Tecsys Inc

TSX:TCS

Earnings Call Transcript 2024-Q4

[Operator]

Good morning, everyone. Welcome to Tecsys Fourth Quarter and Fiscal Year 2024 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. The company has added a companion presentation to today's call, which is available on their website at www.tecsys.com/investors.

Some of the statements in this conference call, including the question-and-answer period, may include forward-looking statements that are based on management's beliefs and assumptions. Actual results may differ materially from such statements.

I would like to remind everyone that this call is being recorded on Friday, June 28, 2024, at 8:30 AM Eastern Time.

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

[Peter Brereton, executive]

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

As most of you have likely seen in the results issued last night, fiscal 2024 has been an outstanding year for our organization, marked by significant achievements and strong organic growth. Our year-over-year SaaS revenue is up 39% and our RPO continues to grow up 43% over last year. Our momentum continues across the board with emerging opportunities in new marketplaces and a clear path for sustained performance. Our vision for growth is sharper than ever, supported by investment in technology and an obsession with customer success.

I'd like to take a moment to summarize the key events of our Q4 and full year results for fiscal '24. 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.

If you're following along in the companion deck, I'll be speaking to Slide 3. Q4 has been a fantastic capstone for the fiscal year as we continue to break our own records. We achieved the highest quarterly revenue in our company's history. We achieved the highest SaaS bookings in our company's history, including migrations and expansions across verticals, and we welcomed 2 new health care IDNs. Our bookings this quarter were up 108% over last year and 37% higher than our best quarter ever. While we hardly expect this to be the new run rate, we're very happy with this high watermark in quarterly bookings, which brings our fiscal year bookings to a 13% increase year-over-year.

On to RPO. Due to strong bookings as well as extensions and renewals in fiscal 2024, our SaaS RPO is growing at a healthy clip, up 43% to $197 million compared to the same time last year. Just thinking about that a bit, that means that over the last few years, we have built a backlog of SaaS that has something like $130 million of contracted, but unrecognized gross margin contribution that will flow through in the years ahead. That is pretty exciting stuff.

In terms of milestones, a year ago, we announced that we crossed the 50% threshold of our recurring revenue being SaaS revenue. A year later, we're now looking at SaaS revenue representing 64% of our recurring revenue. It's worth mentioning that our positive momentum and growing SaaS customer base is underpinned by very robust growth and net retention levels.

We are cementing our position as the system of choice for organizations grappling with supply chain complexity. From the Texas Children's Hospital, the largest pediatric facility in the United States to Baptist Health, a major health system embarking on a consolidated pharmacy service center and from Truepill, the pioneering digital pharmacy provider to Roche, which I mentioned in our previous call, we are adding top-tier organizations to our customer list that recognize the value that Tecsys delivers. This value is reinforced by organizations like Nissan, Intermountain Health and Mayo Clinic, who are sharing their experiences in panels and presentations like those at our user conference last September as well as the regional workshops through the year or in industry publications like Becker's Healthcare and Fortune.

With this customer growth comes an expanding white space opportunity. In health care, this is especially significant because we often enter an account in a single department or with one solution. As we prove out the value of that solution, our end-to-end health care offering now gives us a lot of flexibility into how we can penetrate further into each account. Earlier this year, we gained traction around the CPSC, or consolidated pharmacy service center model, essentially replicating the successful model that we brought to a health systems, med-surg supply chain and adapting it for the pharmacy. With engagements at St. Luke's, Parkview Health and Baptist Health, we're proving out the model and significantly increasing the white space in our existing base and the total addressable market within an industry where we already have a solid foothold. We seem to be again emerging as the market leader in the CPSC space, and we're very quickly securing wins with major IDNs.

We're also continuing to build and strengthen our partner ecosystem throughout this fiscal year. This effort has proven valuable with 26% of our deals and half of our new logos being partner influenced. As part of our partner program, we became the only WMS provider to achieve AWS supply chain competency in 3 categories, which was announced in January. As previously discussed, we initiated a major restructuring in the fourth quarter to boost long-term profitability. I'm pleased to confirm that the end results came out fairly closely with what we had anticipated. Our expectations regarding the impact on our run rate and the cost we expected to incur were quite accurate. This restructuring was an important step for us as we continue to increase our investment in areas of growth. As we continue to invest in the products we sell in the manner in which we sell them, Tecsys has proven to me among the best cloud-based solutions available in the markets we serve. The steady growth we have experienced affirms our vision and strategy for shareholder value.

