Q4 2022 Tecsys Inc Earnings Call
Good morning everyone.
Welcome.
To Texas: fourth quarter and fiscal year 2022 results- conference call.
Please note that the complete annual and fourth quarter report, including mdna and financial statements, were filed on SEDAR after market closeed yesterday.
All dollar andammiles are express in Canadian currency and are prepared in accordance with international financial reporting standards.
Some of the statements in this conference call, including this question-and-answer period, may include forward-looking statements, 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 exppported on Thursday, June thirtieth twent thousand and 22 at East, 30 M Eastern time.
I would now like to turn the call over to MR Peter barrtton, Chief Executive Officer at Texas.
Please go a head wer.
Thank you. Good morning everyone joining me today is Mark Butler, our Chief Financial Officer. We appreciate you joining us for today's call.
As most of you have likely seen in the results issued last night, fiscal year 2022 was a transformational year underscored by strong organic growth.
Amid ongoing global crises, from the endw boan, the labor shortages and war supply chains have been in the eye of the stotorm.
I believe strongly in what we do empowers our customers to step new benchmarks for sucfect by driving excellence through their supply chains. This is not a new belief. For decades, Texas has been advocating that the supply chain is a strategically leader for competitive differentiation, but never in the history of this company has the world been so ready to invest supply chain. I'd like to take a moment to summarize the key events of fiscal zero point two 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.
First I'd like to highlight that our Q4 SaaS bookings were the highest quarterly with passast bookings in our history, and this naturally adds to the continued positive impact of our growing SaaS customer base.
We have also seen continued momentum in existing customers migrating to our SaaS offering. Indeed, the pace at which our SaaS business has expanded as a healthy blend of new accounts, expansion of existing fast customers and some base accounts choosing to renew their engagement with Texas and convert to SaaS.
Our SaaS approach has strengthen the quality of our revenue streams and it is making it easier for both new and existing clients to buy our software solutions.
We have a strong pipeline and our SaaS revenue growth is fantastic, solidifying our thesis for value creation. Full year SaaS revenue was up 47% on a constant currency basis.
It is a milestone year for Texas and that all but one new major account and every major account upgrade has been at SaaS deal. Overall, 91% of software bookings were SaaS in fiscal 22, versus 82% last year. In a fourth quarter of fiscal 22, SaaS revenue represented 49% of total cloud maintenance and subscription revenue, up from 40% at the same time last year. We see this as a strong adorsement of our SaaS offering and, more holistically, of our sustained value to our customers.
I also want to take the opportunity to highlight our strengthening partner ecosystem. We committed to investing in developing a world-class strategic alliance program and we have seen excellent momentum on this front in the form of co-marketing, accreditation tools and training and supporting resources.
All of this is translating into positive new SaaS, account acquisitions and expansions, with 50% of new logos in fiscal 22 having been partner influence-d a significant jump from 22% just two years ago.
Our customer base continues to expand across verticals. Throughout the year, we have secured several meaningful add-on bookings as platform rolloutads rolls expand across the customer base.
Some notable wins announced this year include Australian retail chain politics distributor, American woodmark from the cloud health and of South Carolina. We have also added household brands in the health care space, automotive industry, a parallel footwear industry and we continue to expand our relationship with one of the world's largest cosmetic retailers.
The accelerated market opportunity has been most prominent in the health care sector, where we have seen significant new opportunities for us to win new business with both new and existing customers. Texas proved to be the best supply chae solution available to that market and our SaaS approach has made it easier than ever for health care systems to buy and deploy efficiently and effectively.
We are pleased that we have capitalized on this market opportunity in fiscal year 22 with SaaS conversions and new logos, including eight new health systems or idnms, including the two that joint us in the fourth quarter.
I'd like to take just a minute to talk about what adding aging idmss really means. Because of how well developed our end-to-end- offering is in the health care market, there is gregreatest value to our customers to invest in our broader suiteing solutions. As a result, our health care customers tend to represent a substantial lifetime value, whatever that first engagement looks like from the warehouse to the or suite.
What sets is apart from the competition is that we can uniquely deliver value exactly where an idea is struggling the most and then expand on that value progressively through our relationship with that customer.
