Q3 2022 Tecsys Inc Earnings Call
[music].
Okay.
Good morning, everyone and welcome to the Texas third quarter fiscal 2022 results conference call.
Please note that the complete third quarter report.
Including M D N a financial statements were filed on SEDAR yesterday.
All dollar amounts are expressed in Canadian currency and are prepared in accordance with international financial reporting standards. Some of the statements in this conference call, including the question and answers period May include forward looking statements that are based on management's beliefs and.
Sure.
Actual results may differ materially from such statements I would like to remind everyone that this call is being recorded on Thursday March 3rd 2022, 830, a M eastern time.
I would now like to turn the conference over to Mr. Peter Burton Chief Executive Officer at Texas. Please go ahead Sir.
Thank you good morning, everyone.
Joining me today is Mark Butler, our Chief Financial Officer.
We appreciate you joining us for today's call.
In the third quarter, we delivered excellent results fueled by strong demand for our solutions and the continued success of our transformation.
Our customers are not only.
Pardon me staying with us they are growing with us and transforming their own businesses in.
In Q3, I'm thrilled to say that we continue to deliver another great quarter with double digit air growth.
With backlog and a strong pipeline across all industries.
We continue to solidify our mission of equipping our customers with supply chain excellence.
Although we did experience some delayed projects due to omicron I'm very proud of the work our team did by closing out the quarter strong expanding on the depth and breadth of our platform and as always investing in our people and culture.
I'll start by providing some additional color on the results and Mark will walk us through the financial results in more detail and finally I'll share what I'm looking forward to this year and beyond we'll follow that up with a Q&A session.
There are two key indicators that I'd like to highlight which despite currency headwinds.
Contributing to our track record of solid growth.
Revenue, where I'll touch on growth and quality.
And our pipeline.
That's on market conditions.
First it's important to note that we have had consistent consecutive growth on a quarterly basis for the last three years.
As we continue to emphasize SaaS revenue is scaling up relatively quickly due to our ongoing strategic shift to SaaS in all of our markets.
As we continue to mature the SaaS revenue model, we will increasingly create greater revenue visibility and improve the long term quality of our revenue.
This leads to my second point, our pipeline. The strong revenue performance is fueled by the continued strength of our pipeline companies in every sector are working diligently to digitize their supply chain.
To maintain competitive advantage and we are there for them.
If the last few years have taught us anything it's that the supply chain is absolutely critical.
These are now taking this knowledge and bolstering technology to become Nimbler in the face of new potential future uncertainties, and we are seeing the effect of that trend not only with new prospects, but the growth in utilization from our existing base of customers.
With that said, we continue to invest in innovative solutions to further drive benefit to our customers and we've realized a significant milestone and the introduction of an AI driven augmented cluster building application at our customer where your electric.
This application intelligently groups together picks of various orders and stimulates multiple pick pads and then chooses the optimal combination to reduce travel trailer boost efficiency.
We expect to see a 15% to 20% cost saving just didn't travel distance alone.
We believe this to be very timely as our customers continue to be challenged with labor shortages.
As we mature our AI strategy, we see ample opportunity to take full advantage of the data our system generates to create customer value.
Our momentum is strong.
Maintain this we realized the people of Texas or the most critical axis.
The most critical asset we have and we are allocating higher expenses for retention as well as the recruiting efforts in attracting new employees.
Mark will now provide further details on our financial results for the third quarter and the first nine months of our fiscal year.
Thanks Peter.
As indicated at the beginning of the call our financials and MD&A are available on SEDAR.
Because my summary here just in a few of our key metrics and areas, where I will provide some additional color.
We're pleased with our strong performance in our third quarter ended January 31st 2022.
Total revenue was a record $35 4 million.
11% higher than $31 9 million reported for Q3 of 2021.
As many of you know a significant portion of our revenue about 65%.
Is denominated in U S dollars.
As a result movement in currency exchange rates has an impact on our reported revenue and growth.
During Q3 fiscal 2020 to currency exchange movements negatively impacted 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 fiscal 2022 currency rates, our third quarter revenue grew by about 16% compared to the same quarter last year.
We continue to experience strong and diverse revenue streams underpinned by a 49% increase in SaaS revenue.
Which was up from $4 7 million in Q3, 2021 to 7.0 million in Q3 2022.
On a constant currency basis, SaaS revenue was up about 56%.
I also want to note again that we're at the precipice of a significant milestone in our transition as a SaaS business with our SaaS revenue currently representing 46% of our total recurring revenue streams in Q3 fiscal 2022, and we have line of sight to SaaS crossing over the 50% threshold.
Within a matter of months.
That's about a three year timeframe into our SaaS transition.
