, capable of handling the logistical demands of a modern health care supply chain operation, while adhering to regulatory and clinical requirements. We will continue to lead in this space and capitalize on this sizable market. Turning to converging distribution. We are confident in being able to take advantage of a shifting landscape that is demanding a greater degree of complexity. The pandemic accelerated existing trends in digital adoption, which has been driving short-term instability, but that is developing into bordering discussions around future resiliency and system modernization, an uptick in sales activity in the latter part of the year and top of funnel pipeline growth gives us good indications that the following few quarters should track along a positive trajectory. In fiscal '22, we look forward to maintaining the strong momentum that is defined this past fiscal year. We expect an accelerating demand for the technology systems that address current shortcomings and legacy supply chain operations and feel poised to gain market share as this demand turns to investment. We are in an excellent position to be able to pursue major short-term and permanent market opportunities in health care and the digital economy and to continue aggressively building our market presence domestically and in key international markets. In general, Tecsys is well prepared at exactly the right time to maximize emergent opportunities across verticals. To best equip ourselves to exploit these market opportunities, we will accelerate investment in channel and direct sales development and marketing programs to gain more market share rapidly. The growth of our partner network continues to provide excellent opportunities to us, and we believe them to be instrumental as we scale globally. Our fruitful partnerships are positively impacting our pipeline, where partner influence has grown from 7% to 19% of total SaaS ARR pipeline year-over-year. Expanding on the success of fiscal '21, we continue to invest in building a world-class strategic alliances program and to provide for our partners better governance, co-marketing opportunities and assets, accreditation tools and resources. We expect this pipeline growth will translate into a significant impact on growth and new logo wins as we move forward, compounded by the idea that partner influenced accounts move more swiftly through the pipeline. Despite all the burdens and restrictions that framed much of our business activity, fiscal '21 was a very successful year. And based on our bookings and backlog, our outlook for fiscal '22 appears solid. As the dust settles from COVID, we have a well-resourced sales and marketing organization that has been designed to support additional planned investment, a more mature partner ecosystem than ever before and a pipeline that carries tremendous opportunity. By leveraging our team, our partners and our existing customers, both our slice of the pie and the size of that pie are growing. In summary, I want to highlight key themes for fiscal '22. First, we will continue to develop and expand our SaaS revenue model. In particular, an annual recurring revenue generation, specifically. We will likewise refine our internal processes and resources to complement the shift to SaaS in order to maintain high levels of customer satisfaction. Second, we will continue to mature our partnership ecosystem. The growth of our partner network continues to provide excellent opportunities to Tecsys. We see these strategic alliances as instrumental in expanding our global presence and capacity to scale rapidly. We are excited by the compounding returns of our focus on partners. Third, we will expand our sales and marketing team aggressively and continue to invest in research and development to be in the best position to effectively exploit the accelerating market opportunities. This accelerated expansion will impact margins on a temporary basis. But given the monumental opportunity that exists as COVID moves into the rearview mirror, we believe the result will be desirable for shareholders. Finally, we will cross-pollinate our software offerings and refine our go-to-market strategy in order to sharpen the value proposition to distinct market segments. We have incredible software assets that we believe are underleveraged in some of our markets. This will allow us to broaden our software offering to existing customers and attract new customers with a wider scope of industry-tailored functionality. Change is what drives our business, and we have just undergone a once-in-a-generation change that has exposed multiple critical supply chain execution efficiencies. We have an incredible opportunity to address the most pressing challenges today in health care and converging distribution markets. Our target markets are in need, our software is ready, our sales and marketing teams extended by our partners are groomed and geared up, and we're looking forward to a great year ahead. With that, we will open up the call for questions. Thank you.

[Operator]

[Operator Instructions] And our first question is from Amr Ezzat from Echelon Partners.

[Amr Ezzat, Analyst]

Congrats on another solid year. Very nice rebound on SaaS bookings for the quarter. You spoke to a few new logos, but just wondering if the booking strength is broad-based. Or is there a specific client that's contributing the lion's share of that?