Mark will now provide further details on our fourth quarter and the full fiscal financial year results as well as financial guidance on several key metrics.

[Mark Bentler, executive]

Thank you, Peter. We're very pleased with the strong performance in our fourth quarter ended April 30, 2024. I'll start with Slide 4 and focus first on SaaS. SaaS revenue continues to be the key driver for our growth and we believe the key driver for value creation. SaaS revenue growth is driving our recurring revenue. And during the fourth quarter, SaaS revenue growth was 27% compared to the same quarter last year, reaching $14.2 million. The big news, as Peter mentioned previously, is our record-setting $8 million of SaaS bookings in Q4.

Our higher growth SaaS revenue is now poised to overtake professional services revenue as our largest single source of revenue, and we expect this to continue to play out in fiscal 2025 and beyond. Total revenue for the quarter was a record $44 million. That's 7% higher than the same period last year. On a constant currency basis, total revenue growth was 5%. Professional services revenue for the fourth quarter was $14.4 million. That was down 2% from $14.6 million reported for the same quarter last year, but up 11% on a sequential basis from Q3. Professional services backlog continues to be strong at $32.1 million as of April 30, 2024.

For the fourth quarter of fiscal 2024, gross margin was 47% compared to 45% in the same period last year. Combined SaaS, maintenance, support and professional services gross profit margin for the 3 months ended April 30, 2024, was 50%. That's up compared to 47% in the same period of fiscal 2023. SaaS margin expansion was the driver, and we're pleased to report that this continues to track as planned.

Net profit in the quarter was relatively flat at $259,000 compared to $446,000 in the same quarter last year. Net profit in the quarter was negatively impacted by $2.1 million restructuring charges and this was broadly offset by positive comparable impact from foreign exchange and income tax attribute recognition in the current quarter. Adjusted EBITDA was $2.8 million in Q4 of fiscal '24 compared to $2.4 million in the same period last year.

I'm going to turn now briefly to our results for the full fiscal year 2024 and move to Slide 5, if you're following along in the deck. Our total revenue was $171.2 million. That's up 12% compared to $152.4 million in the same period last year and up 9% on a constant currency basis. SaaS revenue for fiscal '24 was $51.9 million, up 39% from $37.5 million in the same period last year and that was up 35% on a constant currency basis.

Our adjusted EBITDA for fiscal '24 was $9.6 million compared to $9.5 million in the same period last year. Basic and fully diluted earnings per share were $0.13 in fiscal '24 compared to $0.14 in fiscal '23. We ended Q4 fiscal '24 with a solid balance sheet position. We had cash and short-term investments of $35.6 million and no debt. Operating activities provided $4.9 million of cash in fiscal '24. And during the year, we used $7.2 million to repurchase shares under our NCIB. Additionally, the Board yesterday approved a quarterly dividend of $0.08 a share.

With respect to financial guidance and now moving to Slide 6, we're providing full year '25 guidance as follows. Number one, total revenue growth between 7% and 9%; number two, SaaS revenue growth between 30% and 32%; and finally, adjusted EBITDA margin between 8% and 9%. Additionally, we're providing adjusted EBITDA margin guidance for fiscal 2026 of between 10% and 11%.

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

[Peter Brereton, executive]

Thanks, Mark. Tecsys performance in fiscal 2024 started out strong and that momentum continued through the year. We have a solid balance sheet and continue to have a robust backlog and sales pipeline. We are seeing widespread buyer intent across our target markets and the opportunity cycles are being accelerated by a highly capable sales team with the tools, the talent and the partners to capitalize on our market that's ready to invest.

As I mentioned earlier, our expanded health care sector offering and growing footprint gives us confidence that the health care market will continue to be an important growth engine for us. We have an exciting value proposition within that pharmacy space with multiple proof points and a growing acceptance of the consolidated service model for pharmacy distribution. Over and above, our IDN business with the added pharmacy white space, we are seeing growth signals in our medical and pharma distribution sector, driven partially by legislative pressure from the U.S. Drug Supply Chain Security Act, or DSCSA, which requires traceability that Tecsys solutions enable.

We are also well positioned to pursue new marketplaces and geographies within the converging distribution space, and we will continue to invest to expand our overall growth. Our distribution business represents a massive market opportunity, and we're still only scratching the surface. We continue to hone our sweet spot there and carve out our share of that pie with rising market indicators driven by fundamental changes to the supply chain industry. Changes spurred by aging legacy systems, digital adoption and a realization that heightened consumer expectations are here to stay.