Our annual recurring revenue at January 31, 2022 was $59 5 million up 17% from $58 million at January 31, 2021.
On a constant currency basis that increase was about 19%.
Professional services revenue for the third quarter was $12 9 million up 5% from $12 3 million reported for the same quarter last year again currency movements created headwind on revenue growth here.
Which would have been 9% on a constant currency basis.
Moving on to bookings in the quarter.
SaaS bookings are reported on an annual recurring revenue basis and increased by 133% to $2 3 million in Q3 2022 compared to Q3 2021, which was at 1.0.
SaaS bookings were highlighted by the addition of a new hospital network as well as significant base business from our customers across all verticals.
We also signed another new hospital network in the first days of Q4.
Professional services bookings were $9 3 million down 11% compared to $10 5 million in the same quarter last year.
We had some professional services bookings slip into Q4 about 4 million signed in the first few weeks of Q4.
As highlights again, the lumpiness and impact of timing on reported quarterly bookings, we still like bookings as a metric because over time. We believe it provides a good leading indicator of business performance and growth prospects.
SaaS remaining performance obligation also known as our P O or SaaS backlog was $78 5 million at the end of Q3 fiscal 2022.
Up 36% from $57 6 million at the same time last year.
On a constant currency basis that growth was 37%.
SaaS backlog was up 8% sequentially compared to the second quarter of fiscal 2022.
At 6% constant currency.
The increase was driven by significant multi year SaaS bookings during the quarter.
Professional services backlog at the end of Q3.
Fiscal 'twenty two was $29 5 million.
It's down about 22% compared to $37 8 million at the same time last year.
And down from $33 1 million at October 31, 2021.
As noted above timing, especially on large deals can have a pretty significant impact on reported backlog at any point in time.
Our professional services backlog remains robust and we expect our delivery team to continue to be very busy in the quarters ahead.
For the third quarter total gross profit was $15 2 million, that's down 0.2 million compared to $15 4 million in Q3 of 'twenty one.
As a percentage of revenue gross margin was 43% compared to 48% in the same quarter last year.
That decline was a result of unfavorable exchange movements.
Changes in the revenue mix and investment to support growth.
Net profit for the quarter was 0.9 million or six cents per fully diluted share compared to $1 8 million in Q3 last year, which was <unk> 12 per fully diluted share.
Adjusted EBITDA was $2 7 million in Q3, 22 compared to 4.0 million in Q3 2021.
The decrease in profit and adjusted EBITDA compared to the third quarter last year was primarily due to an unfavorable foreign exchange impact of approximately $1 $6 million.
Turning now very briefly to our results for the first nine months of our fiscal 2022.
Our total revenue was $102 9 million up 13% compared to $90 7 million in the same period last year, and that's up 19% on a constant currency basis.
SaaS revenue for the first nine months of fiscal 'twenty, two was $19 $2 million.
Up 41% from $13 7 million in the same period last year, and that's up 49% on a constant currency basis.
Our SaaS bookings were up 23% compared to the first nine months of last fiscal year.
Our profit for the first nine months of fiscal 'twenty, two was $1 9 million or 13 cents per fully diluted share.
Compared to $5 2 million or 35 per fully diluted share in the same period last year.
Adjusted EBITDA was $8 4 million in the first nine months of the current fiscal year compared to $12 3 million for the same period last year.
Foreign exchange movements had a negative impact of approximately $4 $6 million on profit and adjusted EBITDA in the current nine month period compared to the same period last year.
We ended the third quarter with strong balance sheet position at January 31, 2022, we had cash and cash equivalents and short term investments of $36 $9 million.
<unk> to $45 9 million at year end, and we had debt of $8 7 million compared to $9 6 million at year end.
Cash provided by operations was 0.9 million in Q3, and our Dsos or days sales outstanding and accounts receivable remain a reasonable at 58 versus 47 at year end and 45 at the same time last year.
Recall that our Q4, so that's next quarter for us tends to be a high point for cash from operations due to some seasonality in our noncash working capital.
In particular related to annual tax credit refunds.
I'll now turn the call back over to Peter to provide some outlook comments.
Thanks Mark.
Positive growth trends are continuing for Texas as we move through fiscal 'twenty two our.
Our consistent strong financial performance, new accounts and the expansion of our existing accounts and most notably our solid pipeline are continuing.
The market conditions give us confidence that we are well positioned to continue capitalizing on this opportunity.
As mentioned earlier, we are laser focused on retaining the great people, we have while attracting new talent to stay ahead of this changing market. We continue to see demand for adding additional talent and we're starting to see what appears to be some potential positive signs in the labor market.
After what has been a fairly choppy past number of months.