So these eight newly signed IDMs are our first touch oneund, but they represent so much more. Between them there are about 50 hospitals, more than 400 hour suites and over 12 thousand hospital bedts. Collectively they spend over three point eight billion dollars on medical and surgical supplies annually and work billion dollars in pharmacy supplies, and we have proven solutions that control and optimize that spend.
When we welcome a new IDN into the Texas pool, we start to collaborate with that IDM's leadership to deliver the full value of our end-to-end supply chain platform selling into other areas of their logistics operation over time.
Those eight IDMs that signed on with Texas and fiscal' 22 will continue to show their value as long as we continue to deliver ours, as we have with longtime partners like Mercy health, par view health, Orlando health and others.
Looking at this from an overall perspective, with our new bookings this fiscal year, our total health care customers alone and help provide care at roughly one thousand beds and record over $17 billion in total revenue. To put that in perspective, that's twice the revenue of FedEx and more than half of the total health care spend across all of Canada.
With every dollar that moves through these health systems. There is a business case for optimization, and supply chain sits at the very center of that discussion.
realil has been undergoing a bit of a renaissance, where digital shopping and inpersonment shopping have converged into this new blended commerce model where consumers expect to be able to shop anywhere and get their purchases how they choose. Traditional retailers are equipped with legacy technologies to effectively orchestrate that blended commerce model, and this is driving investment in new software that is capable of handling this level of complexity.
The complex distribution market remains a consistent source of base account revenue, with positive momentum towards gas conversionsin addition to a national? U's government organization, new bookings have underscored our competitive stance with third-party logistics providers, the automotive industry, electrical distributors, as well as traditional distribution organizations.
All three sectors are contributing to our performance this year: spending expansions and renewals by existing customers and new account growth. The pro services slowdown that we witnessed in the third quarter has continue in the fourth quarter and we expected to continue into the firstth quarter. Many projects were impacted by macron, as executive staff and supply chain staff were hit in large numbers. That is over, but it takes a while for these projects to ramp back up. We are also seeing more of our project work being carried out F? ire partners. This is what is enabling our SaaS revenue to grow over 40%, while our PS revenue grows at a much slower rate. We are pleased with this development and see it as the beginning of a shift that will lead to a higher margin mix for our business.
Mark will now provide further details on our financial results for the fourth quarter and the fiscal year.
Thank you, Peter. Starting with our fourth quarter results.
Total revenue was $34.3 million, 6% higher than 32.4 million reported in Q4 of twenty-one.
As many of you know, a significant portion of our revenue- about 65% - is denominated in U's dollars. As a result, movement currency exchange rates has an impact on our reported revenue and growth. During Q4 fiscal 22, currency exchange movements negatively impacted our reported revenue as a about of the? U's dollar was weaker compared to the same quarter last year.
On a constant currency basis, using fiscal' 22 currency rates. Our fourth quarter revenue grew by about 8% compared to the same quarter last year.
We continue to experience strong and diverse revenue streams, underpinned by a 40% increase in SaaS revenue, up from $5.5 million in Q4 of 21 to $7.7 million in Q4 twenty-two.
On a constant currency basis. Saas revenue was up 43% compared to the same quarter last year.
Maintenance and support revenue for three months ended April thirtieth 2022 was eight million. That's down 4% compared to the same quarter last year.
There was a one percentage point impact here due to currency movements, but the general decline in the quarter compared to the same period last year is consistent with our shift to fth. We expect as current customers migrate to our SaaS offering maintenance and support, revenue will continue to decline over time.
Saas remaining performance obligation, also known as RPO or SaaS backlog, was $94 million at the end of Q4, fiscal 22. that was up 43% from sixty point 65.7 million at the same time last year.
On a constant currency basis, that growth was 39%.
Professional service revenue for the fourth quarter was $12.9 million. That's up 6% from 12.2 million reported for the same quarter last year.
Again currency movements created headwind on revenue growth here, which would have been 8% on a constant currency basis.
Professional services revenue was basically flat, sequentially from Q3 of this year.
In spite of robust backlog and growth in our delivery capacity, we experienced client-ied project slowdowns resulting from lingering effects of amomomeaccrron, especially as hospital networks have continued to deal with labor shortages with clinical staff.