[Peter Brereton, CEO, President & Director]

No, it was pretty broad-based, like there is a number of new accounts in there across sectors. We were really happy to see 2 new IDMs join us in the quarter. Obviously, that's a critical sector for us. But no, there's no elephant in there. It was pretty broad-based.

[Amr Ezzat, Analyst]

Okay. That's good to hear. On revenue mix, it's now a couple of quarters of very strong third-party products. Anything to read there? Or is it just where you guys are in the delivery cycle?

[Peter Brereton, CEO, President & Director]

Mark, I don't know -- you may want to comment on that. I mean I -- generally, what we're seeing is that, particularly in the health care sector, we are starting to see more extensive rollout in clinical areas. That more extensive rollout in clinical areas is in turn driving some sales of additional hardware from RFID-based products to even basic storage type stuff for those clinical areas. So that's having an impact.Coming out to COVID too, I think you're going to see a little bit of ebb and flow around third parties. Over in Denmark, for instance, there were a few months where virtually nothing shipped because the country was in lockdown, and then there was some catch-up as it came out of lockdown and so on. So I think you're going to see that bounce around a little bit. There's also shortages, right? So your -- some quarters are impacted by shortages of chips and that kind of thing. And then suddenly, we get a bit of a catch-up, and it all blows in. So I think that number is just going to bounce around for a while.

[Amr Ezzat, Analyst]

Okay. On professional services, I guess you guys maintained close to record numbers, and that's despite the FX headwinds. Are you at maximum utilization now? Then related to that, we've been seeing a lot of companies in and out of tech struggle with labor shortage in IT. What challenges are you guys facing? And how are you dealing with it?

[Peter Brereton, CEO, President & Director]

We are near capacity, I would say, now in professional services, but we're not at it. We expanded pretty dramatically during the year, during fiscal '21. There were times during the year where we were sort of really short on resources. We caught up towards the end of the year. We're now seeing booking of services rolling in fairly strongly at this point. So there's sort of a little bit of capacity we have available there I think will get taken up in the next sort of 60 to 90 days. So we're back recruiting again in that space. I mean we never really stopped, but it sort of slowed down around Q4. We're picking up the pace again now. In -- you had a second part of that question. What was the second part of the question?

[Amr Ezzat, Analyst]

Yes. Just like we're seeing a lot of like IT labor shortage, like if you could comment on maybe like cost inflation?

[Peter Brereton, CEO, President & Director]

Right. Right. Yes, you know what, we're doing okay on that front. We brought in 2 -- a couple of dedicated recruiters that have joined our HR team last year. We added another one in the U.S. a few months ago. And that team is just doing a phenomenal job for us. It is an active market. You've got to be competitive. You've got to be a great place to work. You've got to provide good career opportunities. But thankfully, we do that. We provide good career opportunities, sort of fun place to work. And with these 3 recruiters as well as, of course, Mark and I being such nice guys, it just helps people want to work here.

[Amr Ezzat, Analyst]

Fantastic. On the -- I believe it was you, Peter, you said that in Q4 alone, you had a 12% head count increase in sales and marketing. I see like quarter-on-quarter, the sales and marketing expense is up 11%. Just wondering how much of that head count increase is already reflected in your Q4 numbers?

[Mark J. Bentler, CFO & Secretary]

Yes. It's -- there's -- those -- a lot of those hires were definitely not fully loaded into that quarter, which was kind of the point of that comment. In fact, one of those hires even started in Q1 of this year. So that hasn't quite caught up to that run rate number yet.

[Amr Ezzat, Analyst]

Okay. Great. Maybe one last one. Peter, maybe you could give us an update on the capital allocation strategy. You're sitting on a good amount of cash. The business is now generating good free cash flow as well. I think last time you've updated us a couple of quarters ago, you guys had your hands full executing on organic opportunities, at least that's the message I took. So what are you guys thinking now? And how is the M&A pipeline looking?