We are mindful of our delivery capacity and we continue to invest on that front. We are also continuing to invest in our channel relationships in both cases, we're taking proactive steps to manage for continued growth.
While we are optimistic that the worst of the pandemic is behind US. It has talked all of us to be prepared for the unknown and to be adaptable to overcome adaptable enough to overcome curve balls.
Texas has never been in a stronger financial position.
To weather future sudden market volatility if it were to occur.
In summary, I want to remind analysts and investors about our three key operational themes for the remainder of fiscal 'twenty, two which have not changed from our previous analyst call as we entered the fiscal year.
First we will continue to maintain focus on developing and growing our SaaS revenue model. We will likewise continue to optimize our internal processes and resources to complement this shift to SaaS to maintain our 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 will continue to invest so that we can enable them more quickly.
From accelerated training programs to improved Onboarding tools, we are determined to continue to make our Si partners more and more successful.
Thirdly, we plan on investing in all of our sales channels to exploit the momentum and the opportunities coming at US. We also continue to expand and refine our omnichannel business platform to service evolving needs and our health care supply chain converging distribution and retail market segments.
These efforts will help us to not only minimize customer return, which is already very low but will also help us to expand revenue from current clients as we saw happening again this quarter.
With that we will open up the call for questions. Thank you.
Yes.
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One moment please for the first question.
Our first question comes from the line of Gavin Fairweather with core Mark. Please go ahead with your question.
Oh, Hi, good morning, I thought at the time, when we can start on the healthcare side.
I think last quarter, you referenced kind of the next 20 Ibm's had been roughly identified and being worked I plan I know those deals can be kind of unpredictable on how they may affect for any color on that.
How those deals are maturing and moving in my mind.
Okay.
Sure overall down the net.
The health care market is almost on fire. These days, we are seeing a lot of activity in that segment, we're seeing a lot of deals moving through the pipeline.
<unk>.
It's interesting I feel like the biggest change in a way in the last year is as we move from sort of management teams trying to convince the board that they need to do this and invest in their supply chain technology to now the shoes on the other foot. The boards are asking management teams sort of what theyre doing about supply chain and how soon they're going to get a good.
Platform in place so it's.
It's turned around and accelerated this quarter was weird from the standpoint that especially for health care to some extent across all segments, but especially for health care.
This quarter was really only probably a little less than two months long.
The omicron wave came through and it hit different different areas of the country at different slightly different times, but basically the bulk of our clientele in health care.
We're massively distracted for anywhere between one third and a half of the quarter.
So we felt like it was.
Felt like a very short quarter from the standpoint of actually getting deals done.
But the <unk> and.
And you saw that in some of the deal slippage that mark referred to I mean the.
Professional services bookings big chunk that signed in just in the first week of February that normally would have been.
Q3 stuff.
Even the additional network that signed in the first week of February that would that normally would have been Q3 stuff, but it was all just sort of a omicron shortening up the quarter, but overall.
To answer your question the activity in that market is stronger than we've ever seen it.
That's very helpful. And then maybe I thought we could zero in on the services side and I know, it's kind of the holiday quarter.
And I think you referenced.
Sean impacting some projects.
You have a center of the amount of billings that maybe slipped.
From your third quarter into future quarters.
To catch up there.
Yes, we actually expect a bit of a catch up it's hard to quantify exactly how much slipped.
Were to put a number on it I would say it was at least $1 billion five for something like that.
We just had too many projects, where we suddenly got to mid December or whatever that customer calls and says you know what we're in the middle of Omicron wave half of our staff is sick.
Everybody go home and we'll see in a month kind of thing.
So we just had a lot of that now with the challenge of course is.
While we do expect some catch up in Q4 to some extent, we can only catch up so much because of course, we're capacity constrained.
So.
We've added head count in that.
On a professional services side, but the supply is not infinite there. So so we certainly expect.
Our strong Q4 and pro services.
Is it largely seems like the.
It seems like whatever the vaccinations didn't get homegrown got so it seems like we're kind of out of the woods on this now.
But I would guess Mark I don't know if you would agree I feel like maybe a $1 million $80 million in app, it's somewhere in that range.
Yes, I think that's reasonable.
That's great and then maybe I thought if I could just chat on the lapse module wins.
One of our slides.
Yes.
In January .
We haven't talked about it a ton in the past can you maybe just walk us through how you think about it.
Hi.
The distribution for that March on an overall just your thoughts on growth.
All right.
Okay.
Sorry, Kevin I didn't pick up which module, you're referring to the lab multiple at the clinical labs module.
Oh, Okay sure.
Yes.
It's still very early stage Idaho.
I would say.
Youre, probably not going to hear much from us about <unk>.