Additionally, we believe we are starting to see the impact of our transition to FAS, which will ultimately we are starting to see the impact that our transition to FAS will ultimately have on our professional services revenue line.
That is, we're seeing a continued reduction in custom development work.
As customers opt for a more out-of-the-box approach to platform implementations.
We are especially seeing this within our Healthcare vertical, which is a growing part of our business.
We are also saying- and have been talking about this for some time- growth in our partner ecosystem.
This includes partners that are involved in helping to implement our systems.
We expect that over time this will ultimately moderate our professional services revenue growth in the future.
flyen's revenue in the quarter was zero, six thousand. That was down 46% compared to one million in the same period of fiscal twenty-one.
While this number may 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 q4- fiscal 2022- was five point one million, a decrease of Zero two thousand compared to the same period last year and a decline of one point three million sequentially compared to six point four million in Q3.
By way a reminder, we still primarily third-party hardware to our customers for warehouse operations and in-hospital point-of-view storage and tracking.
This part of our business tends to be lumpy, and revenue recognition here is tied to delivery.
Delivery timing in recent past has been impacted by gologbal supply chain issues.
And we expect this to continue in the near term.
That said, our hardware backlog remains strong, driven primarily by hospital network point-of-use orders.
Saas bookings are reported on an annual recurring revenue basis and increased by 29% to a record $4.5 million in Q4 of 2022, compared to three point five million in Q4 21, which was frankly, a preallid comp.
Saas bookings were highlighted by the addition of qnew hospital networks, a new complex distribution customer and significant base business, in particular with strong add-on business and a migration from our health care base.
Professional services bookings were 14.8 million, adds up 70% compared to eight point seven million in the same quarter last year.
This is up sequentially from nine point three million in Q3 of this year.
And this highlights again the lumpiness and impact of timing on reported quarterly bookings.
As I indicated last year last quarter, we still like bookings as a metric because over time, we believe it provides a good leading indicator of business performance and growth prospects.
For the fourth quarter total gross profit was 15.1 million that was down 4% compared to 15.7 million in Q4 of twenty-one and.
Our license in hardware. Gross profit contribution was the main driver of this decline.
As a percentage of revenue, gross margin was 44%, compared to 49% in the same quarter last year.
Let me unpack that gross margin decline a bit. Foreign exchange accounted for about one percentage point of the decline in the quarter compared to the same period last year.
Combined SaaS maintenance, support and professional services. Gross profit for the three months ended April thirtieth 2022 was 46%, compared to 52% in the same period in fiscal two and twenty-one.
The nonforeign exchange-related portion of this decline was primarily from lower professional services margins.
As existing delivery capacity was underutilized during the quarter.
This resulted mainly from the timing of project rollouts, as noted previously.
Professional services backlog remained solid at 33.4 million at April thirtieth T, went Y and twenty-two.
Excluding the impact of foreign exchange SA, as maintenance and support, gross profit margin was down slightly from the prior quarter as the company continued to add investments to scale the business.
License and hardware gross profit margin decreased to 32% from 36% in the prior year quarter.
This decline was primarily the result of a revenue mix driven by lower license revenue.
Which is, of course, in line with our shift to SaaS.
Switching now our expenses for the fourth quarter. Operating expenses increased to 13.8 million as highred by a zero seven thousand are 6%, compared to 13.1 million in Q4 of fiscal twenty-one.
Operating expenses increased compared to the same quarter last year, primarily as a result of our expanded investment in sales and marketing.
Importantly, research and development expense in this particular quarter benefited from a zero $6 thousand federal nonrefundable scientific research and experimental development tax credits generated in prior periods.
Moving on to net profit, and net profit for the quarter was two point six million, or 17 cents per fully diluted share, compared to two million, or 14 cents per share, for the same period in fiscal twenty-one.
Net profit was positively impacted in the three months ended April thirtieth 22 as a result of the recognition of approximately one point nine million net deferred tax assets and the recognition of Zero $6 thousand gain on a remeasurement of a lease liability.
The latter resulted from our decision not to renew expiring office facility lease.
Adjusted EBITDA was one point seven million in Q4 22, compared to three point nine million in Q4 twenty-one.
