Q3 2021 Tecsys Inc Earnings Call
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Good morning, everyone. Thank you for standing by and welcome to Texas third quarter fiscal 2021 results Conference call. Please note the complete third quarter report, including M D and day and financial statements were filed on SEDAR. After markets closed yesterday, all dollar amounts are.
Expressed in Canadian currency and prepared in accordance with international financial reporting standards.
Some of the statements and 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 February 25th.
2021 at 830, a M. Eastern time I would now like to turn the conference over to Peter Brereton, Chief Executive Officer at Texas. Please go ahead Sir.
Thank you and good morning, everyone.
Joining me today is Mark Butler, our Chief Financial Officer.
We appreciate you joining us for today's call and we hope that everyone. On this call along with their families are safe and stay safe and we remain optimistic and what appears to be a light at the end of the tunnel with Covid and the accompanying that cool.
As you know, Texas is a leading global provider of Sop and supply chain solutions that he quipped the border was under price for growth.
I am pleased to report that after the market closed yesterday, we reported our eighth consecutive quarter of record revenue, which includes 89% growth and SaaS revenue over the same quarter last year. The pandemic continues to highlight the need for a level of agility not seen previously with our diverse customers retailers are responding daily to the changing.
Request of their customers and in many cases, we are the backbone to the way they respond.
And as leaders and the health care supply chain space, we understand the unique needs our customers are faced with not only within the four walls of the hospital, but the expediency with which suppliers need to arrive we have been working feverishly to heavily invest and the internal expertise needed to meet these demands through and 19% growth and head count.
And we feel strongly this investment will support the long term revenue growth and the business as well as allow for unparalleled customer success.
We experienced several notable events during the quarter, we added six new accounts to the Texas base.
Three of which were major accounts the day.
Initially we will start small, but we expect continued growth to come.
With respect to our health care segment, and we're pleased that we were able to sign two additional new idea and contracts for our SaaS platform.
And complex distribution, we signed what we believe will become an important contract with a U S state free.
The use of our Ws platform. The agreement extends to all departments and state agencies and they have a need for sort of supply chain management software solutions, although we have not yet booked SaaS amounts under the contract we expect orders starting in Q4.
In addition, we will be partnering with a major systems integrator on this project.
We continue to experience enhanced partner activity in this quarter.
We signed two new deals and the complex distribution segment that came through partners and.
Indeed partners have influenced <unk> 21 per cent of our current pipeline of opportunities and increase again from last quarter and up from essentially zero just a few short years ago. We believe this bodes well for the future. We are committed to our partner channel and anticipate that our relationships will continue to successfully scale.
And if our pipeline trends continue we expect to increase the amount of revenue will be partner influenced and the future.
We also added a major French retailer to our W. Mass seven SaaS cloud platform to help fulfill e-commerce business from their U K fulfillment center.
And my seven as the Ws that we acquired as part of our acquisition and Denmark.
It installed and rapidly and is well suited to web shop fulfillment.
This represents the first sale of that product outside of Denmark, and we expect that there will be more.
In general the momentum and demand for Texas solutions across verticals continues to accelerate.
We're investing in our people our partner ecosystem and the development and execution of solutions, helping our customers succeed.
Mark will now provide further details on our financials for the year and the quarter.
Thanks Peter.
Pleased that our results for the third quarter and continued our growth trend.
Recall that our fiscal 'twenty and 'twenty, one third quarter ended on January 31, 2021.
I'll now review of the quarter and then the year to day performance and Marty Tal first focusing on Q3 total revenue was a record $31 9 million, 19% higher than $26 8 million reported for Q3, and 2020 and 4% higher sequentially over $30 7 million.
Reported and Q2 of 2021.
This year on year growth was driven primarily by cloud maintenance and subscription revenue as well as professional services revenue.
Cloud maintenance and subscription revenue increased by 26% year over year to $13 4 million and Q3 2021 up.
Up from $10 6 million and Q3 of 2020.
As Peter mentioned in his opening remarks, the increase was primarily driven by and 89% increase and SaaS revenue to $4 7 million up from $2 5 million reported and Q3 of 2020.
Sequentially SaaS revenue declined by 0.4 million from Q2 fiscal 2021 asset.
As discussed last quarter on this call. This was due to a customer cancellation, which had the effect of poor and anticipated future revenue and to our second fiscal quarter.
Professional services revenue increased by 24% and the quarter to $12 3 million compared to $9 9 million and Q3 of last year.
Proprietary products revenue amounted to $1 3 million and the third quarter of fiscal 'twenty, one down, 12% or 0.2 million compared to the same period last year.
This resulted from an expected decline and perpetual license revenue and as we're now focused on SaaS.
