Q1 2022 Tecsys Inc Earnings Call
Yes.
Good afternoon, everyone welcome to Texas as first quarter fiscal 'twenty 'twenty two results conference call.
Please note that the complete first quarter report, including M D and E and financial statements were filed on SEDAR earlier today. All dollar amounts are expressed in Canadian currency and are prepared in accordance with international financial reporting standards. Some of the statements in this conference call.
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 September nine 2021 at one o'clock P M.
Eastern time, I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer of Texas.
Please go ahead Sir.
Okay.
Thank you and good afternoon, everyone. Joining me today is Mark Miller, our Chief Financial Officer.
We appreciate you joining us for today's call. Our company began in fiscal year 2022 with continued strong accelerated growth on the heels of an incredibly unique year for all of us.
With that said I would like to take a moment to thank some of the greatest health systems in North America for choosing Texas to help them meet the unique challenges that the pandemic brought about our unique end to end value proposition that health care is provided both commercial opportunities and the strength and confidence in our capacity to define healthcare supply chain best.
This is especially in some emerging pockets of that industry like pharmacy and healthcare three pls.
I am happy to say with the signing of two additional items this quarter and one new additional idea in August this brings us to over 30, new and existing health care accounts that have made significant investments.
Through the pandemic and further solidifies our leadership position as the preferred choice for end to end health care supply chain we.
We are honored to play a role in enabling them to provide excellent patient care.
And getting back to the business at hand.
I'd like to begin by summarizing key themes of the first quarter of fiscal 2022.
And the results of operations Mark will then walk us through the financial results in more detail and finally I'll comment on our outlook followed by a Q&A session.
There are two key indicators I would like to highlight which despite currency headwinds our continued continuing to contribute to our track record of it.
Solid accelerated growth.
Revenue, where I'll touch on growth and quality and our pipeline.
So first this is our 10th straight quarter of record revenue as we continue to emphasize SaaS revenue continues to scale up relatively quickly due to our ongoing strategic shift to SaaS in all our markets.
As we continue to mature the SaaS revenue model and we will increasingly create greater revenue visibility and improve the long term quality of our revenue.
This leads to my second point our pipeline as.
As we report results in the second year of the pandemic, while our revenue performance continues to move in a positive direction. This only tells part of the story.
I'd like to comment on the growing importance of supply chain as a strategic lever within organizations and how this is being reflected in our pipeline. The supply chains everywhere are in flux due to the pandemic and also strained due to general E fulfillment trends and shifting trade agreements everywhere. We look in all sectors companies are attempting to bolt.
<unk> technology to become more nimble in the face of new uncertainties.
<unk> solutions are increasingly recognized for creating supply chain flexibility as a result, we are seeing momentum in our pipeline.
All lines of business, both new and current customers. Some global customers, who may have started with a single facility are now expanding the multiple jurisdictions others, who may have started with a few modules are now expanding their texas footprint to better equip their supply chains. This past year has been a year of smaller projects.
With the massive distraction of the pandemic, we have seen customers tackling highest priority projects globally. This is often had the effect of limiting the scope of a project or affecting the timing.
This seems to be ending now as we're entering the new normal. This is reflected in our very active pipeline and busy sales team.
Now seem to be only held back by legal and procurement processes July and August were very good and the fall looks exciting.
Our momentum is strong and while continuing to invest in the expansion of our own services organizations.
We are also investing in the expansion of our partner ecosystem. This is beginning to truly help us to respond to increased demand.
The global opportunity in front of US is massive and we plan to exploit it.
Mark will now provide further details on our financials for the quarter.
Thanks Peter.
Pleased with our strong performance in our first quarter ended July 31.2021.
Before I get started with a review of results in the quarter.
Wanted to point out that as you may have noted we've changed the way we present, our breakdown of revenue on the face of the income statement.
We're now showing SaaS revenue separately from other recurring revenue, namely maintenance and support we're also presenting license revenue as a separate line, including proprietary and third party licenses in that revenue line. We're.
We're presenting hardware also on a separate line and this is this line. Likewise includes both proprietary and third party hardware.
Finally, we've combined Reimbursable expense revenue with our professional services revenue line. We made these changes in order to highlight the areas of the business that are driving our performance and that we believe will drive our future growth. We believe this presentation will create greater clarity and the underlying trends in our business and we've also streamlined our management discussion and enel.