We are pleased that our fiscal 2024 results continued to demonstrate our dominance in key markets and emerging opportunity in growth markets. The wave of change and system modernization and supply chain management is underway and businesses are actively investing in the tools that they need to adapt to consumer expectations. As we look ahead to fiscal 2025, we are confident in our ability to seize market opportunity and presence in this rapidly growing market in North America and expand our footprint in European markets.

And so in summary, I want to share with analysts and investors some key themes for fiscal '25. First, an emphasis on continuing to refine our SaaS software, so it is easy to use and upgrade and even easier to recommend to peers. Second, a continued strategic partnership approach characterized by deeper and stronger alliances. This helps us tap into new opportunities and fuels our scalability around the world. Third, an emphasis on advancing deepening our health care vertical, covering both med-surg and pharma as we continue to solidify our position as the go-to provider for health care supply chain solutions. Fourth, our continuous evolution of our distribution and omnichannel business platform that takes advantage of innovative technologies and the power of data.

As a final point, I'd like to stress, across our markets, we will prioritize customer satisfaction and success. We have long stood by the philosophy of customers for life. A big part of that formula is to deliver value quickly, stay connected and expand on the value delivered.

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

[Operator]

[Operator Instructions] Our first question comes from the line of Andy Nguyen from Raymond James.

[Andy Nguyen, analyst]

So your fiscal '25 guidance implies slower growth on the top line. Maybe you could share some more color on what you're seeing in the market?

[Mark Bentler, executive]

Yes. Peter, do you want to take that or you want me have a go...

[Peter Brereton, executive]

Yes, sure. I can comment, maybe you can add some detail. But yes, I mean, overall, it's really just a question because our business continues to transition with increasing partnerships and alliances and organizations like whether it be Deloitte or KPMG or RiseNow or Avalon that are assisting us with a lot of implementation. So what you end up with here is a rapidly growing SaaS revenue line, but -- which currently represents, let's round it off here, 1/3 of our revenues. So when SaaS represents 1/3 of our revenues and it's growing in the 30% to 40% range, but most of the rest of the businesses, the trend lines are close to flat. That's what you end up with. You kind of end up with a 10%-ish kind of growth range. So that's what we're seeing.

And I think as the business continues this transition, as SaaS revenues become a higher and higher percentage of the total, that top line growth revenue is going to rise right back up again along with the SaaS. This is probably our last year of transition out of the license model. I mean, maybe you could say last year was, but it's -- the fact is license revenue is now sort of virtually gone. So because of that, your SaaS revenue comes -- while it's finally able to start really shining through no longer being dampened by declining license fees, but it is still -- has to get averaged into what is much, much slower growth, professional services and virtually flat hardware sales.

[Mark Bentler, executive]

Yes. Andy, I would just add to that if you -- hardware for us in '24 was a pretty -- you see those growth numbers, I mean, it was up 21% year-on-year. And if you take that sort of hardware growth out of the numbers, that '24 revenue growth was around 11%. And we expect -- in that 7% to 9%, if you take hardware out of that, we expect that growth rate to actually be higher than 11%. So we're actually seeing accelerating growth here if you strip out the impact of hardware. We entered fiscal '24 with a very robust backlog of hardware that kind of built-up during the COVID years actually where it was kind of hard to get a hold of some hardware stuff. That stuff delivered out beyond proportionally in fiscal 2024. So we actually expect hardware to moderate in 2025 back down to levels that are closer to what we saw in fiscal '23.

[Andy Nguyen, analyst]

Got you. That makes sense. My next question would be about the win rate in your complex distribution. Like do you see that changing? Is it getting better?

[Peter Brereton, executive]

I mean, it's holding fairly steady. I mean, part of it is that that's a market where there's -- it began to get really active about a year ago, but we're really only starting to see deals go to signature now. And so we continue to win our fair share there. I mean, historically, we've won in the sort of 30% to 40% range of those deals. We're trying to ledge that up. We're trying to get that up closer to 50%. There's quarters where it sags below 30%. There's quarters where it does get up higher. But the good news for us is that that market is actually starting to move and sign some deals. So we were pretty pleased with the performance of that particular market in fiscal '24. And we've got great hope for it in fiscal '25.