And third party products revenue increased to $4 9 million 0.5 million or 12% higher and comparison to $4 4 million from the same period last year.
SaaS subscription bookings, which we measure on and <unk> basis annual recurring revenue basis were 1.0 million, which is a 49% decrease from 2.0 million reported and Q3 of last year.
<unk> services bookings were down 19% to $10 5 million and the third quarter of fiscal 'twenty, one compared to $12 9 million and the same period last year.
This decrease was the result of timing of deal closings, we have historically seen some lumpiness in quarterly deal closings and we expect this to continue and particular, the second wave of COVID-19, and delayed some deals into our fourth quarter, resulting in a significant new business pipeline for the last quarter of our fiscal year.
Perpetual license bookings and the third quarter of fiscal 'twenty, one and were $1 2 million compared to $1 5 million and the third quarter of last year.
Annual recurring revenue or air or as of January 31st 2021.
Up 20% to $50 8 million compared to $42 5 million on the same day in 2020.
Sequentially <unk> was down 0.1 million from Q3, 2020, due primarily to currency fluctuations.
Significant portion of air or is denominated in currencies other than Canadian dollars.
As a result movements and exchange rates will have an impact on IRR.
During the third quarter of fiscal 2021 exchange movements and in particular, the weakening U S. Dollar had a $1 3 million dollar negative impact on air are.
Of course, Russ SaaS is the key driver for our growth and as we have indicated over last quarters, we've begun to focus on what we call contracted SaaS backlog as a key performance indicator.
Recall that contracted SaaS backlog represents revenue that we expect to recognize and the future related to firm SaaS performance obligations that are unsatisfied or partially satisfied at the reporting day.
This is also sometimes referred to as the remaining performance obligation or RPE L.
As of January 31, 2021, our contracted SaaS backlog was $57 $6 million and that's up 11% from 52.0 million at April 30 of 2020.
Contracted SaaS backlog was down $2 6 million sequentially compared to October 31, 'twenty and 'twenty.
Contributed to the sequential decrease was a negative foreign exchange impact of approximately $1 $8 million and the third quarter of fiscal 2021.
Moving to professional services at January 31, 2021, our professional services backlog stood at $37 8 million.
Down 0.9 million sequentially from October 31, 'twenty, and 'twenty and up from 35.0 million at April 30, and 2020.
We believe this backlog will support continued strength and professional services revenue and the coming quarters.
Gross margin was 48 per cent and the third quarter stable compared to 48% and the prior year quarter.
Total gross profit increased to $15 4 million up 20% or $2 6 million.
And from $12 8 million and Q3 of 2020 due in large part to higher services margin of $2 $9 million.
Operating expenses increased to $12 8 million.
By $1 3 million or 12% compared to 11 4 million and the same period last year.
While we continue to invest for growth. We also continued to see lower travel costs.
And this is favorably impacting operating expenses.
Profit from operations, and Q3, and 2021 was $2 6 million and increase of $1 2 million or 89% compared to $1 4 million and Q3 of 2020.
Net income was $1 8 million or <unk> 12 per fully diluted share and Q3 2021 and.
And that compares to a profit of 0.8 million or six cents per share for the same period in fiscal 'twenty and 'twenty.
Adjusted EBITDA was 4.0 million and Q3 of 'twenty 'twenty, one and that's up 50% compared to $2 6 million.
Reported and Q3 of last year.
We ended the quarter with continued balance sheet strength and liquidity cash flow from operations for the first nine months of fiscal 'twenty, one was $11.0 million compared to $3 9 million for the same period last year.
And this was I went to a combination of increased profitability and and more current receivables.
At January 31, 'twenty, 'twenty, one and we had cash and cash equivalents and short term investments of $39 $6 million.
Compared to $37 5 million at year end.
And up significantly from $30 5 million at October 31, 2020.
We had debt of $9 9 million at January 31, 2021, compared to $10 8 million at the at the year end.
Turning to results for the nine months of our fiscal year.
Revenue was $90 7 million up 18%.
Or $13 $6 million from $77 1 million and reported in the previous fiscal nine months.
Cloud maintenance and subscription revenue increased 28% to 39.0 million and the first nine months of fiscal 'twenty and 'twenty, one up from $30 4 million and the prior year.
The increase was primarily driven by SaaS revenue, which increased by 116% to $13 $7 million, that's up from $6 3 million and the first nine months of last year.
Professional services revenue was also up 18% to $35 3 million and the first nine months compared to $29 8 million and the prior year period.
SaaS subscription bookings increased 29% to $6 $1 million and the first nine months of fiscal 'twenty, one and that compares to $4 7 million and the same period last year.