<unk> for.
In any significant commercial way for probably another year or two.
Our focus is at this point is more getting continuing to gain traction in the pharmaceutical module.
The hospital pharmacy.
In fact, our goal if you look at what we're trying to get done we are saying we want to get to 180 ends within the next few years.
And we want to make sure that at least 10 of those Ivy and are deploying our pharmacy module because our feeling is that if we can get at least 10 of them.
Deployed using our pharmacy module that will sort of set us up for a second wave.
To go back through the entire customer base and an AD in the pharmacy module. So so thats our goal I mean, there's market as you know is a pretty cautious market.
So it's really I would say the pharmacy module, that's taking up the bulk of our attention in terms of trying.
Trying to get some real traction there.
Got it and then lastly, before I pass the line I know you'd be doing kind of internally to optimize.
Your software running on a library.
Can you just provide a bit of an update on that project.
No.
Timelines and then maybe just on China.
Gross margin.
Sure I mean, there is from.
Similarly, the project too.
Make our take our software to be sort of towards SaaS native that work continues and there is a way in which.
There is a way in which you are always wrestling with technical debt right. I mean, that's just the nature of the software development space.
Similar to drives me nuts, sometimes we have a product that I still think it was brand new we develop the product.
Within the last three years and I start hearing from R&D that theres, some technical depth that they have to go back in and.
Work through and it just it's the nature of the rapidly evolving sort of cloud space that that some of the stuff changes all the time.
But it certainly looks to us as though the heavy lifting will be done.
Pretty much by the end of this calendar year, I mean, where where.
We've introduced all kinds of new security capability.
Shifting the underlying database to run off.
Much lower cost database of the week.
We will be able to support.
Posters database in AWS.
So.
We've added all kinds of scalability capability, we've got a very large.
Go lives that happened in January over 1000 users at a single site.
And it's performing very very well in the cloud. So so we're we're pretty happy with where we're at on that and we as I say, we think the heavy lifting to be done by the end of this this calendar year from the standpoint of impact on margins.
The shift in database will over the next year, we think add.
Somewhere around three.
3% to five percentage points of margin to the to the SaaS to our SaaS numbers, but really only on new accounts. It will take more time to move existing accounts over onto that.
So, but it's still that we believe that will start to show up significantly by the end of our next fiscal year.
The other margin shift that I think youre going to see in the coming couple of years is we've probably only got another.
Maybe six months, probably a couple of quarters I'm going to ask Mark to comment on this what I've done, but another couple of quarters of continuing to build out the bench on our cloud and Dev op support team.
So that's what keeps suppressing the margins at this point is even though the revenue is growing pretty significantly more than 50% this quarter constant currency.
We're continuing to build out that bench and get a deeper and deeper benches of expertise and capability to operate the offering 24 seven.
We're a couple of quarters away from having that pretty much done so at that point the cost.
Darts to flatten out.
And the revenue just continues to rise so so.
Marc does that.
Yes, I think that's right in the next you know.
I think that's right we've got this quarter and probably the first half of next year to get to that place.
And the other thing that's going on and there is no investment in security.
That'll be going on over that over that time period as.
As well.
We're faced with some pretty difficult.
Pretty difficult hiring environment too, but so timing may be impacted by that but I think that's right. Our plan is to bring in those resources and how have the have the scale created by.
By the first half.
Okay.
Okay. Thanks.
Thanks.
Yes.
Okay.
Okay.
Please go ahead.
Yeah.
Yes.
Peer market.
Thanks for taking my question.
First one is on alright.
Hi, So my first one is on your capital deployment strategy.
Fox to come off quite a bit.
Burn despite I think 12.
Quarter like record revenues now.
You've got a decent cash position an under levered balance sheet. So I'm wondering what what's the board thinking on buybacks.
Versus maybe increasing the dividend and M&A can you share some thoughts there.
Okay.
Okay.
Yes, I mean I think.
The focus of the board and our management team is basically hang onto the war chest and look for the right acquisition.
I mean, we continue to generate enough cash to continue to slowly add to our cash pile as well as pay the dividends.
But are there.
A lot of that money was actually raised at 17 Bucks a share.
So even though the stocks come down from.
In the sixties I mean, it's obviously come down along with everyone else misery loves company. So I try to make myself feel better by looking at other People's stock.
But it.
We feel like the opportunities for acquisitions are getting a little bit better.
The private equity market is not cool off to the same extent that the public markets.
But there is still sort of a little bit more realism creeping into that.
Side as well.
So even though our stock is down we think there may be some potential opportunities on the horizon. So it's really.
I know, we've sort of sat on that cash for quite a while but we do feel like it is.