[Andy Nguyen, analyst]

Perfect. And maybe on the pipeline, complex versus health care, what's the pipeline mix between those? [Technical Difficulty]

[Peter Brereton, executive]

Sir, I lost you there for a bit. You seem to be back now.

[Andy Nguyen, analyst]

Yes, sorry. So I was asking how much is the pipeline mix between complex distribution and health care?

[Peter Brereton, executive]

Mark, what it would be right now? It's got to be close to 50-50, right? Like the thing is our win rate is so much higher in health care that if you've got the same amount -- technically the same amount in each pipeline, you're still likely to book twice as much health care as complex distribution. But I think in terms of total -- if we look at the 12-month pipeline and they're pretty close at this point.

[Andy Nguyen, analyst]

Yes. And then sorry, I was just about to ask. So on the revenue side of view is -- part of view is probably roughly the same too, right?

[Mark Bentler, executive]

Well, actually, our revenue mix is -- it's an interesting question you asked there, Andy. I mean, this is sort of the first point where our health care business has actually just surpassed the complex distribution business in terms of annual recurring revenue. So it's still a pretty even split there. You might know that our legacy business was very much more directed at complex distribution. And more recently, the health care sector has been growing more rapidly. And that's finally resulted only recently in health care surpassing complex distribution as the bigger ARR contributor, but just barely.

[Operator]

Our next question comes from the line of Amr Ezzat from Ventum Financial.

[Amr Ezzat, analyst]

Well, just to close the loop on hardware for 2025, did I understand correctly that we should be looking for flattish hardware in 2025 as opposed to lower year-on-year from what was obviously a huge 2024?

[Mark Bentler, executive]

Yes. I would say, right now, our expectations are I think '24 was a bump up. And I think '25, you should think more about 2023 sort of level.

[Amr Ezzat, analyst]

Okay. Got it. Then maybe if we double-click on SaaS revenues. So as far as like your SaaS backlog and RPO are concerned, they seem to be growing at a higher growth metric relative to what you're guiding for SaaS growth in 2025. 30% is still impressive, but I just wonder -- I'm wondering, like are you guys capacity constrained, be it internally or through your channel partners on delivery or how do I reconcile that like higher sort of SaaS backlog and RPO number to what you're guiding?

[Mark Bentler, executive]

Well, RPO, I mean, the big delta there is RPO is a multi-year calculation, of course. So renewals and renewal timing, which really for us sort of started to kick in -- actually, Q4 was really almost one of the first times where we had some pretty material renewals that actually impacted RPO in some meaningful kind of way. So that started to -- that drove up the RPO growth number.

The other thing is, we've got some customers that are going with longer term contracts. We usually talk about 3- to 5-year contracts. And we saw in that quarter a disproportionate amount on the high side of that and some even higher than that in terms of contract term, which is great because it shows that people are confident enough in us and in our platforms to sign up for longer term contracts. The positive side of that is increasing RPO and in that scenario would increase faster than annual revenue growth.

[Amr Ezzat, analyst]

Understood. That's very clear. Then can you just refresh us on the accounting? Is there like any difference in the margin or the gross margin profile of renewals versus like the initial like contract?

[Mark Bentler, executive]

Not really. I mean, like-for-like renewal on the platform, we're going to get an uptick. Most typically, when we do a renewal, we're going to get a CPI or CPI plus kind of uptick. So that will be maybe a little bit accretive margin, but every year, our costs go up as well. We have a salary increase and all the rest of it. So there's not -- I would say, there's not -- on a like-for-like deal, there's not necessarily much margin expansion.

What typically happens, though, Amr, is that that's the time where -- when people are looking at that and sort of looking at the renewal period and ending up for the next sort of contract period, that's an awesome selling opportunity for us. So that's typically when we're in there working hard to add additional modules and expand the footprint of the platform with that customer. So -- and when that happens, as I think you know, that has a very significant expansion impact on SaaS margins when we add on new modules to existing customers.

[Amr Ezzat, analyst]

Fantastic. Well, maybe one last one, Mike, speaking of like expansions. When thinking about your guidance on SaaS next year, can you give us any high level like the splits of how much of the growth is like new logos versus expansions and migrations? I believe, like less migrations now, but...

[Mark Bentler, executive]

Yes, I think that's right. I think that's what we expect too, Amr, especially on the health care side since we've converted -- a large quantity of those health care customers are already on the SaaS platform. But there's still a lot of opportunity for migrations in complex distribution. But that said, we do see that we're -- we do expect that migration componentry to slow down a little bit.