Professional services bookings were up 20% $36 1 million and the first nine months.
Third to $30 million and the same period last year.
Net profit from the first nine months and fiscal 'twenty, one was up 162% to $5 $2 million and.
That represents 35 per fully diluted share.
Compared to a profit of 2.0 of million or <unk> 15 per fully diluted share for the same period of fiscal 'twenty.
Adjusted EBITDA for the first nine months of fiscal 'twenty, one and was $12 $3 million up 48% compared to $8 3 million reported for the same period in fiscal 'twenty and 'twenty.
Finally on February 24th 2021, we declared a quarterly dividend of six and a half cents per share paid.
Payable on April eight 2021 to shareholders of record and.
Close of business on March 18th 2021.
I will now turn the call back over to Peter.
Thanks Mark.
After eight consecutive record quarters, our pipeline suggests to us that demand remains elevated into the foreseeable future. The pipeline has continued to grow in the quarter.
It is important to note that not only and we witnessed the growth of our pipeline the weight within the pipeline has also shifted to much greater new business at the end of Q3, approximately 70 per cent of the pipeline is new business compared to 30% base.
While new customer acquisitions have clearly been delayed due to the second wave of Covid.
We're also seeing an influx of new opportunities at the top of the funnel. The combination is leaving us with a significantly larger new business pipeline.
In summary, I won't throw and analyst and investors about our three key operational themes for the remainder of.
2021 first.
First the 89% growth and SAS revenue validates our continuing focus on developing and growing our SaaS revenue model, which is helping to scale annual recurring revenue streams rapidly.
Secondly, we continued to expand our partnership ecosystem, which is key for us to scale rapidly into the post COVID-19 market opportunities we.
We have partners working effectively with us and both North America and Europe, We will continue to invest so that we can enable them more quickly and efficiently from.
And accelerated training programs to improved Onboarding tools, we are determined to make our Si partners and very successful.
We also continued to expand and refine our omni channel business platforms to service evolving needs and the health care supply chain converging distribution and retail market segments.
And clothing, we are pleased to welcome Martin and <unk> to lead the R&D organization. He joins us from a multinational telecommunications and information technology and consumer electronics organization, where he led and internationally distributed team of over 500 engineers and delivering on product architecture development and support he.
He has a keen understanding the critical linked your innovation will play as we continue to growth.
With that we will open the call up for questions. Thank you.
Thank you if you would like to register your question. Please press. The one followed by the four on your telephone you will hear with reach home prompt to acknowledge your request. If your question has been answered and you would like to withdraw. Please press the one followed by day three.
Our first question is from and there is that with echelon partners. Please go ahead.
And Peter and Mark Good morning, and congrats on a solid quarter.
Okay.
And my first question is on the bookings side, specifically on the SaaS <unk> bookings.
I know quarter to quarter, it could be a pretty welcome all and Mark you mentioned that.
And that part of that is timing of contract timing.
But thought I'd ask because its the lowest we've seen in the past few quarters can you maybe give us a sense of size of the opportunities you're sort of working on relative to the last few quarters. It is sort of similar size or larger or smaller or any color there.
Yeah.
Sure I mean, I I, just sort of give you sort of three.
And three bits of I guess insight on the situation and one is that in terms of what happened in Q3. There was really two factors one was definitely COVID-19 there was probably.
And somewhere between 45, and 60 days and that quarter, where as the second wave was sort of rolling through and reaching its peak and different areas.
Net new accounts, we're just not focused on getting contract side and they were focused on what was going on and their own areas and some cases their own and families.
Et cetera, especially and the health care market a lot of the hospitals swamped again with cases, so there was definitely a.
And temporary distraction.
The second factor was almost just fluke like we did signed six new accounts and the quarter, which is actually the highest it's been for quite a while I mean, six new accounts for us and a quarter is quite significant including two new.
Hospital outwards.
But.
The three largest accounts that we signed in the quarter are all decided to start with what we're effectively pilots.
It's a really small initial order just to get started and get things rolling planning to scale up over time.
And so so it hit the combination of sort of the Covid wave and then the fact that the really the three largest accounts and the quarter all of whom are very large organizations decided to start with that approach.
And with <unk>.
Impacted the quarter that said as we look at Q4.
I don't want to give you precise numbers, but I can tell you that day the pipeline for <unk> in Q4 is significantly higher than we have ever seen it.
And those deals are already coming in I mean, if I look at it I mean in the first three weeks of Q4.
We were.
More than halfway through what we did and all of Q3.
So it's I mean, it's ramping back up.
And it's happening and I mean is that Covid second Covid wave subsides.
Everyone's sort of finding their pens again and that the deals are flowing yet.
Great.
And that's pretty helpful.