[Peter Brereton, CEO, President & Director]

Yes. We're actually putting an increased focus on building out a pipeline in Western Europe to further expand in Western Europe. But our overall sort of position hasn't changed. If you look at our bookings over the last few years, take sort of the last 3 years, and it's a bit tricky because you're -- the first year of those, let's say, last 3 years, was much more license revenue based, and then we began the transition to SaaS. And this was -- last year, it was pretty much SaaS. But if you sort of normalize for that and say, okay, what are the bookings? How many new seats are we selling? How many new human beings coming on to the platform kind of thing and normalize for the shift in revenue strategy? We've been growing our bookings at sort of 50% to 60% a year over the last 3 years. So that -- what we're seeing is it's taking a couple of years for that to turn into revenue growth. So we've seen the actual revenue growth number sort of climbing. We've seen pretty strong climb on the SaaS side. So we're looking at that and saying, if -- when you're growing your bookings at 50% a year, you don't really need acquisitions to create huge value for shareholders. At the same time, in support of those bookings, we still need stronger coverage in Western Europe. So we're trying to sort of balance this off. Berty is back working very aggressively on trying to build out a pipeline of opportunities in Western Europe. If we tap into that cash pile, I think that's where it will probably go. But the focus still in the -- is very much protecting and enhancing that organic growth.

[Operator]

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

[Nick Agostino]

I guess a couple of questions for me. First, when we look at the professional services number, obviously, there's a little bit of a bookings. [ After ] that is a decline quarter-over-quarter. Can you -- you talked about saying that it somewhat timing related on capacity as the [ pain ] part. And then I think, Mark, you highlighted there was a SaaS deal that you signed in fiscal Q4, but the associated professional services component wasn't done until fiscal Q1. If I heard correctly, can you just quantify maybe how much that piece of business was on the professional services side?

[Mark J. Bentler, CFO & Secretary]

Yes, I would, Nick -- I would say, I wouldn't be comfortable commenting on a particular deal size, but I would sort of color it this way. Our current quarter PS bookings right now, like as of the end of June are almost caught up to what we did in Q4 last year.

[Nick Agostino]

Okay. That's helpful. And then I think last quarter, we talked about pipeline activity that if I think about fiscal Q3, it sounded like it was dropping off towards scale into that quarter. For fiscal Q4, at least the beginning of that quarter, was very strong, and I think halfway through the quarter, you said that the activity was equal to what you did in fiscal Q3, if I recall correctly. Can you just maybe talk us through how the rest of that quarter played out? And more importantly, how just the Q1 is looking for you in terms of pipeline activity?

[Peter Brereton, CEO, President & Director]

Yes. I mean the sales activity, the pipeline activity is actually -- I mean the entire sales team is very, very busy right now. So there seems to be a catch-up in demand that has happened, projects that were originally intended to be initiated in calendar 2020. Decisions were made to delay until they were sort of out of the worst of the pandemic and back to some sense of normal. Those seem to be now going into high gear. At the same time, there's still all of the usual challenges of actually finally getting the deal signed. These are -- these tend to be fairly complex legal agreements, and legal teams right now are backlogged with getting agreements done. It's not only purchases like ours that were held up, but a lot of projects were held up. As those are all now being greenlit, you end up with just the contracting and procurement process becoming the bottleneck. So we're working through that now. We were pleased to see what closed in Q4. If you look at Q4 of '21 versus Q4 of '20, it -- I mean, once you adjust for currency, I don't know what the final math would be, but once you adjust for currency, Q4 of '21 might have even been ahead of Q4 of '20. And as we come into Q1 of '22, we don't know yet how the quarter is going, and of course, we still have a month to go, and our quarters are still somewhat hockey sticked in terms of how the bookings come in. But the pipeline activity is certainly very exciting. I don't remember June where we were anywhere near this busy.