<unk> financial condition and results of operation by amongst other things, adding comparative tables, which we believe makes the discussion clear as well as easier to read.
With that I'll move on to the first quarter results in more detail.
Total revenue was a record $35.0 million, 18% higher than $29.0 million reported for Q1 2021.
And as Peter mentioned, our 10th straight quarter of record revenue.
As many of you know a significant portion of our revenue about 65% to 70% is denominated in U S dollars.
As a result movement in currency exchange rates has an impact on our reported revenue and growth.
During Q1 fiscal 2020 to currency exchange movements had a negative impact on our reported revenue as the value of the U S. Dollar was weaker compared to the same quarter last year.
In fact on a constant currency basis, using Q1 fiscal 'twenty two exchange rates, our first quarter revenue grew by about 25% compared to the same quarter last year.
This unfavorable currency movement impacted all revenue lines in the quarter and a pretty material way.
We continue to experience strong and diverse revenue streams underpinned by a 47% increase in SaaS revenue up from $11.0 million in Q1, 2021 to $12.0 million in Q1 2022.
On a constant currency basis, SaaS revenue was up about 57%.
Maintenance and support revenue for the three months ended July 31, 2021 was $11.0 million.
Down 0.1 million compared to the compared to the same quarter last year.
This decrease was a result of the negative impact of currency movements and in fact on a constant currency basis.
And support revenue actually increased by about 5% compared to Q1 last year.
Our annual recurring revenue at July 31, 2021 was $60.0 million, that's up 9% from $52.0 million at July 31.2020.
Constant currency basis.
Increase was about 15%.
Professional services revenue for the first quarter was $14.0 million up 17% from $13.0 million reported for the same quarter last year, driven primarily by backlog deployment.
Again currency movements created a headwind on revenue growth here, which would have been 25% on a constant currency basis.
License revenue was 0.4 million down 0.4 million compared to the same period in fiscal 2020 one well.
While this number will continue to be lumpy from quarter to quarter. We expect the general trend of declining license revenue to continue over time and this is in line with our shift to SaaS.
Hardware revenue in Q1 fiscal 'twenty, two was $13.0 million, an increase of $10.0 million compared to the same period last year and this was driven by solid backlog heading into the quarter.
SaaS bookings are reported on an annual recurring revenue basis, and those bookings decreased by 54% to $2.0 million in Q1 of 2022.
Compared to Q1, 2021, which was at about $6.0 million.
SaaS bookings were highlighted by two new hospital networks as well as some solid base business uptake in complex distribution.
After quarter end as Peter mentioned in the month of August we signed yet another new idea and network.
Professional services bookings were robust at $19.0 million comparing favorably to 114.
$15.0 million in the same quarter of last year.
License bookings were 0.3 million in the quarter compared to zero point $5 million in the same quarter last year.
SaaS remaining performance obligation SaaS remaining performance obligation.
Also known as RP O or SaaS backlog was 65.0 a million at the end of Q1 fiscal 2022 that was up 14% from 57.0 a million at the same time last year.
On a constant currency basis that growth was 21%.
During the quarter, However, SaaS RP O decreased by about 1% and this was primarily a function of Q1 bookings.
Professional services backlog again at the end of Q1 fiscal 'twenty two was $36.0 million that was down about 8% compared to $39.0 million at the same time last year, but.
About 4% sequentially from April 30th 2021.
For the first quarter total gross profit increased to $18.0 million, that's up 7% from $18.0 million in Q1 of last year.
As a percentage of revenue gross margin declined to 43% compared to 48% in the same quarter last year.
This decline was a result of unfavorable exchange movements.
Investments to support key growth initiatives and change in revenue mix.
Switching now to our expenses for the first quarter operating expenses increased to $16.0 million higher by $9.0 million or 16%.
Paired to 11.5 million in Q1 of fiscal 'twenty one.
Operating expenses increased as we expanded investment in sales and marketing as well as in research and development.
Net profit for the quarter was 0.2 million or two cents per basic and fully diluted share compared to $3.0 million in Q1 last year, which was nine cents per basic share and eight cents per fully diluted share adjust.
Adjusted EBITDA was $7.0 million in Q1 of 'twenty, two compared to $8.0 million in Q1 of 'twenty one.
The decrease in profit and adjusted EBITDA compared to the first quarter last year was primarily due to the unfavorable foreign exchange impact, which negatively impacted the number by $5.0 million.