It needs to be there to be ready to deploy for the right acquisition.
Okay Thats good color.
And just a follow up on <unk> question.
Peter you mentioned Youre in coal, but there was obviously an increase.
Openness and urgency to have conversations on supply chain management software and investing in supply chain.
And I'm wondering with Covid pressures easing.
Do you feel these conversations with new potential clients are still very constructive or is the strong level of activity. We are currently seeing coming.
From conversations initiated.
Like in the past few quarters at the height of Covid.
Yes.
I mean, I think you're sort of asking sort of as the urgency of accelerating or decelerating.
It seems to us at a sort of a whole generation of business leaders has just learned all about how important supply chain as it did in fact Youre your business.
Almost fall apart.
Where youre stuff is when it's coming in in <unk>.
The ability to manage it real time and react in real time.
And so on so.
So we're seeing I mean, if we just look at our pipeline.
Our pipeline is up massively compared to this time last year.
This time last year, we were already at year independently. So it doesn't seem to be slowing down it seems to be if anything accelerating.
<unk> is moving the fastest right now.
And that they seem to have already sort of said, okay. What we.
Can't wait for the pandemic and we just got to get this stuff moving so there there were seeing actual deals sign and so on.
In complex distribution and retail.
The where we're starting to see more deals moving toward a close but a lot of the activity is still top of funnel there where it's companies that have realized that their existing platforms are not capable of dealing with what they now have to handle.
But at the same time there they are looking at that.
All the distractions going on in their business not only directly COVID-19 , but this completely screwed up supply chain. They are trying to manage as we get through these these next number of months I mean, they can't access containers cost of containers has tripled or quadrupled.
In some cases theyre landed cost because of the cost of moving container across the water. The landed cost is higher than the retail selling price. So so theres all kinds of issues, they're dealing with so it is not the time for some of them to also swap out their core operating platform.
But they are trying to get ready to swap out their core operating platform because they can see it is not handling sort of the new world.
So.
So we're anticipating I mean.
I mean crystal ball gazing is already always dangerous, but if judging by our pipeline, we're expecting sort of healthcare to be in the lead for another couple of quarters, and then a pretty rapid acceleration on the complex distribution and retail side.
Yeah.
Okay.
That's all great color.
Professional services I mean, three quarters running at near record levels. I mean, you mentioned you're capacity constrained.
Can you, maybe give us or remind us of your head count and professional services and how many how much staff are you adding.
Let me pass that one over to Mark we've got a lot of open positions thats for sure but.
It's an interesting thing that after I think the first eight months of the year our fiscal may to December .
We really struggled to add heads.
Added some we had some waves debris resignations come through its own a lot of people were restless moving around and so on.
And suddenly in January and February that seems to have turned.
And even as we're heading into March it seems to be remaining very positive. So suddenly we're able to recruit and retain.
And really build up those teams. So we don't know if the wave of restlessness has kind of subsided or.
Did we get smarter.
I don't think it's really that.
We did adopt some of our strategies, but somehow something shifted in the market.
And we're finding it's suddenly easier again to add talent.
Mark can give you some of the numbers there.
Yeah, So Andrew.
We're at about 240 245 professional services.
<unk> size right now.
And that would be up about up.
Up about 20.
About 20 heads from the beginning of the of the year.
As Peter mentioned, we had.
No.
Our quarter, one in our quarter, two where we're kind of bumpy.
We had some we did have some some attrition we had people leave and we were hiring but our head count growth was was kind of slow.
So in the first couple of quarters.
It almost feels like.
Kind of since even since the first of year.
That we've done some things we've reacted to that we have.
We've looked at comp we've we've.
Become as competitive as we think we need to be to retain and hire the right people.
And it feels like it feels like the winds of change have stopped blowing there a little bit and at least in.
At least in the last couple of months, we've seen what what seems like a more stable recruiting environment for us.
A more stable retention environment, so that our head count growth in the last couple of months has been out of pace with what we saw in the first.
Sort of eight months of our of our of our physical.
So so reason to reason for some some positive.
And a positive outlook on our ability to scale up that business, a little bit more rapidly in the coming quarters.
And where do you want to tell you that the 245 number in the next couple of quarters.
Okay.
Yeah, you know, we we would drink we would've increased staff by another.
38, 30 heads in a in a heartbeat.
And then up from there.
Great.
Maybe one last one you guys touched.
On margin a couple of moving parts over the next few quarters.
Opex is flat from last quarter, which surprises me wondering how we should be thinking about your investments in the business going forward as well as.
You guys spoke to replace Mary pressures.
Okay.
Specifically over the next couple of quarters, what's what's a good sort of member teams.
Okay.