Net profit and adjusted EBITDA were both negatively impacted by an unfavorable foreign exchange impact of approximately zero $7 thousand in the quarter.
From an investment standpoint, we believe our existing professional services capacity is adequate for the near term.
We believe that our investment in sales and marketing put us in a solid position to grow as productivity continues to improve, and expect only moderate increases to sales and marketing expenses in the near term.
Our investment in research and development during the fourth quarter will impact Q1 of fiscal 2023, but we expect investment to moderate beyond that point.
Turning now briefly to our results for the full year fiscal year 2020 -.two and.
Our total revenue was 137.2 million up 11%, compared to 123.1 million in the same period last year and that's up 16% on a constant currency basis.
Saas revenue for fiscal 22 was $26.9 million, up 41% from 19.2 million in fiscal year 21 and up 47% on a cost of currency basis.
Our SaaS bookings for the year are up 25% to 11.9 million, compared to nine point five million in fiscal twenty-one.
I just want to point out, and we take a lot of pride in the fact, that this is another year of very strong, fast revenue growth and record saast bookings.
Our net profit for fiscal 22 was $4.5 million, compared to seven point two million in the same period last year.
I noted above the positive impacts on the current year net profit from some tax accounting and lease obligation accounting.
Foreign exchange movements had a negative impact of approximately $5.2 million on profit and adjusted EBITDA compared to the same period last year.
Adjusted EBITDA was 10.1 million in fiscal year' 22, compared to 16.2 million for the same period last year.
Finally we ended fiscal twotwenty-two with the strong balance sheet position. On April thirtieth 2022, we had cash and cash equivalents and short-term investments of $43.2 million, compared to $45.9 million at the same time last year, and we had debt of eight point four million, compared to $9.6 million at the same time last year.
Cash provided by operations was four point nine million in fiscal' 22 and our D DSOs, or days fills outstanding and accounts receivable, was 49 at the end of 22, compared to 47 at the same time last year.
I'll now turn the call back to peedater to provide some outlook comments.
Thank you Mark.
Sorry with that I had my me but and turned on Texas Andrew fiscal' 23 with a strong balance sheet and robust backlog and sales pipeline. On the health care front. Our own pipeline is providing us with all of the data we need between the growing acceptance of our point-of-usew solutions and the failing grade of many existing hospital supply chains demonstrated during the pandemic. Our market space is definitely showing indicators that they are ready to invest, caring to converging distribution and to understand the scale of the market, we have to consider the massive transformation currently underway. The digital adoption is here to stay and consumers now expect that supply chains are modern and connected.
And so, in fiscal' 23, we plan to leverage the market opportunities that are emerging as a result of this accelerated digital transformation.
We see a growing pressure in the market for strong cybersecurity and we feel well positioned to answer the call.
For heightened sensitivities and demands in this area. This is an area where we will continue to invest.
In summary, I want to highlight the key themes for fiscal 23. first, we will continue to maintain a laser focus on expanding our SaaS revenue model.
Second we will continue to deepen our partner partnership ecosystem. This is key for us to scale rapidly into North America and international markets. Third, we will continue to expand and refine our distribution and omnichannel business platforms to service evolving needs in both of our health care supply chain and converging distribution market to segments across our markets. We will place emphasis on customer success. We have long stood by the philosophy of customers for life and a big part of that formula is to deliver value fast, stay connected and iterate on the value delivered. With that, we will open the call up for questions. Thank you.
Thank you very much, and if you would like to register a question dispsed the one or by the floor on your telephone, your have threeet toone prompt to nausea request. If question has been asked to draw resustration as a 1, So by the three.
Once again is a one-four for any questions for comments.
one mon, please for our first question.
And we'll get our first question underline from endine, rien from Raymond James gre ahead.
Thank you, Mark. My first question is on the addition of new idean. Given the investment you guys made to the sales team, what's holding the addition of new idea from accelerating at a passive pace?
I mean a lot of it is really just the speed with which IDMs move. I mean. We have our pipeline in the health care. Space is is up by a very significant margin to where it has been at any time. In the past. We're very excited by what we see in that pipeline but.
hosprooms.