From quarter compared to the prior year.
We ended the first quarter with a strong balance sheet position at July 31, 2021, we had cash and cash equivalents and short term investments of $44.0 million that compares to $45 nine.
Million at yearend.
We had debt of $12.0 million compared to $15.0 million at year end.
Cash used in operations was $5 million in Q1, and this included the impact of seasonal year end bonus payout as well as growth in accounts receivable D.
Dsos or days sales outstanding and accounts receivable remained solid at 54 compared to <unk> 50, compared to 47 at year end and compared to 60 at the same time last year.
I will now turn the call back over to Peter to provide some outlook comments.
Thanks Mark.
The positive growth trends set in fiscal 'twenty, one are continuing into fiscal 'twenty two.
Not only are we reporting record financial performance, but it is encouraging to note the strength of our current pipeline and the overall strength of the business.
As an indicator of future performance, we can look to our fiscal 2022 pipeline of business. We entered the fiscal year with a strong pipeline and the pipeline remained strong over the generally quiet.
For months.
We are seeing solid opportunity cycles, and great activity across all segments, both among current customers and new prospects.
We plan to exploit market opportunities by accelerating investments in channel indirect sales development and marketing programs to boost our ability to gain more market share rapidly in.
In the coming year, we will continue to intensify channel relationships. We will also continue to invest in research and development to ensure we continue to have world class products catering to the needs of our customers and prospects.
We are committed to continuing to make investments in these critical areas to maintain our momentum.
Which may impact near term profit margins.
We believe that slightly lower profit margins in the short term will be more than offset by gains in market share and revenue in the medium and long term.
After a terrific fiscal 'twenty one for Texas. We are pleased that this first fiscal quarter of 'twenty. Two continues that trend, we believe that the outlook for the remainder of fiscal 'twenty. Two appears solid while we can't predict what additional curves COVID-19 may throw at US, Texas has never been in a stronger financial position to weather future sudden.
That volatility if it were to occur.
In summary, I want to remind analysts and investors about our three key operational themes for the remainder of fiscal 'twenty, two which have not changed from our previous analyst call as we entered the fiscal year.
We will continue to maintain a laser focus on developing and growing our SaaS revenue model. We will likewise continue to optimize our internal processes and resources to complement the shift to SaaS in order to maintain high levels of customer satisfaction.
Secondly.
We will continue to expand our partnership ecosystem. This is key for us to scale rapidly into the market opportunities that I mentioned earlier, we now are partners working effectively with us in both North America and Europe, We will continue to invest so we can enable them more quickly from accelerated training programs to improved onboarding tools.
We are determined to make our Si partners very successful.
Thirdly, we plan on investing in all our sales channels to exploit the momentum and opportunities coming at US. We also continue to expand and refine our omnichannel business platforms to service evolving needs and our health care supply chain converging distribution and retail market segments.
His efforts will help us to not only minimize customer churn, which is already very low but will also help us to expand revenue from current clients. As we saw this quarter remember changes what drives our business and the COVID-19 pandemic has accelerated the monumental change that was already underway and continues to turn traditional supply chain.
On its head.
With that we will open the call up for questions. Thank you.
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One moment please for the first question.
And our first question comes from the line of AMR as that with Echelon partners. Please proceed with your question.
Peter Mark Good afternoon, and congrats on another record quarter.
Thanks, Eric first my first question is on the bookings side, it's been trending down for a couple of quarters.
You spoke to timing.
And you also mentioned that July and August have been very strong.
I'm wondering what is driving that strength.
And just by that one and you spoke to.
Then if I'm looking beyond July and August how is the pipeline looking relative to the last few quarters.
I mean, we.
We felt like.
Q4, as you remember was quite strong although not as strong as the prior two.
The prior Q4 was.
Was in many ways a pre pandemic Q4, I mean is the business that closed in Q4 of 2020.
Was all projects that were set in motion in paper ready decided before the pandemic broke out so that was kind of a prepayment of a quarter.
We then started dropped into <unk>.
Lower bookings over the next couple of quarters and then it began coming back in Q3.
Sorry, Q4 over Q3 and Q4, yes.
Q1.
It was actually a very busy sales quarter.
But I think I, even mentioned it on our Q4 year end call.
What I was nervous about.