And reassuring I guess, okay. So on the macro level, we've touched over the course of the last year on how.
Covid sort of increase the adoption rate of HCM software.
And all over the health care space, which obviously was very beneficial to you guys and I'm. Just wondering if you guys can give us a bit of and update on how the vaccine rollout and the issues we are seeing across different geographies.
Is impacting your industry and then maybe you could touch on whether you are involved.
And that rollout one way or another.
Yeah, I mean the.
First of all no we're not involved and the role it I mean, there has been we have been involved and quite a number now of projects that are involved and support for rollout of <unk>.
P P E and emergency supplies and so on but it turned out for us and that's really where the business has been coming from.
But by and large the governments are all falling back on existing systems, largely deciding to rely on sort of assistant that they've used for years for flu vaccines and others and just sort of Ram and the additional volume through those systems. So we're not we're not seeing that the the one opportunity in Canada, which was the federal I agree.
And with.
And with one by Deloitte, we were teamed up with Accenture for that one.
So we did not win that contract Deloitte and when that contract.
With a decision to implement.
A combination of a U S based system and.
A German based system, so so where we.
We are seeing lots of additional opportunity and health care as people come to grips with how critical the supply chain is to their businesses.
And to proper patient care, but by and large the governments have decided to fall back on flu vaccine and systems.
To manage the roll out of Covid.
Great.
And then you guys spoke to the with your channel partners I guess being more involved but can you give us a sense of utilization levels and professional services side and maybe an update on the head count and continued to go from Records Records.
At least on the revenue side on professional services.
Mark do you want to take that one yes.
Yeah, sure so I mean, and the head count level, we've been we've been growing that team pretty pretty dramatically and Peter mentioned overall head counts up about 19%.
P S head count is up.
Slightly higher than that since the beginning of the year. So we're definitely.
We're definitely hiring and through demand and we're hiring into that you know kind of media backlog.
And that we have there.
Utilization rates are running you know, what we think to be.
And pretty solid and sustainable and we know.
And there you know for US there are running right around I mean it.
And when you talk about numbers there you got to.
To be kind of careful what you're talking about and how you measure that but you know for us where we're essentially in line with our budget expectations on utilization.
That said, we have quite a quite a number of people that we've on boarded and continue to onboard that are you know that are underutilized as weak as we bring them up to the.
Training.
The training and learning curve and and.
And get them ready to sort of hit the field as it were to do implementations. So there is some late and delivery capacity. That's just building naturally as we as we add on this additional headcount.
And then maybe one last one can you give us.
The split between your health care business and the other segments T. P. L distribution retail like how large and as health care now relative to the overall business.
Yeah, we look at that we like to look at that and and scale that in terms of and our recurring revenue and.
And.
But right now and health care is.
And 1%.
Our of our business with complex distribution, making up 69 per cent.
Yeah.
Great. Thank you Hal pest and like.
Thanks Deborah.
Our next question from the line of Nick Agostino from Laurentian Bank Securities. Please go ahead with your question.
Yes, good morning.
And also yes, and congrats on a good quarter.
If I could start.
If I could start back on the bookings question.
I think I heard you guys say you had some sizable sorry small way.
And with sizable accounts and I guess my question would be.
In the past and Hugh.
Talking about how new customers are taking a.
Larger deals and and maybe taking more upfront and then historically speaking can you just maybe speak to.
And why these customers were coming in on the small side with the opportunity to grow are they are they just being cautious because of the.
Macro environment and search.
Or.
Does it relate to they just have had enough opportunity to do the.
The homework and giving away everything else is going on and they'd rather pilot and then growth from there. So just any color would be great.
Sure.
The ideas like the hospital networks, we signed in the quarter actually signed for fairly Toki upfront business.
So it was the it was the general distribution accounts that came in during the quarter.
That fall into that category of being sort of large organizations, but that started quite small.
And it's really just a speed of adoption thing for them and they've looked at it and said Hey, you know what.
And we're gonna be a learning curve, it's going to take us awhile to get the per site implemented, let's just start with one site and let's get it deployed and then we'll come back and add more as we go so that they don't have you know ongoing SaaS fees.
For for a bunch of sites that were deployed yet so so that's why we expect it to.
Ramp up fairly quickly from here as they get that per site.
Even partially implemented they will already be starting on the second site and so it's one of them in particular.
Signed a.
Master agreement that is designed to cover sort of a bunch of orders.
But in.
They literally just ran out of time to get the software orders done.
And for their own budget reasons, they actually use it.
So there's a small hard worker and the quarter.
But the the software orders are only going to commence in Q4. So so it was a combination of factors, but that is on.
And the health care side on the hospital network side, they actually did start with significant a reasonably significant order.