[Operator]

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

[Meng Shao, Associate]

This is John from National Bank. Congrats on a strong quarter here. So the first question is with vaccine rollout and the openings in North America and part of U.S., could you please just give us an update on your business activities in the quarter so far? And in other words, how do you -- how should we look at the growth trajectory in the post-pandemic scenario?

[Peter Brereton, CEO, President & Director]

Yes, tough question. I mean we're -- because we've got all these various -- sort of all these various factors that come into effect the growth trajectory. We -- I mean, last year, fiscal '21, we had an effective exchange rate really of $1.35 on the U.S. dollar. If you look at where we're at today, that was a combination of sort of actual exchange rate through the year and our hedging strategy gave us an effective rate of about $1.35. This year, we're likely to have an effective exchange rate of, what, sort of $1.23, something like that. So you're dropping from $1.35 to $1.23. That's 12 points down on 70% of our revenue. So that sort of pulls the revenue trajectory down. On the other hand, as I mentioned, we've had sort of 3 years of very substantial bookings growth, and that is sort of washing through into revenue. And our pipeline is not only larger than it's ever been, but it's moving faster than it's ever been. We're seeing -- even in health care, we're seeing deals enter the pipeline and get through to contracting in 6 months. We've never seen that happen. Typical health care deal in a few years ago was 18 to 24 months to get it from initial contract to signing.So a lot of changes happening. We don't give forward projections beyond sort of -- we do give a bit of a projection on what we think professional services revenue will be in the next quarter because that's more predictable for us, but we don't give sort of overall growth projections going forward. But -- so we're looking at this year and saying, it looks like a pretty exciting year. We expect a strong year for bookings. The actual revenue number will be impacted by currency. But all in all, it looks like a good year for value creation. And I'm sorry if that -- it seems like an evasive answer, but I think that's about the best I can do for you.

[Meng Shao, Associate]

Yes. That sounds great. Speaking of health care, I guess, that actually draws a lot of interest from the investor because of the vaccine rollout. Maybe just give us some detailed examples of how Tecsys solution could play in an administration of vaccine. Does that require any modification or just a plug in and play?

[Peter Brereton, CEO, President & Director]

That was -- I mean, we were -- we actually rolled out a small module to help some of our customers with actual vaccine administration. But in fact, just due to the speed with which this thing hit and even the uncertainty around timing of vaccines, and then when they finally rolled out, they rolled out and so en masse. Most customers and organizations and governments, just stuck with whatever they had. So you're -- we've seen -- we actually were involved in a lot of discussions with a lot of clients. But in the end, most of them just stuck with, let's say, whatever electronic medical record system they had or, in some cases, literally using spreadsheets and paper-based systems to track this stuff. So we didn't really end up doing much business directly related to vaccine distribution. There's a little bit of it, but not a lot.

[Operator]

Our next question is from the line of Steven Li with Raymond James.

[Steven Li, Director & Equity Research Analyst]

Peter, on health care, again, how many sales reps do you have currently? And maybe how many do you expect by year-end this year?

[Peter Brereton, CEO, President & Director]

Yes, we started fiscal '21 with 5 dedicated health care reps. We ended fiscal '21 with 10 dedicated health care reps. And at this point, Mark, I think in our plans, we expect to end fiscal '22 now with sort of 14 or 15, right, I think, is the current thinking?

[Mark J. Bentler, CFO & Secretary]

Yes, yes. That's right.

[Peter Brereton, CEO, President & Director]

So we've actually -- we had been talking about trying to get to 12 by the end of this past year and then to be at 20 by the end of this coming year. We're seeing that the efficiency of a given rep is rising enough that we think the 10 we ended the year with and that sort of 14 or 15 by the end of this coming year is more appropriate given the volume of business that it seems that a single rep can drive.

[Steven Li, Director & Equity Research Analyst]

So then, is it a straight-line relationship or even better based on your comments? So if you're signing 6 to 7 new IDNs per year right now, and you double your headcount, so once we are up to speed, you fully expect to sign 14, 15 IDNs per year?