Ended up happening and that is that where we're finding now there are many projects ready to kick off the pipeline is very active with the sales team is very busy but theres backlogs in all of their procurement and legal departments.
So we're just finding its lumpy its taking longer to get the deals across the finish line.
A lot of our customers have had.
Everything from M&A too.
New.
New buildings, new other new capital projects and so on all held up by the pandemic and now they're trying to get them all moving.
And we ended up sort of in the lineup to get through legal and procurement. So so we're looking at this overall year and saying.
We're seeing.
Lots of sign of great activity.
The Q1 was actually getting busier and busier each month during the quarter from a sales standpoint.
And then Q2 is now off to a pretty strong start.
But we are continuing to see some lag there. So there is definitely like theres a bit of a logjam, we can see it in our pipeline, we can see the stuff sort of ready to sign getting close design, but but hung up there right at the end of the pipeline it's breaking.
But it's definitely shifting business out probably tip.
<unk> deal sort of 30 to 60 days kind of thing. So we are seeing that impact and we saw it hit us in Q1.
Okay.
Problem to have.
So if I'm thinking about your OPEC.
It's sort of slapped actually relative to last quarter.
I would've expected a higher number with your head count increase we spoke to that in the last conference call. Just wondering where the disconnect is here then.
If you could maybe give us a sense of what our run rate Opex number would look like.
<unk> increased investments.
Yeah, I'll take I'll take that one.
Yes.
There were a couple I think a couple of dynamics I would mentioned and they were called out in the MD&A.
As well in particular, one which is the.
And research and development, we did capitalize some development costs.
At it to a greater extent than we had in the prior quarter and in the prior year quarter as well.
So that created a little bit of in quarter tailwind on those on those costs.
I think that was about 400 K impact.
We expect that that will flatten out and normalize in the in the quarters ahead, but you would have seen that come through.
Some sequential as a factor decreasing.
Sequential cost and Opex.
In terms of where we're where we're going.
From here I mean, I think we have.
We still have some some hiring to do in sales and marketing.
I think a lot of that hiring is that we've done recently is as youre starting to see that hit the <unk>.
The P&L in Q1, but there is there's a little bit more on the plans to come for sure I think on the R&D side.
Expect not only that that right.
The right sizing of capitalized amount, but also.
A general increase in and development spend as as new hires continue to come online.
And projects continue to rollout.
Great. So if I'm thinking about a run rate number for the next couple of quarters for Opex.
How do I sort of think about that.
In terms of <unk>.
Capitalized R&D used apps.
It's like having in your fiscal Q1.
Do we expect that to continue throughout the year.
No I think you should you should see that start to come down.
You should see that come down probably by 200000 ish.
In the next quarter and sort of maintain at that level.
Then on the gross Opex numbers.
Yes, I mean, I think I think the general trend there will be.
So it will be.
We'll be increasing I think the increases will be will be fairly a fairly slight hammer.
Okay.
Maybe one last one for me.
On your AGM you spoke to <unk>.
Reaching 100 ideas within the next four years from your time, so 50 ish.
Conceptual question I guess can you maybe give us a sense of how the next 15 look like.
To be 15, you currently have.
Should we sort of expect the next 50 with double your health care revenues is that a fair statement.
Then to reach that goal, how much human capital or other resources would you need.
Yeah.
Yes, I mean in terms of the.
The overall makeup of the next 50, we would expect it to be similar to the first 50 I mean, the first 50 includes a combination of.
Very large networks as well as sort of medium size that works. So we certainly expect that that kind of make up to continue its still that top 300 that we're targeting so we don't see a change there we do expect.
Over the coming four years to deepen our penetration of existing accounts. So we are actually looking for growth both of course on the new account side and.
<unk> accounts.
What would it do to our hospital revenues.
I would certainly expect it to more than double our existing hospital revenues because of the fact that we would be not only adding the new accounts, but also growing the base count so so.
And we think the activity is there to do it I mean, it's not it's not linear.
Our expectation is that we would add sort of more accounts each year.
To the point, where by the last year, we'd be sort of adding 15% to 20 or in a year kind of thing.
But we're seeing a nice it certainly looks very doable we've got.
We have very targeted plans, we have the account names mapped out sort of we know our approach and we see what's happening in the pipeline.
From a human capital standpoint, we do need to continue to grow that sales organization. I mean, we had been targeting getting to 30 healthcare reps within three years.