Okay, Great and then I think you called out earlier that you had a you signed a government contract and the U S services.
And I heard you correctly.
Starting in fiscal Q4, and that you were going to be using your partners to get.
The rollout and that was a complex distribution and win.
If I heard that correctly I guess my question.
Speaking on the partner side and the fact that you have.
Highlighted partners played a role on the Alphatec by specifically.
How does work day, and I've mentioned them, specifically, because I think up until now they've always delivered health contract has workday and the tests and crossing over to tilt towards complex distribution contract or where are they other partners that help deliver that and I would like to keep yet and that.
No it with other partners so yeah with partners.
And the AR and the systems integrator space K P. M D.
Type accounts.
We've been working with KPMG and working with Deloitte.
And as well as our west Monroe and other our other more sort of mid market partners, but would work day to date all contracts signed that have been.
<unk> signed in cooperation with Workday have still been in health care at this point.
Okay and then.
Just on the e-commerce side of the business I believe you guys said you had a good day.
And the prior press release, you had a good.
Black Friday, cyber Monday period, just any color and how business a lot more.
And you've seen on that side.
Going into the holiday season, specifically and ex.
Through January and even up until February 10, and momentum on E Commerce in general.
Well, yeah, the volume flowing through that platform is.
And then up very substantially I mean again virtually doubled this year compared to prior year and so on.
But the whole retail space.
I mean is rocky right now right. So as we look across our business I mean health care is absolutely flying general distribution is absolutely like the retail piece is rockier.
And part of it and there's two markets. We really go after with that product line and one is sort of the brand owners and manufacturers that are bypass and retailers and going direct to consumer.
And they are by and large doing okay.
We had a few weeks ago, we had a shoe manufacturer.
A fairly major shoe brand and that just went live on the platform for instance.
And you know that whole project has gone very well.
We've got Oh, and sportswear company that is absolutely flying and bringing on new new volumes all the time.
But when you actually get to the two retailers that are we tend to target with that retail chains that have sort of at least 100 stores and can do a lot of oh.
Fulfillment from store buy online pickup and store and so on and they've all been so rocked by the pandemic.
That where we're actually and discussions with quite a few of them, but they're all sort of hesitant to pull the trigger on new investments right now.
So that that segment of the business I would say is.
Is it I mean, it's loafing, along but it's not a it's not an acquirer like the other two.
Okay, great. Thank you.
Okay.
As a reminder to register for a question you May press the one followed by the four.
Our next question from the line of Bill Zhang with Raymond James. Please go ahead.
Hey, guys.
Just wanted to start off with the customer cancellation here can you remind us what the context is there and do you anticipate any additional cash.
No that was a cancellation that we happened back in Q2.
And we actually we ended up and discussing it at some length and that quarter, but Oh of course, that's that's already three months ago.
It's pretty easy to forget what all went on there so it.
And it was a situation where they had a they it was and complex distribution. They had signed and who has the the ws platform.
And I got part way into the implementation they ended up with the change and the management team.
And as a team the new management team decided that it was just too much effort on their part implemented.
And they decided to cancel the project.
And that triggers because they were on the hook for five years of SaaS fees.
That triggered them and effect paying as the balance of the SaaS contract. So suddenly revenue that would've come in Ratably over five years I came in and one big lump in the in Q2.
And which is free.
First of all jacked up the SaaS revenues in Q2, and secondly, it then quiet and causes a quarter on quarter decline and in Q3.
With not only the lumpiness, but the future ongoing revenue gone so but those are we had though is like I guess the answer is.
You know there are always some cancellations, but our renewal rate continues to be very high I mean, we typically run with an annual renewal rate of.
And 90, 596%, implying and average customer life from 20 to 25 years.
And we don't see that changing.
But every year or so we get one of these that.
Sort of whatever just due to a change and the tea leaves the the situation changes and they decide to back away from a project. So it is what it is.
That's not unusual, but it's certainly not all of it.
Okay, great. Thanks for the color there and your adjusted EBITDA. So I know it day margin, it's down a little bit sequentially, obviously, youre still investing in sales and marketing what would what would be a good run rate on those investments.
Mark you want to take that one.
Yeah, I mean, I think we continue to we continue to hire.
And the growth and head count you know that we've had even in Q3 and will continue to hire and Q4 you know that.
And head count in Q3 as is is not fully baked into Q3, right because that that head count those head count adds would have happened during the quarter and and partially impacted the quarter from a cost standpoint.
So you know we sort of see the general trend on our on our on our Opex.
And as increasing we've talked about a.
Sales and marketing.
And our two primary markets.