The hospile networks generally MO slow, you know. I can tell you there's one account, for instance, that gave us a know know, Congratulations here- the selective vendor letter back in- I think it was November and we're still working through contracts. So So there's, there's just a general. You say it's a very cautious, conservative sector and so there's a quite a significant time lag between the growing opportunity in that market, our growth of our sales team to to probable that opportunity and you know the time that they actually know come through to contract. But so I mean I think that's the primary reads. I mean there's a, there is a certain factor in this market to that you we off to discuss with our Board. There's this question of how FAS you, you can, the sales organization, you in this market, you CAn't, you know, you CAn't push the market to go faster than the market is- is an inherently willing to go. We want to, you know, continue sort of our evangelism in the marketyou know, promoting what we can do with supply chain and promoting the games, but it until board are ready to actually move and commit money to it. So ING you get, you CAn't move that faster on a certain pace. But but you know know, given the events in the market over the last couple of years, we're certainly seeing that resistance fading way and you think the boteneck is really more now on the contract conside.
thankyouand I think a quick follow-up on these guys okay. So what percentage of health care contributes to be thatmoking at four point five in the last quarter?
It it was, it was significant, it was was for the year. It was approaching 70% health care.
68 I think, is the number.
Okay yeah, Thank you. Thank you, pear. More out and in and in. A Q4 I would have been, it would have been hot, it would have been significant, significant numbers as well.
Thank you.
Soon.
Thank you very much.
Ok for our next question on the line's, Nick aggoustino, with our lordch and me, Securities go ahead.
Yes So good morning. Sorry, just just jumping on that ID N question from the previous Analyst Peter, what's your comfort to think? In the past you said that you think you can get up to 20 ID N over the next year and a half in terms of of, of new add-ons. That would suggest obviously, you know, a sizable increase. Let's call it for two thousand and 20, three. Just giving your comments on the momentum, the bookings in the on the hospital side and the fact that there're is coming back post COVID-19 or at least hopefully post coed, are you comfort with that SiP of target over the next year or now?
yesi'm going to say we are. I mean, that's obviously that's quite a number. We'd be over a year and a half. You'd be what? The answer of moving from two a quarter to three in a bit of quarter to get 20 accounts done in 18 months, and certainly at this point I mean anything.
Sort of things can change. Times can change, you know, like that, but certainly than what we're seeing in our pipeline that look very doable we have. You know that the expansion we've done with our sales organization is working. Some of these new accounts that are coming in now are being brought in by some of the new accoun ecutives that we've added over the last couple of years. So it's not sort of be the same know the original team doing all the delivery of contracts. So we're seeing that that benefit being in the kick in. And you know I mentioned earlier we've ever seen a pipeline like this one you know there's measuring of pipeline precisely is sometimes tough, just because what a? You know when a pipe is poor, you know people's natural optimism tends to make them score accounts perhaps a little higher than they should. And when an accounts and when in pipeline is really full, really active, you know they haveend to be almost more cautious about callliit. So it's sometimes hard to be overly precise about it. But I would say both qualitatively and quantitatively this is the most exciting piline we've ever seen in Healthcare. We're pretty happy with where it's.
But would on that Nick that well well new new, you know new, new idea networks is definitely the the game plan and the folks et CE. We did experience some very nice, interesting expansion of our health care base. You know, in particular in this last quarter. But But even over the course know, over the course of the year, of the health care bookings that we did this year- 68 the bookings we did this year in fast, 68% were health care and in a roughly half of that was expansion of of existing customers in health care and a migration of an existing customer from on prm to to fast. So theres a lot of there, a lot of movement happening in there that that isn't just a new idea network.
Okay appreciate that color. Just goingone back to the hardware sales and stuff like that. I think peed you alluded to supply chains having somewhat of an impact on these deliverable. I think in prior quarters alluded to supply chain having a minimal impact. Just wondering if if the supply chain are starting to have obviously an impact on your business and maybe give us some an idea to maybe the revenue impact that you probably would estimate for this current quarter.
Yes marks with VIEs can be a better number there.