We're a little bit.
Behind on that ramp now.
We're watching the productivity as we go.
The productivity I would say so far.
And it's hard in a pandemic here to judge it but based on the data we're seeing it looks like the productivity per rep, maybe a little bit higher than we'd anticipated.
In our in our model that's called for 30 reps in healthcare. So it may turn out to be that we don't need quite that many.
But we're still working that through now.
But certainly.
Over the next four years, we would expect to still approximately double the size of our existing health care sales organization.
Fantastic. Thanks, I'll pass the line.
Thanks.
Sure.
And our next question comes from the line of John Shao.
With National Bank. Please proceed with your question.
Yes, Kurt.
So my first question is I think you already mentioned that taxes added to hospital networks.
Quarter end, one why network in August I'm, just curious about your spending trajectory and how how we should see their spending scale overtime, because I'm just trying to get a sense of the size of the customer wallet share.
Yes, I mean, we we estimate that as I mentioned earlier I think on the I guess it was maybe in the AGM, but we typically see that are fully implemented.
Average size network.
It should be spending about $2 million a year of annual recurring revenue. In addition to whatever consulting revenue and other revenue as they may they may give us, but the focus there on the on the recurring piece. So these are these accounts that are signing are pretty typical in that they are starting in let's say that.
20% to 25% kind of that size.
Because they start in one area or they start with only a couple of hospitals over their network and then they expand it over time, so we typically see.
We've seen this in the past even in the old perpetual days.
We saw that our our upfront deal size.
Ended up being sort of 10% to 15% of the total revenue we would actually conclude over the next three to seven years kind of thing. So so we see sort of a long tail on these kinds of deals with with lots of upside in the secret of course is to make sure that the first project is a big success provides a great payback for the hospital network and.
Puts them in a good position to decided to go ahead to the next phase.
Great.
All my other question is I think there is a current macro backdrop.
There is a shortage of talent and wage inflation.
Do you expect her actually impact your hiring process with housing demand.
And then now top of mind.
You want to take that one mark.
Yeah, I mean, I think we continue to we continue to.
Recruit pretty aggressively and I think we.
There are definitely challenges.
In terms of bringing on new resources at that speed.
And we do see competitive pressures on pricing.
In the market. So I think that's something that as it is right now is just.
<unk> is the reality.
And we expect that.
Expect that to continue its definitely competitive hiring marketplace right now.
That's great color, thanks, and congrats on the quarter.
Thanks, Scott Thanks.
Our next question comes from the line of Gavin Fairweather with core Mark. Please proceed with your question.
Oh, Hey, good afternoon.
Hey, Kevin good afternoon.
I just wanted to start on the healthcare side. It sounds like some of the deployments that you've been seeing have been a bit more targeted and really looking at the highest priority kind of items I guess I'm curious what your sales team is hearing from clients do you expect that to remain kind of status quo.
Going forward are you hearing any signs that maybe certain clients are looking to get more more ambitious with their rollouts.
Yes, I mean, there was an interesting mix in the pipeline right now if we look at the pipeline I would say there is a.
And if I were to hazard, a guess I'd say, 30% of the new accounts in the pipeline right now are looking to be sort of more ambitious and bite off sort of a much broader piece of the platform.
Right upfront.
But there is still probably the majority at this point that are being quite selective and very sort of.
Targeted in their approach to which part of their supply chain they are going to.
The address address upfront.
The Delta wave is pretty seriously impacting a number of these a number of these areas.
You kind of see that in the in what's happening in the these deals the deals from further south where they are in areas, where they're being still quite hard hit by Delta.
Turning to see only very targeted type deals.
Other areas that are much more quiet.
They tend to be opening up but two.
Two addressing them biting off a much larger piece upfront.
That's helpful and then good to see the I guess broad commercial release of your pharmacy module.
Can you speak to some of the Kpis that you've pulled out as some of your earlier clients and then maybe just you could remind us of the.
The 2 million kind of fully baked spend with the large idea on what proportion of that would be tied to pharmacy.
Sure I mean, we're still pulling out kpis, we've solely that rollout is still early we've got we've got it out in a couple of accounts now, but we decided it was time to go commercial we had enough proven success with it then.
Felt like the product was quite stable for that market. So it was time to go commercial that's why we announced it at the arm trade.
Tradeshow.