And that sort of growth is creating more value for shareholders than pure pure EBIT dogs and expansion. So we actually sort of keep making a little more money than we actually meant to.
You know the focus has been on the growth side, when we look at our lifetime value to CAC.
Ratio is.
And quite high and indicates that sort of the continued investment and sales and marketing makes a ton of sense.
And based on the growth we're experiencing and.
I mean, if you look at our year to date after three quarters, if you add up or use that rule of 40 measure I E.
And up our growth and our.
EBITDA number where you know year to date, we're at about 32 per cent.
But the focus is continuing to sort of be your sort of if wherever we can less driving the growth number and just keep the EBITDA reasonable and so that's you know that's how we continue to make our decisions, especially given that our lifetime value to customer acquisition cost remains a so so positive.
Okay, yes that makes sense.
And a couple more from me. So your two hospital wind and the quarter were any of those related to work day.
No they were not.
Okay, and just Didnt general update on the partnership ecosystem, how do you see that are best professional services going forward.
We expect to see over time.
The pipeline begin to.
Sort of that what we see and the pipeline and begin to reflect itself and the actual backlog and I mean, that's sort of only starting to happen now.
You know, we measure our pipeline more on and <unk> basis.
And it's on and they are our basis that we say 21 per cent of our pipeline is now partner influenced and interestingly enough. If you look at the total value of the pipeline, including professional services and sort of other ancillary products.
Partner influenced component is actually only about 17% so what it what it tells you is that on the partner influenced deals.
We will drive less professional services because the partners will pick up more of that revenue. So so the expectation over time here is that you'll continue to see the air number climb faster then you'll see the professional services number climb and I mean right now its extreme because we're in the we're only a couple of years into the shift to SaaS and we've got a R.
Growth of 89% and pro services growth of whatever it is 24 or something.
But but that even aside from normalizes.
In terms of growth rates, we expect the SaaS growth number and who outstrip the pro services growth number by by a reasonable margin is that partner ecosystem picks up more and more of that work.
Great. That's all from me today.
Thanks.
Our next question from the line of Deepak <unk> from Stifel. GMP. Please go ahead.
Oh, Hi, good morning, guys. Thanks for taking my questions first a couple of follow ups and then I've got a bigger picture question.
Peter and Mark there was a couple of questions on workday.
And I just wanted to maybe step back you had some good.
A couple of years.
Working with work day before you had some deals close and then you've you're implementing your first deals and now they're live.
You know, what's kind of the the report card and the assessment going forward on that partnership.
And you know I think stalled there or do you see continued momentum just some high level thoughts on that.
Yeah, We said, we see continued activity with workday, but the you know the initial focus with workday was very much on the hospital marketplace.
And.
And I don't Wanna comment too much on sort of their outlook, but but I it feels.
Feels as though workday has sort of managed to pick up the.
The a lot of the.
A lot of the networks that were willing to change out their ERP.
So they've tended to win sort of smaller and mid market.
Our networks are the large networks have remained sort of quite entrenched in their existing ERP platforms, either the yield the oracle peoplesoft platform or the and for lots and platform largely.
And there doesn't seem to be a lot of moving among those larger players. So if you look at our wins typically what were finding is it's when we are you know when we're working with the larger networks.
We're winning on our own Ah.
If we get down into the sort of the more medium sized networks, that's where we're seeing the movement with workday I and I think they've sort of almost completed the first suite through that industry. So it feels like it's slowing down a little bit we actually still have quite a bit of in the pipeline with them and we have regular pipeline calls with him and I'm sure. We will see more deals done this year.
But it does feel like there's a bit of a breather being taken and it may even be that with the COVID-19 going through there and more focused on pure supply chain issues.
Issues, where we're seeing a lot of activity and less focus and areas like human capital management and financials.
Okay got it and then just a follow up on the margin.
I know you're investing heavily and you're.
You're going after growth and I'd take absolutely no issue with that.
And the margins have been coming in better than I'd expected and you mentioned that and you expected.
What's the kind of level that you want and manage it.
Over the next two years say and paying them before you pursue that rule of 40 metric.
I mean in an ideal world if I could if we could just sort of spreadsheet it and have life follow the spreadsheet, which of course is never the way life works. Unfortunately.
Something like a 12% EBITDA and and 18% growth or even a 20% growth and a 10% EBITDA.
It would be ideal.
You know, we and we continue to feel that our kind of systems that have sort of long implementation cycles, and then very very long life cycles are you know its tough to get all the way up to the rule of 40, but at the same time you know we can run a very long term business here with you know at a rule of 30 year rule of 30 plus.
And.
So you know at 2010.
It'd be a really nice ratio to run out over the long haul we are of course yanked up and down by currency right. So we are.