In terms of the kind of the new versus base splits, I mean, if we look what happens there historically, it runs from sort of 20% -- in the 20% to the mid-40s and even 50% is new business in any given quarter. If you average that out over time, it's sort of in the high-20s, around 30%. And that's kind of how we model this going forward.

If we look at our pipeline and the opportunities that are in the pipeline, I would say, there's more new logo business in the pipeline now than there has been in the past if we looked at the same time last year. However, our win rates on those expansion deals in our pipeline and the sales cycles on those expansion deals are much, much quicker. So that -- we've got a lot of white space in that base, as you know. We're only about -- we're in the 20% level of penetration in our white space in health care. So there's still a lot of opportunity for us there.

[Amr Ezzat, analyst]

Fantastic. And just one last, last one. When you're saying like that 20% penetration, i.e., you could still like upsell or expand like 80% of your pipeline?

[Mark Bentler, executive]

Yes, exactly.

[Operator]

Our next question comes from the line of Gavin Fairweather from Cormark Securities.

[Gavin Fairweather, analyst]

[Technical Difficulty] SaaS growth guide, do you guys expect bookings to be more back-end weighted? And do you plan to grow bookings in fiscal '25? Any color would be helpful.

[Mark Bentler, executive]

Sure. Could you -- I think -- I didn't hear you at the beginning of that. I don't know if it was maybe just on my side. But could you start the front end -- could you start that question over?

[Gavin Fairweather, analyst]

Sure. Just on the SaaS growth guide, do you expect bookings to be more back-end weighted? If you could just talk about the cadence of bookings in the next year, that would be helpful? And then just given that record year in bookings, can you maybe just talk about any expectations for growth year-over-year in that booking figure, that would be helpful?

[Peter Brereton, executive]

Yes. I mean, just one overall comment. I mean, first of all, we don't give bookings guidance. It's too hard to give it. Our accounts tend to be -- that we book, tend to be quite large. And as a result, the bookings are just plain lumpy. Always have been, they'll continue to be that. If you look at this past fiscal year where we ended up at $17 million and change or whatever in bookings. So you're looking at, call it, a $4.4 million or whatever, $4.5 million average quarter. And meanwhile, you can have one booking that's $2 million. It's just too hard to predict that.

At the same time, what I would say is, generally speaking, there is some seasonality to our bookings. Like if you look at our last 10, 15 years, you'll see it, it holds pretty steady. Typically, some exceptions, but typically, the quarter we're in right now that ends July 31 tends to be a little light in bookings. You clean it out for year end, kind of. So May is pretty dry. Starts to come back in June, you get some bookings in the early part of July and then vacations kick in. It's hard to get decision makers in a room to sign off on contracts. So that one tends to be a little light.

Q2 tends to pick up, that's the quarter ending October 31, usually a little bit stronger. Q3, which is November, December, January, tends to get hit with a lot of vacations. Again, you got American Thanksgiving in there, you got Christmas in there and so on. It tends to be a little bit slower. And then Q4 is typically quite strong with sort of no real vacations in there. February, March, April is kind of just work, work, work. So it's a good time to get a lot of business done.

So it tends to kind of follow that pattern. And because of course we continue to grow, typically it does tilt towards the back end of the year. But I would also say, Mark, I think you would agree that the fiscal '24 that just ended was tilted far more to the back end of the year than we typically see. And I think the reason for that is what was going on in the health care market. I mean, calendar 2023, and I think I might have mentioned this last call, calendar 2023 was a year that was characterized by like 10 -- roughly 10 months of negative cash flow for the average American hospital network. And it was really November before they started turning cash flow positive.

So there was a lot of hesitancy in that market during that time period to sort of kick off new projects or accelerate projects, add additional resources to projects. So we saw it in bookings, we saw it in professional services revenues, we saw it hit a number of places. As they turned back cash flow positive in November, December, and it really stayed cash flow positive since then, we saw a lot more activity starting to happen. So as a result, that really slowed down the first sort of 2/3 of our year and then it sort of ended with a real kick at the end. So there is some seasonality, but fiscal '24 was exceptionally back end weighted.