But if you look at the benefits I mean, the predominant hard benefits come down to reduction in expired drugs on the shelf.
It's not uncommon for a hospital to run with sort of 5% to 7% of drugs expiring on the shelf.
And that is a that ends up being a very very large number.
Theres also drug as they get lost or stolen or misplaced or whatever but the.
Both of the costs seems to be related to <unk>.
Over buying or buying in two larger units to measure buying or buying a 500 milliliter bottle of a liquid drug that you have to throw out 30 days. After you open the bottle.
If you are only using 100 bills a month that means youre throwing out 400 bills every month.
So a lot of it is just this.
Exploration, a very expensive drug is sitting on the shelf.
That runs into the millions so the payback on that is very substantial now there's there's other benefits.
The ability to better manage an emergency recall.
The news comes out certain lot number needs to be recalled with our platform, they're going to know exactly where in the hospital. Those lots are for that drug to be able to execute that recall very quickly.
Got you.
Built in management of.
The specialized pricing for first nations.
That's all managed within the system. So there's a there's a number of benefits that sort of streamline and automate the whole decision, making and pharmacy management process, but the hard dollar payback tends to come in reduction of expired goods.
<unk>.
And Gavin I have to admit I've forgotten the second part of your question what was the secondary.
Yeah. It was just around how.
How much pharmacy could account for in like the $2 million of fully baked IRR from a typical audience.
Yes, I mean, we think it's about half a mill.
The two I want it depends on the network there are networks, where it could be as much as 800000 noted the $2 million, but but we think a more typical situation is sort of call. It four to 600 out of the $2 million.
That's super helpful. Maybe just we could switch gears and chat about distribution I think you talked about growing pipeline kind of across the business would there be any distinction between kind of the logistics side of distribution and the retail, which I think is still facing some challenges and maybe you can update us on.
On kind of win rates that you're seeing in the market there.
Yes.
Sure.
Retail is pretty interesting I mean, we're seeing.
We continue to see a lot of opportunity in brands going direct to consumer so not really retailers, but people that are becoming online or organizations that are becoming online retailers by taking brands that have been in the market for years and now setting up direct direct consumer web site.
And marketing direct to consumer and building that direct relationship with the consumer.
So that that act that marketplaces, it actually fairly active right now the true retailers I would say are just starting to come back.
And we've got we've got a number of good opportunities in the pipeline right now, but those guys got hammered of course during the pandemic.
Even some areas, where you wouldn't think they would get that hit that hard by the pandemic, but.
I mean people spent less on fashion. They spent less on cosmetics. They spent less on lots of things during the pandemic.
And.
It almost seemed like everything except home renovations in appliances sort of went down.
So those guys felt it pretty hard.
I'd say that if I.
Judging everything by pipeline can be risky, but sort of looking at the tea leaves there it certainly looks like that market spaces coming back there's more confidence they.
We're seeing more reliability and predictability in their numbers.
We certainly think.
We're ready to see some some pick up in that space. The rest of sort of general distribution is coming along I mean by and large it has not been that affected by.
By the pandemic I mean, the projects have been again, they've been smaller more targeted projects, but but that's just because of the distraction of the actual revenue and earnings in the rest of the segments has been quite solid so.
We're not really seeing any any major swing there.
That's great and then maybe for Mark can you remind us on the mechanics of the FX impact on your <unk> do you mark to market it kind of each quarter and at the closing rate or are you marking it at the time of renewal of your of your customers. Yes, we do a we do use the period ahead.
Right as the as the Mark there.
Okay. That's it for me thanks, so much.
Mhm.
Okay. Thanks.
Yeah.
Our next question comes from the line of Nick Agostino with Laurentian Bank Securities. Please proceed with your question.
Yes, good afternoon.
My first question going back on them.
Right.
Peter I recall, one of your conferences.
The last couple of years.
Could actually mean and of course.
There was discussions around the regulatory environment and I believe it was 2018 there was a regulatory.
Mandate.
Okay.
Tracking of drugs within the hospital environment, and if I recall correctly that may have been pushed out to 2021 can you just remind us where things stand from a regulatory perspective when it comes to.
Drug.
Profit.
Sure.
And I think the final I mean, they rolled that out in stages. So the manufacturer if thats what youre, referring to is the drug supply chain Security Act and the which requires.