Mark whatever you know roughly 60 per cent U S currency I think.
Yep that's right.
And you know and yet the majority of our costs are Canadian so is the sort of the Canada U S currency rates fluctuate.
And that I mean that directly posed to the bottom line up or down.
And so we do some hedging but.
But we don't we don't hedge more than a year out so the evenly shelter yourself from changes in currency for so long.
Got it and and so so that kind of 20% growth rate.
And the real 30 model and the double time for the business and not model. It was like five years is that what your gut is telling you right now and I think you know.
Out of $200 million target.
Moving out or so.
And what's your intuition and saying in terms of time to double from your business or when you might get to that $20 million milestone for revenue.
Yeah, I mean, we're we're sort of running a little hot and our plan right now in terms of getting to that but I mean, we've looked at I mean, if you compound at 20% you actually get there and about four years.
And <unk>.
It certainly feels like in the four to five year time line and we can double the business again I mean, if you look in the past I mean, it's basically taken us five years to double the business to where it is today.
And it certainly looks like we can do that again.
So just to be clear doing that you think you can do that sooner than five years.
Sooner than four years or even five years.
Uh huh.
Okay.
And you know, we don't give forecast so where we're at.
Any broad Brooke.
But if you know what I'm, saying is you can run at a compound and 20% growth rate you get there and about four years.
Got it okay and one.
And of those guys that she places spreadsheets and we all do what kind of strength.
No. We appreciate the color and thanks again for.
For shedding light on and the realities and retention opportunities I appreciate it.
Okay. Thanks, you bet.
Our next question is from Gavin Fairweather with core Mark. Please go ahead.
Oh, Hey, good morning.
Hi, good morning.
Just on the new logos and the pipe you talked about how they're now kind of 70 per cent and thoughts about pipeline and I guess, how is that weighted that's at the top of the funnel between kind of health care and distribution and then just secondly on that and.
Is that funnel about and the competence and evidence.
Shifted is that driven just by new logo strength or is there also just a bit of a block or a loved temporarily on the upfront side right now.
I would say Oh, and you have to pull out that the <unk>.
I play and detailed grid, which I don't have in front of me right now, but I, but I would say that it is.
Very very largely from the new accounts side I feel like the base side has actually continued to it continues to expand but it has continued to expand at a very a reasonably constant rate.
So the surge is definitely from the new accounts side.
Some of the changes we've made over the last year or two our digital marketing approach and digital marketing campaigns.
Our proving a very very successful in terms of new opportunities entering at the top of the pipe.
And if you look at the breakdown between a health.
Health care and complex, it's reasonably equal at this point it it moves week by week and some weeks complex is a little bit ahead, I think right now as we speak this week health care is a little bit ahead Ah, but it.
It's it's actually remarkably equal it it's probably more equal and it's been and a long time.
Okay, Great. That's very helpful. And then just lastly from me on that that'd be a mass seven product you on P. C. Diff WNS can you talk about kind of a niche and the markets at that fell and how it kind of stack up competitively and that's been about kind of lighter system that maybe your traditional that'd be a mess that you're talking about.
America, and then maybe just how youre thinking about executing on taking it out of Denmark, and and getting some international growth and that's it for me. Thank you.
Sure Yeah, I mean, we're we're fascinated with this product I mean, it it takes a completely different approach and how to how it manages a.
A warehouse.
Even the you know for instance algorithms that it uses to to minimize travel time and a warehouse for instance, we and a huge amount of labor productivity and wasted and the warehouse with travel time that you know people, having to walk from section dissection and and idled Island and so so it takes a very intelligent approach and minimizing travel time, and so on and yet it does at all with very low.
And over had very little setup time.
And configuration time.
It's also got great integration to sort of some of the similar types of automation.
So the the beauty to it is that you can implement and like typical implementation time for that product is is four to eight weeks and most of the implementations go in and about five weeks.
So the it's a completely different sort of approach to managing and warehouse and where we find it and the market opportunity and what's fascinating is as more and more companies look to support same day or next day fulfillment.
You know the idea of having for instance, and in the U S. Just a huge east coast D C and a huge west coast D C or maybe one huge D C and even larger D C and the central and the center.
It doesn't really work I mean, it means if you want next day, you Gotta do everything by Fedex or where are you P. S overnight, which is a crazy expensive way to ship everything and.
And you certainly can't support same day, so more and more companies are looking at sort of a micro fulfillment strategy, where you end up with sort of dozens of small fulfillment centers across the country are in.
And you know and sort of one and every major metropolitan area. So that for the 20 per cent of your products that represent 80 per cent of your sales you can offer same day delivery and all of those products.