Yes, we think we think where we are going to continue that that investment that you've seen I know it didn't didn't change a lot in the last.
Yeah on the last quarter.
But it has been inching up quarterly.
Across the year and as we look ahead and think about what we're doing and think about.
Investing in the product in and investing in the sales and marketing.
Team and programs.
We expect that that part of the Opex to continue.
Continue to tick up like you saw on earlier earlier quarters.
Okay.
Great.
As the line and congrats on the strong quarter.
Yeah.
Thanks, Eric.
Thank you. Our next question comes from the line of Nick Agostino of Laurentian Bank Securities. Please go ahead with your question.
Yes. Good morning, I guess first question, just just to make sure I heard correctly.
Peter did you say that.
Okay.
Yes.
Sorry, yes.
You bet.
Sorry can you guys hear me.
Yes, we can and are breaking up a bit Nick yeah.
I'll.
Try to speak closer to the mic.
Want to confirm it was won IBM win in the quarter and then one follow on IBM when after the quarter.
That's right that's right, yes, we had thought we had thought there was going to be too but.
But at the last limits there was again, some distraction and one of the <unk> sign and it slipped into the first week of February So there was.
One truly in the quarter and one just outside the quarter.
Okay great.
And then on the commentary you guys made earlier and in the press release with regards to Omicron impacting December January .
Given the color on the healthcare side was there any what are you observing the same impact on the other segments of the business or was that commentary totally skewed to.
Health care.
So it was right across the board like.
One account for instance in the.
Sort of Detroit region.
I mean, there was a full six weeks in the quarter, where they were.
Barely keep the lights on so many people out with OCA.
So that whole projects slowed down massively. So so it was it was pretty well right across the board.
Not sure anybody with spirit.
The further further south you went in the U S. The less the impact was there is no question.
But but still.
Don't think there was a single sector that was spared.
Our retail clients were the least affected.
But of course retail is still a pretty small segment for us.
Okay. That's good color.
And then going back to the commentary you provided you said the focus is on the pharma module and getting traction there.
First just to make sure I heard correctly, you said you hope 10 of the next 100 IGN wins include pharma module or was it and when you get to 100 Ibms.
Hope that that does that that initial 100 includes those 10 or includes 10.
Yes, it's when we get to a 100, we're currently at.
Hello, and past 50 kind of announce so so if we're hoping that by the time, we get to a 100 will have at least 10% of them will be running the pharmacy module, because where we're really seeing I mean, we look at this overall market and we say okay.
311, <unk> were directly targeting so.
All at a $620 million.
Market.
We as we look at it over the long haul we're kind of thing.
It's probably not reasonable to expect that we will win more than half of the market. So it feels like the market ceiling is maybe around 150 <unk> kind of thing. So we want to make sure that as we sort of get through that effort.
Take a big chunk of that market.
For the rest of the supply chain.
Requirements.
We've got a second waves to go.
We're ready to roll as this wave starts to sort of wind down whenever that would be five six years from now kind of thing. So we're seeing.
Let's make sure that we don't lose sight of the fact that we want to have a solid pharmacy base.
Within the next few years, so that we can start that that second sort of passed back through these these networks.
Following the wafer and now.
Okay.
Maybe if you can just expand on is there an overhang here so something that that is.
Is <unk>.
Installing maybe the take up on that pharma module you guys have certainly been developed product for quite a few years.
Commercial rollout I think it is.
At least one year.
On.
Been in existence for about.
We are getting close to one year.
Is there a sense.
Things are maybe stalled out for certain reason maybe to the pandemic and or is the observations you're making on the pharma side very similar to what you would have observed observe sorry on the med search side. So we should expect a similar type of adoption curve.
It is I think youre right on both points. It is similar like what.
We first got into for instance, or.
We were three or four years commercial before it started turning into any kind of a wave.
Theyre just everyone wanted to see it running for a couple of years before they were ready to adopt this we had to get the first couple of networks up and live and <unk>.
And seeing good things.
Then even then it took a couple of more years before people were ready to adopt for themselves. So it is following that same pattern at the same time. There is no question the pandemic has affected it.
Our second pharmacy client that.
<unk> is rolling out the pharmacy module.
The pandemic has delayed their project by probably 12 to 15 months.
So the pandemic is definitely affecting it but.
Overall, it's following the same kind of pattern, we've seen in the past.
Okay, and then maybe just some commentary you alluded to expanding by supporting ESI.
Give us an update on where things stand with the work days with the <unk> as far as.
How much of their pipeline their contributing continues to grow and if you've seen I believe workday has been historically more healthcare centric.
KPMG I believe it's been more retail centric.
Either one been successful or showing signs of cross selling.
We're crossing over the.