[Mark Bentler, executive]

Yes. I get why you're asking the question there, too, because it's somehow it's hard if you're thinking about how to model that revenue coming off of new bookings, you're kind of wondering what are you expecting bookings to decline or expecting bookings to grow because you don't necessarily -- there's enough modeling flux in there to maybe not understand that. But we had 13% bookings growth in fiscal '24. And just to be clear, we expect bookings growth in fiscal '25.

[Gavin Fairweather, analyst]

That's great. And then just given the cost cuts and the margin guide being unchanged, could you give maybe more color on your investment plans for sales and R&D?

[Peter Brereton, executive]

Sure. We've got -- I mean, as we sort of talked about in the planned part of the script, I mean, we're seeing tremendous opportunity in areas like hospital pharmacies. We're seeing opportunities to invest in AI to dramatically strengthen forecasting, demand planning, inventory optimization. We're seeing opportunities around master file maintenance using artificial intelligence. So we're seeing a lot of opportunities to enhance and strengthen our competitive position in markets that have a huge amount of growth.

So we did the restructuring, we cut costs in a number of areas that we felt that we're sort of already -- sort of that we're not benefiting from the additional investment. And we've really just shifted that investment over to areas of the business that we think have some pretty exciting growth in the coming quarters and years. So -- and we said that at the time, I know a number of people sort of just expected sort of an extra $4 million in profit. But as we stated at the time, it was always our intent to shift the investment to areas of the business with stronger potential and that's what we've done. And we're pretty excited with some of the stuff we're coming up with this year. We've got a release coming out in the fall, what we call our Release 24.2, that is we think is going to be a pretty compelling market option.

[Operator]

Our next question comes from the line of John Shao from National Bank of Canada.

[Meng Shao, analyst]

Peter, how should we understand your comments that 2025 is perhaps the last year in a transition out of the licensed revenue? Should we expect some changes in your sales strategy or just like change in revenue mix?

[Peter Brereton, executive]

Really just a change in revenue mix. I mean, what continued to drive licensed revenue was really unmigrated customers, right? So you had customers still running the older on-prem software and they were still needing to add another facility or adding more users or that kind of thing. They weren't yet ready to transition to SaaS, so they needed to just pay for more licenses. But as time has gone on, many of our larger accounts have migrated to our SaaS platform. So they're just off that platform.

There's still a few that are left. I mean, in quantity of clients, there's still many that are left. But in terms of sizable clients, there's not that many that are left on yield on-prem platform. And we have a strategy to sort of continue to migrate those over. So as a result, sort of the white space, if you will, in that on-prem base is just evaporating. And it was always our intention. I mean, we never intended to continue to sort of run the licensed business indefinitely. So it's finally really kicking in. And I shouldn't say finally, it's been gradually kicking in over the last few years. But it's now at a point where if I look at this coming year, what's license revenue going to be? Is it going to be, 1%, 1.5%, 0.75%, I don't know what it's going to be, but it's becoming pretty insignificant in terms of the total number for the year.

[Meng Shao, analyst]

Okay. We understand that health care market is quite strong, but on the complex distribution front, any planning action to potentially monetize the opportunity in the space given some of your competitors are essentially gone?

[Peter Brereton, executive]

Yes. I mean we're -- you're talking to general distribution space, right?

[Meng Shao, analyst]

Yes, that's correct.

[Peter Brereton, executive]

Yes. I mean, it's something where we're actually turning up our marketing spend in that space. We're sharpening our message there. We're looking to add sales capability as well. We're looking to add sales capability in Europe as well because we're seeing opportunity over there and opportunity to pursue more global opportunities. So we're doing it cautiously. I mean, the health care market is very hot right now. The pharmacy market within health care is incredibly active. So we're -- we don't want to spread ourselves too thin, but at the same time, that market is heating up.

And you're right, the competitive situation has thinned out quite dramatically over the last couple of years. So we are turning up the investment there. We want to see how it goes. We'll probably give it the first 2/3 or more of the year to see is it shaping up the way we think it's going to shape up. And if so, I think you can expect to see us turning the investment up higher there towards the end of the year and into next fiscal.

[Meng Shao, analyst]

Okay. And in terms of the $8 million SaaS bookings, could you maybe help us understand the components of that number? Are they multiple small deals or a few large ones? And also, how much of the bookings are related to new wins versus expansions?

[Peter Brereton, executive]

Finally, somebody asking a question about that fantastic booking quarter. Mark, do you want to talk through some of those numbers?