Yeah So I mean think the supply chains, the issues are real there and some of it's around, you know the third party hardware that we that we order from suppliers and then we're sort of bound by the delivery timelines of those suppliers. And then we also have the proprietary technology that we sort of to get some parts and and have fabricated and and delivered to you know, for in hospital, you know 20 use measuring and tracking and the cards on some of that stuff are are taking longer to get the hold of. The lead times are still long. So So that is kind of extending out, you know, extending out the revenue picture there. It's been a bit lumpy in the last, in the last couple of carres. I, if you look at the last few quarters, you know it's been hardware revenue has been, you know, over six million. You know this last quarter was closer to to five million and I think you knowin the next, in the next quarter, if we look ahead and it's it's a little bit hard, to hard to hit because you know your subject to not only.
Supply chain side, delivery stuff, but also just the timing of of one we're actually going to district, you know, shipped to to customers. But I think I think some number that's that's sort of closer, you know, maybe closer to four million next quarter is is kind of what we have in line of sight. I don't think it will be lower than that, but it's. It's in that sort of prehiip code.
And it would that be, I guess, a bottom type run rate until things approve any visibility there.
I mean I, I think so. Again, it's kind of hard to call, I think so. But if you look at our backlog and you know where we're making orders, you know for this stuff, and we kind of kind of start to understand the lead times day. They move. They tend to move around a little bit, but I think I think so.
Okay and then just one other question, and maybe just a quick follow-up, is just staffing. Obviously you guys have to keep adding to your health care sales force and stuff like that is given all the market, the market yes, a market, ty think.
Are you able to staff plic on the sales side, also on the RD side, at the rate that you guys are wanting to see, because I think in the past that was it was your staffing at a slower rate. Is that improving anyway?
Yes in fact, like in Q4, we basically caught up. Like it was amazing, I we ran the first.
We ran from may to December , sort of low one has been a variety of areas. I mean we needed professional services people, we needed our deep people. We were, I mean, right across the Board. It was hard to hire staff.
That when shift is massively in mid January and in sort of late January February March April , we pretty much caught up and it's one of the things you see reflected the expenses for Q4 that we just released is that you know the, the expensse both on the service side, as far as sort of the cost that's old, as well as on the. You know are the and othersis there part of OpEx. You know it sort of caught right up to where we we felt we needed to be and that's why we sort of included some indicators in in the press released that we think we're kind of that, you know. I mean because some of the people joined during Q4 you don't have the full expensse on rate showwn in Q4, you know that, more showwn in Q1. But we're we're really feeling that by and large we have the heads we need for the year in front of this it, you know we man up adding some more heads towards the end of the year. We're still going to continue to grow the marketing side of the sales marketing side of the house because we think the, the- the opportunity right now is, you know is- is really really strong. So we want to continue to grow the sales marketing side. But you're really going to see a moderating in the growth of the of the OpEx and pro services expenses this year compared to last.
Okay no, that's a good color. Everything all eyes in. And just one last quick question. I'm not sure if you'd called that earlier, But what was the partner contribution, whether it's on wins or whatever the case is, if you call that out.
Yes we, we didn't N. it was 50% of the new fast wins in the year were partner influence.
And I think you'll see, we put up the Investor deck last night or this morning too, and the partner influence in the pipeline is about 25%.
Ok OK great, Thank you. A passast line.
mus't three.
Thank you very much. Look for our next question. Underlined is from maximthere and corre Max securi.ties start ahead.
hither. Thanks for taking my question. So I first want to start off on the strong performance you've been having on Healthcare guide and the progression of the ARR from Healthcare. So I was wondering if you can give any color on how you see that progressing and where you see that plug auing as a percent of total AR.
yesthat's is help one I mean the viey need to health care. Of course we have been attested to FY market right, So we know we're targeting about 300 networks. We're now around 50. we think we can grow that to one hundred within the next few years and beyond that we don't see any reason whywe couldn't get one hundred and 50.