[Peter Brereton, CEO, President & Director]

That's the objective. In fact, I mean, if you look out over the next few years, I mean, we're currently in the low 40s, whatever we are, 44, 45 IDNs or something like that. We -- our objective here is over the next sort of 4 years to get to 100 IDNs. And we think if we can get to 100 IDNs, that puts us in a position where we effectively sort of own the health care supply chain market. I mean that just puts you in such an unassailable position. So that's the objective. To get there, we would have to get to that kind of level, and that's what we're aiming towards. So if 2 years from now, we're closing sort of 12 to 15 a year and by 3, 4 years from now, we're closing 18 to 20 a year, that would be -- I think that would be a very good result.

[Operator]

Our next question is from Gavin Fairweather with Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

I just wanted to start out on the channel. You provided some good stats in terms of the number of partner influenced deals in the pipeline. I guess I was more curious on the service delivery side, what maybe portion of the services are being implemented and delivered now by channel versus your internal team and how you expect that to shift over time, just given some of your commentary around running pretty flat out on your internal capacity.

[Peter Brereton, CEO, President & Director]

Yes, interesting question. I mean we try to estimate that a little bit based on what we know of our partners' revenue off of our projects. It's hard to be precise because, of course, that revenue doesn't go through our books. But if I were to hazard a guess based on projects that are going on now, I would say somewhere around 30% of the services is now being carried by our partners. What makes it harder, even harder to judge, of course, is some of the work being done by our partners is work that, in other cases, is actually done by the clients themselves. And they just have to decide are they going to do it with their own in-house people or are they going to use consultants to help them get it done. So it is hard to be precise, but it's rising. We got Avalon right here in Toronto and Montreal, for instance, they are at a point where they can do 70%, 80% of the project. So we're typically still involved in actual software config and that kind of thing, but they are carrying the bulk of the project in a number of cases. In other cases, some of the larger SIs, they are tending to focus more on project management, change management, end-user training, that kind of thing, and we still carry a more substantial portion of those projects, so it's -- it varies. But if I were to give you a number, I think it would be around 30% of the total work being done is now being handled by partners.

[Gavin Fairweather, Analyst of Institutional Equity Research]

That's great. That's really helpful. And then maybe for Mark, I mean, the SaaS ARR continues to grow really quickly here. You're now over $20 million on that ARR base. Can you just comment on kind of the gross margin profile at your current level of scale? And how you think about some additional kind of margin lift as that revenue line continues to grow?

[Mark J. Bentler, CFO & Secretary]

Yes. I mean we're still suboptimal on our SaaS margins for sure at these levels of scale. I mean we're running SaaS margins that are sort of sub-60%. And we think with scale, we're doing some things with our development investment to make the platforms operate more efficiently on public cloud infrastructure, in AWS and Azure, which is the public cloud infrastructure that we use. And we think that will bring the cost of that portion of our SaaS business down. And we also think that as we continue to scale up and size our ability to get better pricing and discounting on that, those infrastructure costs are going to increase. So we're focusing a lot of development energy on this as well as making sure that our cloud operations team can scale in creating that organization, investing in that organization, so that it's robust and can scale well. And I think that's where we see real potential and going from sort of sub-60 to high-60s, I think, is probably reasonable, maybe even conservative.

[Operator]

Mr. Brereton, we have no further questions at this time. You may continue with your presentation.

[Peter Brereton, CEO, President & Director]

Great. Thank you. Well, that concludes the question-and-answer session. So thank you for taking the time to join us on today's call. Somehow this Q4 year-end call always seems to be a very long script. So I apologize for that as we try to sum up Q4 and the full year. But I promise the Q1 script will be shorter. Anyhow, if you have any additional questions, please don't hesitate to give Mark or I a call. We look forward to talking to you at the end of the summer to discuss our first quarter results. Thanks, and have a great day.

[Operator]

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