[Mark Bentler, executive]

Yes, sure. Yes, John, the mix in that was pretty spread around. We had health care contribution in there. We had good solid complex distribution contribution in there. We had some -- we had several migrations in there. We had a couple of, actually 3, health care migrations in that thing, which kind of back to the other point, what's kind of left in there to migrate after this quarter in health care? That was 3, reasonably good size migrations in there, which we absolutely love because these are IDNs that know us, they know our platform as on-prem customers. And all 3 of these have decided in that quarter to kind of join in and migrate over and continue the journey of expanding their and improving their supply chain management with our platform. So we're pretty excited about that.

We had another migration in that quarter that was in complex distribution, which is again fantastic having that sort of vote of confidence from that sector and from an existing customer. On the new business side, Peter mentioned, we had a couple of new IDNs, a couple of new health care IDNs in there. Not massive for starts, but kind of normative size ARR wins on those 2, still a bunch of white space for both of those. We had also a sort of a 3PL -- medical supply 3PL-related company, that was a new logo in that quarter. So it was really kind of all over the place there.

We had some nice expansions. We had some expansions that were driven by pharmacy. Peter mentioned -- has mentioned and talked in the opening comments about that marketplace. And we had some nice wins in that market. So it's kind of -- it was one of those quarters that kind of -- it was kind of firing on on all cylinders, I would say. There was more -- from a dollar basis, there was definitely more new -- definitely more base business in there. I mentioned all those migrations. So there was definitely more kind of base business and expansion business coming out of that in dollar terms than new logos. But we were happy to see the new logos from across both those verticals.

[Meng Shao, analyst]

Okay. That's great colors. And Mark, when you say migration, are they migrating from competitors or migrating from legacy platforms?

[Mark Bentler, executive]

Yes, good question. I was using that term in the latter sense, meaning, on-prem customers migrating to our SaaS platform.

[Operator]

[Operator Instructions] Our next question comes from the line of Suthan Sukumar from Stifel.

[Suthan Sukumar, analyst]

For our first question, just wanted to touch on win rates. It's good to hear that you guys are seeing your win rate sustained with potential for that to improve. Can you speak a little bit about what pricing power you're seeing in the market today? And what trends you're also seeing from a contract -- average contract value basis on all the net new business in your pipeline?

[Peter Brereton, executive]

Yes, let me just comment on pricing power and then Mark can talk about average contract size. I mean, from a pricing standpoint, we are seeing -- I'll divide the markets in my comments. So on the health care side, we're seeing a very good pricing power, partly because the ROI is so clearly definable. We go into a typical hospital situation, we can do a high level analysis with them to show them what their return on investment is going to be. And that return on investment is very strong.

We increased our prices by about 30% approximately a year ago. We were waiting to see sort of how that went over and was it sustainable. It went over just fine and it has been perfectly sustainable. So we're seeing sort of similar discount rates to prior year even though we increased the prices by 30%. So -- and it's -- because again, it's a proven solution with a strong ROI, it's easy to justify that pricing.

The general distribution market is more -- it is more competitive. You're typically replacing existing systems. So the ROI is often harder to sort of nail down in concrete terms. Usually, these systems are being replaced because they have to be replaced. They've literally just aged out or they're not secure anymore, they're not coping with current business needs. So there is some ROI, but it's not quite as black and white. And there's more competition in that space.

That said, the average price of a user, I would say, has not really moved other than sort of inflationary adjustment in over the last 4 to 5 years. It's actually held pretty steady. And if you compare us, our price per seat that we're able to get is very similar to what Oracle is charging and SAP is charging and Manhattan and other significant players in supply chain.

[Mark Bentler, executive]

And in terms of contract size there, Suthan, the average contract size, we usually think about that in the context of just the SaaS ARR componentry there. So that's how we kind of track that number and talk about it internally. And it's a bit of a tale of 2 different sizes, depending on which vertical we're in. There's big ranges in both verticals. I mean, Peter mentioned, $2 million ARR booking deals. There's $2 million plus deals out there on the large side. And on the smaller side, there's sort of sub-$200,000 ARR deals. And so if I separate, the broad averages between those 2 markets, health care's average ARR is somewhere right around $600,000, again, with a big broad range. And distribution retail is a little bit lower than that, about $300,000 to $400,000 average ARR.

[Suthan Sukumar, analyst]

Okay, great. That's helpful. The third question I had was more on the expansion motion that you guys have in play here. What are some of the levers that you have here when you are going through these expansion conversations or renewals with existing customers? Is there a larger -- is there an opportunity here to capture more value with migrations? And what do expansions typically look like for you guys?