In effect traceable registered transfer of drugs every time it moves from one legal entity to another so it doesn't require the tracing of the drugs for instance, within the balance sheet in effect, but if it's going to move from one legal entity to another.
Must be <unk>.
Registered in and traceable and so on.
And the manufacturers had to be compliant I think it was in 2017.
Distributors by 2019, or 2020, and but the actual endpoint of distribution keeps moving out a little bit. So I think the latest deadline on that is 22.
And even then it's only covering right now fairly high class drug sort of drugs that have a high street value and and that kind of thing over time. The expectation is that it's going to move down what the legislation calls for is that it will move down through the various classes until it is much more comprehensive so we're still seeing in the hospital space.
We're seeing some hospitals that are deploying specifically be ready to be fully compliant and in effect remove the overhead. So you've already got a good platform in place you can just manage it that way.
Others are sort of saying well, we don't think we're actually going to do many sales to third party legal entities were only going to sell to our end user patients which doesn't require trees.
Therefore.
We're going to just try to track manually on a spreadsheet or whatever.
The occasional third party legal entity sale.
We will see how that pans out.
We think as we get more success and reputation in the pharmacy space, we will see more uptake driven by that.
The same thing by the way from a regulatory compliance standpoint applies to what's called the Udi requirements, which is unique device identifier legislation and that calls for full track and trace on implants.
Anything from knee joints, and hip joints to even eventually its going to titrate down on.
Stainless steel screws in and that kind of thing. So that is also driving some of the activity. We're seeing right now in for instance sales of the operating room module.
Because that's.
Absolute pain to manage without it without a good supply chain platform.
Okay I appreciate it.
Okay.
I guess my next question you talked about channel partners.
Contribution and all you've talked about.
Sure.
Just give us an update.
Your channel partner contributions this quarter, and specifically workday and KPMG.
Uh huh.
Okay.
To move beyond.
The cloud.
Yes, I mean at least on my end you were breaking up there a little bit. So I don't know if that's me or you but.
I mean in terms of.
In terms of partners.
We are seeing.
A lot of action with partners in the healthcare space.
The if I.
<unk> correctly and I don't have that data right in front of me and if I remember correctly one of the deals that closed in Q1 was directly partner related one of them was not.
The workday situation, we're still in the same position we are in that we've signed and its four deals in total with workday.
They are now live we are undergoing a validation process there to make sure there.
Fully satisfied with a cloud service that backs that up and how the how the data moves back and forth between the two cloud components.
Once we complete that verification, we then move from sort of trial.
What period on that partnership into more the more full blown phase. So we're still in that verification phase on that one right now we expect that to finish in the not too distant future, but we've never gone through with workday before so we don't really know for sure how long that will take.
Tom.
If I look at the pipeline going forward.
Certainly and we were actually just commenting on a board meeting earlier this morning.
Interesting.
Partner activity in the ecosystem is very much tied to health care at this point.
If you look at most of the health care deals in the pipeline there is a partner involved in.
A very high percentage of them high if you look at the complex distribution in retail accounts.
Not that many partners involved there much lower percentage. So we've got our partner team is working very hard to try to open up.
The distribution and retail side to partners get more partners involved because we think it's also going to be key to that.
That rollout.
Sure.
And.
Alright, thank you.
That's all I would have to say that I know one of the deals. We just signed the deal a couple of weeks ago and the complex distribution that was that had a partner directly involved but it's as I say, it's really the health care space, where the bulk of the partner activity is happening.
Okay. That's good color.
So I would just add that influence in our pipeline. It just it continues to grow we've sort of been disclosing that number.
Quarterly for the last number of quarters and it's up it's just up over 20% now of our pipeline as partner influence, though continues to expand.
Okay I appreciate that and my last question just going back to the SaaS bookings and you guys highlighted.
The legal and procurement backlog to really get these deals.
The finalized.
Can you maybe comment on from a dollar perspective, or just give us some sense.
I know that I think two quarters ago.
<unk> recorded $1 million.
SaaS SaaS bookings, but that quarter aside it looks like you're doing more in that two and a half to three $8.0 billion dollar SaaS bookings per quarter.
If the backlog wasn't there or sorry, if that bottleneck wasn't there.
Did you have or do you have enough pipeline deals that could have been signed in the quarter to kind of put you more normal run.
Right.
Yeah, I mean, we don't we don't really give forecast, but your statement is right on I mean worse, we're looking at a very sizeable pipeline I've never seen the sales teams so active through the summer months.