But as you look at that, you know, flies T about 100% penetration rateyou know you have a maximum sort of market size. I mean the 10 is 600 millionbut you're never get 100% of the town. So you, I think, gets threehundredmillion. So there's there is some ceiling on that. At the same time there SIs, no question it on fire right that, and is growing very quickly. It's driving the growth, it's dominating our pipeline and, you know, looks like it will continue to be a larger and larger piece business. I think just in the last year it's growwn from by Mark 36% of FAS to 40% of FAS. So I, getving that right yeah, I think it was- have 36 just on the 36, now 40% yeah, So as I don't, I would not be at all surprised if with know 12 months or so, it gets clo very close to the 50 percentmark. So So it's got, it's got some real legs under it. Know the other marketts, the much larger, you know, general distribution, complex distribution market, in effect has no ceiling on it but is moving more slowly at this point in time. A lot of interest, a lot of tire picking, a lot of top of funnel activity, but a lot of those players are still very distracttied by current supply chain challenges. You know the Tost to containers, good stuck offsho goods not coming out of China. I mean they're having trouble sourcing the product, moving the product and handling the product. So So that you know well, ultimately that drives change over to new system. You the middle of a Cris. It's very distracting. So that's what we're seeing in, that was in those different MAR markets by you know. Know, coming back to health care, I would certainly expect that it will. It will dominate our growth for the next, at least the next year, and probably be.
Got Joe again. That's helpful and, I guess, just a follow up on the complex distribution side. How are you seeing customers respond to the new warehouse management system that you guys recently launched?
By that I'm sure you're goingring to on me. We're seeing a lot of interest in that, don't it's? It's always the challenge when you want something brand new and- and that's quite different- I mean it's a that's disimed aim. You know, microp fulfillment, the sort of small, small arehouse that, with the objective being that you can, deployed in us than 60 days, deploy a very low cost. It's incredibly intuitive, So does not require that much training, or- and the set up as well is- is much simpler, So it's dimed a very particular market. The challenge is always as no one wants to go first. So where' you know we'rein discussions with the number, number of different players around. You know, potentially being the first, first account we've got over in in that market course they've alreadygot to deploy anumber of sites. But on the North American side, there you know, say no one want to be first to. We'll see how that goes. Certainly, from an Investor standpoint though, I would not anticipate that product having much effect on, you know, our overall revenue numbers for another couple of years. I mean, you know've got to make some noise in the market on the on the marketing side to stir up interest in it, begin to drive opportunities to it. From an Investor standpoint I would say it's a couple of years out before it gets interesteding.
Okay great. Yeah, that's helpful. And I also just want to ask on the services side and the capacity. So I understand you're pretty happy before the capacity is at now, but I just want to know how much spare capacity there was't a quarter and how you see that revenue line kind of plateauing as services that are moving properly through the pipe.
You know, take that home work.
Yes sure. So I mean I think I think you know we had, if you look at our PS revenue ine in the last, you know the last few quarters, you'll see it kind of up flirting around with kindof at the almost at the 13, 13 million dollars. A quarter level you know was it was over 13 and in Q2 it was 12, nine and Q3 it was 12 9, again in Q4 and you know, when we were at the sort of 13 million level we were building capacity there and in Q4, you know we were, we were under, under utilized. So that kind of gives you a baseline that we've got excess capacity beyond, beyond 13 million. Now can that, can that capacity drive $14 million of revenue in a quarter? Yeah, it can know kind of drive 15 and it's probably getting, that's probably getting pretty, pretty stretchy and unsustainable. But that's kind of how we're, you know, that's kind of how it scale those numbers.
Great yeah, that's helpful color. That's a annal pth line.
Ok Thank you very much.
At our next question, underled from John shau, with National Bank financial greread ahead.
Thank and good morning guys. As it sounds like the PS revenue, we will have a lower contribution to the total revenue future given the staf transition, as well as their partners. But at the same time it also sounds like there's the honor utilize a capacity with me- service delivery teams. So how, how should I think about this honor ilization issue in the feuture and how much would it be a drag your gross margin?
Yeah I think it's it's a good question and I think in and Peter sort into that and in his comments earlier a bit when he when he talked about you knowwhat the slowdown and sort of our pipeline. Burn's sorry our backlog burn on professional services and in Q4 and that you know we sort of see that lingering in Q1 and I think if we think forward into Q1. I think it's it is going to have an impact on margins there and then the question from there becomes well. How quickly does does. The you know does the speed of the of the burn of the backlog pick up. We certainly expect that what we're what we've went through in sort of Q3 in Q4 and sort into Q1. Here the slowdown we expectedit to turn around starting to see the initial signs of that but but Q1 is going to be is going to be. There's going to be continued drag there on margins because we're we're not going to adjust capacity in the short term we've got backlog. There's no reason to adjust capacity downward we're going to needed. It's a question of when we get there and you know if if we look at.