[Peter Brereton, executive]

I mean, across the 2 markets -- first of all, the general distribution market, it's pretty straightforward. Expansions are either -- if you look at our order management platform for direct consumer, expansions typically seem to involve new countries. They may have already put France and Germany on the platform and now they're going to add the Middle East or they're going to add some other area they may have already be in the U.S. and they're expanding somewhere else.

In supply chain execution, it tends to be additional facilities. We've got, for instance, electrical distributors that every quarter or 2, add another distribution center on to the platform. And so that's the expansion there. In the health care market, it tends to be a whole new area of the hospital. Sometimes it's an additional hospital building. They may have started with -- they've got 18 hospitals. They may have started with doing general supplies in 6 of the hospitals and now they're circling back to the other 12. But very often, it's a complete new initiative for a whole new area of the hospital's business. Most recently, of course, as we've discussed, it's been pharmacy. A lot of additional opportunities in pharmacy to manage the whole pharmacy supply chain from forecasting and demand planning right through to patient bedside, with 340B price management and Drug Supply Chain Security Act compliance and so on.

So that is -- what they're doing there in many cases is they're moving to individual patient dosages being shipped directly from a central pharma facility. So rather than sort of a patient checked into a hospital and the patient's in for, they think it, let's say a week. So he arrives on a Monday and it used to be the pharmacy would send out to that ward enough drugs for that patient for the week. Well then on, he arrives on Monday, he checked out on Wednesday instead of being there for a week. Well, now there's 5 days worth of drugs left over in that department. They pretty much never get cycled back into central.

I mean, depending on how they've been handled and where they've been stored, you might not be able -- even be allowed to cycle them back in. So that drug is just wasted. Whereas in a central pharmacy distribution model on our platform, the drugs are literally being sent out every day for patients every day with individual dosages for those patients. So you virtually eliminate that kind of waste. You know where the drugs are throughout this supply chain. And with the cost of drugs these days, that is worth, in many cases, tens of millions or more to a hospital level on an annual basis. So that is an area that is probably the hottest white space for us right now.

[Mark Bentler, executive]

And Suthan, I would add to that, that we scale that market. There's 373 IDNs in the U.S. market that are our target. They're over $1 billion in patient revenue. And we sort of scale that market. I think conservatively, we're at over $3 million on average of ARR opportunity per network. So the market is massive. And I just mentioned our average deal size in that market. Big variety, but an average of 600. So if you just think about that 600 deal, we're trying to penetrate into an opportunity that's bigger than $3 million with that IDN. So for new deals that we're signing when we're creating that additional logo, we're creating a 5x to 6x opportunity on white space expansion.

[Suthan Sukumar, analyst]

Okay, great. That makes sense. And the last question for you guys, just on the legacy maintenance and support line. How are you guys thinking about the erosion in that revenue line as you start to migrate the long tail of customers still on the on-premise model?

[Mark Bentler, executive]

Yes, it's a good question. We talked a little bit before about, that revenue growth guidance that we've provided. And why is it -- when SaaS is growing so quickly, why is that overall revenue growth line much more moderated? And I talked a little bit about hardware and the impact that has on that number. But the point you're bringing up is another one, like, that number has been sort of flattish this year. And we expect and we've been talking about it sort of declining as more migrations kick in and the payment of maintenance supports ends and turns into a SaaS-only revenue stream. Like we're in the process of that.

Still expecting that that line is not going to grow, it's probably going to decline -- we're probably going to be declining on maintenance and support. I mean, we said that last year too that that was our expectation, it didn't quite happen. It's kind of being supported by some of our other non-SaaS annual recurring revenue, in particular on hardware maintenance that comes into that maintenance and support line. But we do expect that line to be flat to declining in fiscal '25.

[Operator]

There are no further questions at this time. I'd now like to turn the call back over to Mr. Brereton for final closing remarks.

[Peter Brereton, executive]

Great. Well, thank you everyone. Thanks for spending time with us today. We're, say, delighted with how we ended fiscal '24 and next call will be the first quarter of fiscal '25. So we'll talk to you in early September. In the meantime, if you have any questions, don't hesitate to reach out to Mark or myself. We're always happy to have further dialogue. Thanks. Have a great day.

[Mark Bentler, executive]

Thanks.

[Operator]

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line. Have a lovely day.