We certainly had the possibility and we came in at $1. One in the first quarter, we certainly had the possibility to get.
And probably in the range of three.
In the first quarter, if it hadn't been for those those bottlenecks in and legal and procurement. So.
We look at Q2, it's I mean, it's just the stuff is kind of just snow plowing ahead of us.
That bubble in the pipeline just keeps getting bigger.
But it.
It certainly looks as though.
We're well set up to get to be running in the kind of range you're talking about there.
Okay sounds good I appreciate that.
Great. Thanks.
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Okay.
Mark.
Yes, just a couple of questions on the Ibms.
So the two in the quarter and the one in August.
Any of them like the Mayo TD house type size or more next tier.
Yes. So these were all sort of next year I mean, good good mid range deals.
But not not in the size range of like.
EMEA, where Trinity I mean, there's not that many the size of valent Trinity of course.
The vast majority of the market is sort of those mid range sort of 10 to 20 hospital networks kind of thing.
These were more typical mid range type opportunities.
Alright got it.
And then.
Peter on the sales in China. The investments are you doing a similar scope edition in distribution any timelines in terms of head count additions there.
We are growing we are growing the.
The sales team and distribution.
But our.
It's funny, our challenges and we have to manage the.
We're trying to maintain profit or at a reasonable level right. So we want to focus on growth we want to create as much topline growth is possible, especially SaaS revenue growth at.
At the same time.
We don't intend to run this thing at a loss. So we're trying to manage that carefully so if in.
If in doubt.
If theres a question of sort of.
Reasonable spend limitations then right now we always prioritize health care first because we feel like health care is much more timing driven.
The health care market is now moving its moving as a group.
And.
If we don't move quickly and expand the sales organization is to take that opportunity, we're going to leave it open for someone else.
And right now we have a massive.
How to lead leadership position in health care. We're way ahead of everyone else. Both in terms of the platform that we have as well as the number of accounts that we have but we want to keep it that way. So we're so wherever it's sort of a question of do we spend in healthcare or do we spend in complex distribution health care wins that battle at the same time, we can only grow healthcare.
So fast there's limits to how fast you can grow the team we need salespeople that actually know what they're talking about we've got to bring them up to speed and so on so it still leaves a lots of room for expansion in complex distribution, but let's say if it if it's either work then we invest in health care. If we have enough for both then we're investing in complex distribution as well that the complex distribution market.
It's actually many times larger than the healthcare market.
But as you know our win rate is lower I mean, our win rate in healthcare is gets very close to 100% our win rate in complex distribution as more sort of in the low to mid 40. So so that's how we balance but certainly if I look five years down the line I would expect both sales teams to be at least double their current size.
That makes sense.
And.
When I look at Europe.
So this quarter constant currency EPS growth outpace or was there some large deal implementations, but skewed the growth or would you expect <unk> growth can you kind of stay ahead in the near term.
We don't we don't expect PS growth.
To stay ahead of.
SaaS growth.
In the near term I think we had.
Am I recall, we did do quite a bit of hiring and growing that team.
Over the course of last fiscal year.
So we entered the year here with.
Pretty a pretty.
Pretty strong bench that had been done at ground quite a bit in.
In recent quarters and.
And I think what youre seeing in PSS revenue and we still have a robust backlog.
You're seeing that.
That bigger team.
Getting getting more more and more efficient and more and more utilized.
At quarter.
But.
I think the growth rate of that.
Services that core services team.
Has has slowed has slowed down a bit.
So I don't expect that.
Yes that <unk> revenue growth to continue at that at that same pace.
Great. That's helpful and then Mark I might have missed it but did you say what the impact was on adjusted EBITDA from FX.
Yeah, we did.
So the revenue side it was about a $5.0 million dollar.
Headwind on the cost side it was about a 900000 dollar tailwind.
So on the bottom line at the adjusted EBITDA level, it's about a $5.0 million negative impact.
In the quarter.
Got it thanks.
Mhm.
There's many things we can control, but currency is not one of them.
And we have no further questions over the phone lines at this time.
Great well. Thank you very much that concludes the question and answer session.
Thank you for taking the time to join US today on this call and as always if you have additional questions. Please don't hesitate to give mark a call and we'll look forward to talking to you at the end of our second quarter, Thanks, and bye for now.
Hi.
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