And the other markets specifically on the Workday site.
No I would say workday is still predominantly.
Uh huh.
Health care.
And has remained it's actually remained more healthcare focused than I thought it would.
But we're now seeing activity in a number of counts again with them.
There is.
In total our total pipeline is up to about 27% now partner influenced.
Interestingly, we looked at the last year and we can see that we entered the year with 21% partner influenced and our pipeline and yet if you look at close deals 30% of the closed deals where partner influenced which again sort of highlights that fact that when you have a partner involved in the account.
Your win rate goes up so your percentage of one deals ends up being more partner influenced and your pipeline actually is.
But we're seeing good headway there we're still I would say, though most of our active partners are either in health care.
Oregon pure retail.
We're having really good success with with right now and in the health care space.
We've mentioned accounts.
Companies like Deloitte and KPMG that are working with us in health care.
And we've got and of course, we've got the workday relationship and we recently signed a partnership agreement even with Infor.
And four used to be sort of more of a competitor to us in the in the health care space.
And we signed a partnership agreement with them to cooperate.
In this space so so that.
That is going very well.
Retail.
We've always had partners.
The World European North American and even Asia Pac.
Our partners there is a complex distribution space is a space, where I think we still lag in terms of partners and it's something that our partner team is putting a really focused effort into is to try to build out.
Or.
More of a <unk> network around complex distribution. So were probably I would say, we're two years behind health care and where we are in.
Complex distribution.
Sure.
Okay.
The colors that.
Thanks for the question Scott Thanks for the responses.
Yes.
Thank you. Our next question comes from the line of Andy Union.
Raymond James. Please go ahead with your question.
Hi, This is Steven Leigh I, just want to start with a quick questions on if there's any metrics you can share that show the impact of the investment in sales and marketing.
We're not seeing a significant impact on the earnings call yet.
Yes, Andy I think probably what you want or what do you want to focus on there and what we focus on is is is really around SaaS.
<unk> bookings.
And those are up 23% this year compared to last year.
For the nine months period.
So once you start looking at enough quarters, there the sort of the Lumpiness goes out and kind of start to see the trend.
So that's number one number two and Peter mentioned this.
Yeah, Darrin his comments a bit we're seeing some really robust pipeline and.
In pipeline activity and.
We invested quite a bit.
Particular in health care in our in our sales our sales and marketing.
Bringing in Aes for health care et cetera.
And we are starting to see these these these so called the newer newer aes <unk>.
<unk> successfully closing deals we've had we've had a couple a couple closed in a couple of recent quarters from from newer aes that had been around for sort of less than two years and if we look.
And our pipeline right now and focus on.
Who is in those deals and are in our pipeline and where the growth is coming from we see a great penetration from the new.
You know the new Aes that we brought on in the last within the last two years that are driving.
A nice chunk of that of that pipeline growth.
So it's building we see it we see it in growth in pipeline and we're seeing it in results in.
And SaaS <unk> bookings.
Yeah, Thanks, Mark just touching on that pipeline point.
What percentage of the pipeline is influenced by the partner.
Yes.
I think Peter mentioned, 27% I think it's actually slightly maybe we're rounding there, but I think it's slightly higher and it's 2028%.
Right now and Thats up from <unk>.
The low twenty's, a couple of quarters ago.
Yes. Thank you and my last question business. So I'm looking at the free cash flow year to date and I know you guys touch on.
Primary reason for the.
Decrease in free cash flow is the timing of the AUR.
But I think year to date is down by 76% comparing to last year.
So I was just wondering like why is it down so much and could we expect Q4 to be muted as well.
Yes, I think I mean, I think if you'll look back and you see those DSO numbers that I that I that I quoted and you look back at our history, there a little bit you know there was.
A year ago, we were in these we were in this sort of I would say unsustainably low.
DSO level and.
Kind of in the <unk>.
And so in order to go before that we were at Dsos were up.
Six months before that.
Three quarters before that Dsos were up in the.
The high <unk> into the low seventies. So you saw last year that that kind of decrease in Dsos went from 70 down.
<unk>. So you had this kind of one time influx.
Of cash and that's that's the comp that you're looking at that's the last year comp Youre looking at right now our dsos are in the in the high mid high <unk>, which is which as I mentioned that I call that reasonable.
<unk>.
Yeah, we'd like to bring we'd like to see the number down in the low fifteens rather than in the in the mid high Fifty's, but still a reasonable number.
But it's grown up from.
From the mid high <unk> up to the high Fifty's and so that's that's consumed some cash along the way we don't we don't feel like we have a.
Any kind of in a problem I know as we look at the.
As we look at the balances in X and in our expectations for collections and.
Write off history has been has been just phenomenal.