Well to do that requires a different paradigm I mean, you're you're not going to implement a large heavy W. And that system that takes months months to implement in sort of dozens of micro fulfillment centers across the country.
So so that's the market that we're intrigued with in terms of this product line and we think it's a remarkable fit.
At you know it almost seems logical that it came from the same country that invented Lego.
And you know it we think we can take it into our into the broader market space quite successfully so so this one and the U K was a was a nice win a we're looking at a further optimization of that product line to run and the Microsoft cloud. So that we can take it to market as a pure.
Microsoft Microsoft Cloud product are the broader marketing of that product line will probably start this coming fall.
Thank you so much.
Yeah.
Thank you. Our next question is from the line of Richard Tse with National Bank Financial. Please go ahead.
Yeah.
From a capital allocation standpoint could you maybe share with us how you rank your initiatives are you know what.
And there it would be R&D acquisitions building and your channel partners, just trying to get a sense of the priorities here.
Yeah, I mean, I would say our priority one right now and is continuing to build out sales and marketing I mean, that's what we are and you know and it's it's the sense that our win rate and health care is already extremely high almost can't go any higher and our win rate and in general distribution and converging distribution is still running and the.
A low forty's, which is still a very healthy our win rate.
So so we are our focus is sort of.
Execute execute execute and that's all about building and at the sales and marketing organization, and then making sure that the consulting and cloud services organization and sort of keeps pace with that so that that is priority number one.
You know the this beyond that you know I am not sure I would put one in front of the other but we are you know we are continuing to invest heavily in R&D are we.
We are there's two sort of primary segments within R&D, we are investing and one is just the ongoing feature race, which is unending and the various markets that we serve.
But the other is a backend work on the platform to drive additional efficiencies in the public clouds.
You look at our current SaaS margins.
We think we can pick up another eight or 10 points of gross margin.
Our cloud business.
By optimizing the back ends of the software to take a much more efficient and make much more efficient utilization of for instance, AWS or Microsoft.
And the partner side, we do continue to invest in it doesn't take that much capital I mean, we've we've added more people to the.
To the actual partner organization, but that's only a.
A couple of people and growth of three people and they are in total.
And if you look at what we're providing for the partners a lot of it is the same stuff that we're having to build for our own rapidly growing services organization.
If the speed with which we're growing our services organization you can't just rely on osmosis to spread the tribal knowledge you have to sort of package, it and and make it so that it can be a sort of disseminated very quickly to new people coming on board, which is exactly the type of thing our partners' needs as well.
So that's another area.
But from an acquisition standpoint, I should just add that I mean, we do continue to look for acquisitions. We got you know Bernie has is trying to build out its pipeline for acquisitions.
You know acquisitions right now the price and tends to be very very high on any companies that are you know that are healthy and growing.
But still we continue to look for opportunities.
Currently to expand their footprint in Europe, and we know that within the next couple of years, we need something and Asia Pac. So we're looking there as well, but there is a you know the.
There seems to be so much value creation going on and driven by the organic growth of our primary business.
And as we look for acquisitions, we want to make sure that.
They need to fit and they need to fit in well and they need to fit into the strategic direction of the company because.
Because we don't want to break the Oh, we're even distract from and the value creation going on and the main part of the business.
That's helpful. Thanks.
And the acquisitions.
And he made a few acquisitions in recent years and I guess, it's probably a combination of expanding.
Channel reach and in some technology. So based on your comments right now I should should I read that to be that you're.
And you're looking at opportunities more so to kind of expand your reach rather than adding technology here.
Yes, I would say that's fair I mean, the I mean, even the acquisition, we made and Denmark was largely about expanding our reach and it turned out there was a few bonuses and there are that are that may prove to be quite significant but the.
And the intent was to have you know.
And experienced supply chain organization that would expand our reach.
Okay, and sorry, just a quick one so if you sort of look at those recent past acquisitions.
I'm, assuming there sort of a fully integrated and.
And to your organization today and that sort of fair to say.
Yeah, that's fair to say I mean, certainly ordering and M actually required and Toronto is fully integrated at this point and the sales marketing.
Right across the board.
The.
Texas, Denmark, just by virtue of its location and time zone differences and so on.
And the local management manages a lot more of that on an and integrated basis. So we've got some dotted lines happening back to our North American management.
But it is definitely still more somewhat more independents.
Okay. That's great. Thank you.
Thanks.
And Mr. Barrington and there are no further questions. At this time you may continue with your presentation or closing remarks.
Great.
Thank you everyone. Thank you for joining us today.
And.
As always if you have additional questions. Please don't hesitate to give me or Mark result, and we will look forward to talking to you at the end of Q4, thanks and bye for now.
Yeah.
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.
Okay.
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