So we don't see any any issues there.
We like I said I would expect that DSO number comes back down into the into the lower <unk> that is going to create some.
Less strain on on usage and working and working capital.
And then the seasonality of our of our.
Q4 is such that it tends to be a high high.
High cash quarter for us.
Both around our billing cycles, but also because of our.
Our tax credits.
And the cash flow of the one time of year tax.
Cash flow that comes from those tax credits.
As in our Q4.
Gotcha. Thank you.
Good luck.
Thanks.
Thank you as a reminder to register for a question. Please press the one four.
And at this present time.
We do have one question it comes from the line of Chi.
John It shale finance my apologies National Bank financial Please go ahead.
Hey, good morning, guys I just have a quick question on Park Avenue.
17%.
Quarter over quarter increase that looks really decent so I'm just curious how should we read about this quarter over quarter increase given the fact that the <unk>.
Supply Department is still fragile today.
I missed the very beginning of that John .
Which which when you're talking about a revenue line there.
Hardware revenue, 17% quarter over quarter increase just how youre.
How do we looking for that number.
Yeah.
Yes, that's it's a tricky one John and it's a tricky one for FERC for us to call.
That was a big.
That was a big outsized quarter for us if you look at our our history.
No it was a large outsized quarter.
We have we have still have some pretty robust.
Pipeline, there and some pretty robust I should say, we have some pretty robust backlog there.
Some of that stuff is we do have some.
I would say some trickiness with supply chain you know getting this stuff it's.
The vast majority of what goes through there is third party stuff, we do have a little bit of a proprietary stuff that we that we put together in and and sell there.
And we have supply chain some supply chain issues on that so it's kind of hard.
It's kind of it's even hard for us to determine with the level of accuracy when that when that backlog is going to.
<unk> got a ship.
So I think you know.
Long story short I think that what you saw in that Q3 was wasn't outsized.
Hardware quarter, but we do have some pretty reasonable backlog for that now.
Bill today.
Thanks, another question on <unk>.
On the gross margin, 43% for the quarter, which is down from 45% from last quarter. So I'm just curious how should we be adults.
How should we see the trend of the gross margin in the upcoming quarter.
And how much is this quarter's gross margin decline related to FX.
Yeah, Yeah. So a couple of things there like that 48, 43% sort of headline gross profit margin number compared to 48. So there is a 5% swing compared to last year.
If if sort of.
Dissect that in a couple of different ways number one.
If you look at our SaaS maintenance support and professional services margin. It's it was about 47% in that quarter. So just like in an absolute sense. It.
It's a higher number you know it's a it's a it's a more robust number.
That sort of level I think is probably you know we're still we're still sort of investing there. So no I don't think that's an unusual margin level for the for the near term there is going to make the thing move around.
And how is the mix so that our headline number was 43%, but our SaaS maintenance support and professional services number was 47%. So the hardware number which is the lower margin number is diluting that.
That profit margin down to 43% and then number two if you compare the 43% to 48% there is like a five percentage point swing in that headline number.
And as I've as I mentioned in the comments.
There's three things in there is FX theres mix and there's there's investment.
Because of our cost increase investment.
And if you look at how those contributed out 5% FX is about.
2% of that five two percentage points of those five.
Revenue mix was about two percentage points of those five.
And cost investment is about one percentage point of those five.
Okay. Thank you so much I appreciate the color.
Mhm.
As a reminder to register for a question. Please press the one four.
And at this present time no analysis registered for any questions. Please continue with your presentation or closing remarks.
Thank you.
Concludes the question and answer session. Just one overall comment to make I think with regard to a number of these questions.
The stock market has continued and the investment community has continued to sort of shift priorities from growth to profitability and.
With probably more recent emphasis on profitability and maybe less on growth and so and that sentiment tends to move around a little bit.
We continue to run a long term.
The game plan here that calls for.
Our heavy emphasis on growth.
Investing in growth as much as possible to drive a solid.
Growth in the topline on particularly solid growth in the SaaS numbers.
While trying to respect a reasonable level of profitability.
So that continues to be our strategy, we continue to hold the line on that.
Alright.
And certainly as you interpret these numbers and look forward to future quarters. You can know that that's what we're trying to do sometimes theres lumpiness gets pushed around a little bit but the goal is primary emphasis on growing that SaaS number but maintain profitability at a reasonable level. Okay.
And concludes our our coal and <unk>.
Thank you for joining us.
And as always if you have additional questions. Please do not hesitate to give mark vehicle.
Have a great day.
Thank you that does conclude the conference call for today, we thank you for your participation and ask that you. Please.
Disconnect your lines.
Okay.
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Sure.
Okay.
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