If we look down the road into the Q2 and Q3, we definitely expect to kind of getting to those levels where the capacity gets the utilization levels start to climb back up.
Okay the other question I have is: I understand the South bookings are strong this quarter, So how much of this naturally driven by the new locals versus the Wallace shared tension and when I think about the growth for the next year, should I expect Wallace shared extension to be a meaningful driver of growth?
Yeah I mean I think in the the, in the qutter in the last quarter. The question was just about the quarter rate. I mean, in the last quarter more than half of the more than half of the bookings were based and if you look at kind of what our year looked like, you know it sort of sort of looked like that as well.
You know, I think the numbers were for, you know, in the, in the 40, in the, in the M, in the high forty's for for new and and the balance was, was base in terms of, in terms of bookings in Q4 was a little bit, even a little bit more skewed towards towards base. We had a, you know, we had a pretty significant migration and hospital network, business and, and I think that the two vectors are both are both very important. I mean, there was a kind of a balance and and Q4 and and you'll, if you, when you get a chance to see the deck that we put up, you'll you'll notice. And Peter mentioned. You know our.
Our our health care business actually expanded. You know we actually the penetration level in our base actually jumped up a little bit markedly in the in the quarter and gret like 27% penetration in our base now versus I think the number we reported last quarter was something like 22% and that's coming from that. You know that that non new ID's, it's coming from base business add ons and expansion. So there's still a lot of headroom. You know we've only had two hospital networks migrate so far and in the course of our fast lifetime you know the last sort of three plus years. So there's more there a migrate and clearly the footprint is, you know, is is you our existing base. You know almost 60 whatever, almost 70%, actually slightly over 70% of the footprint is still wh space in our base.
Okay that's great color. And my lastss question is related to the inflationary environment. So for your existing contract with your customers, is there a price adjustments? drctor soilif, you can baon some of the increase, a renewal.
Yeah typically we, when we contract, we we do have a, we do have the ability to increase, we do have increase ability to increase pricing in our on our legacy maintenance business. That that is sort of an annual, usually an annual, adjustment. Those price, those those contract renew annually and that's where they're subject to price change. A lot of the standard contracts that we have on that legacy business allowed for, you know, C P I or C P I plus price increases, So they're kind of linked to linked to inflation. In the lastast world. We tend to, you know, we tend to have longer term conacts, three to five year contracts, those we tend to lock in for those three to five year periods but then when they renew they re, they're certainly subject to.
You know, they're certainly subjectic to price. The price increases.
Thanks Mark. I'll have the line.
Any.
Thanks.
Thank you very much.
Okay our next question on the line as on dpac coosha with the bmmo capital markets gre ahead.
I' like good find guys. Thanks for taking my question.
I'm ll try and keep it brief. You know it's your year ending.
You sometimes give us the breakdown a total revenue between health care and complex distribution wonder if you had some metrics because what I'm trying to get out is.
What's the natural growth rate that you're seeing across these two different divisions overall on a revenue basis?
Yes So. So we do split in the in the deck depac, and welcome L to the call. We do split what on the deck, that split of a? R between complex and and health care, and you know that kind of moves around over time. But because the legacy base is, as you know, kind of skewed towards complex distribution, the sort of growth in health care has been a little bit vieuted in terms of how that overall percentage of a increases towards health care. We actually stop quite a pop in the last, in this last quarter, because a big chunk of that four point five million a R was in fact health care, a big chunk of it. So that you know that a R? R number, the percentage of our business, of our a? R business, that's health care, moved from thir 36%, like Peter mentioned last quarter, to like 40%. So health care is, like now, 40% of our total a R. So you know that the new business is definitely- and including base business, migrations and add on- is skewed towards health care. If we look at overall growth rates in in the year, the Pac I mean, you know health care was growing and this is scale, that the level of bookings, you know health care was growing at 40, five percent, against complex distribution sorry, against total, which was growing at about, let's see, was about 27, 27%.
20 20 seven 20, nine percent. So Healthcare is definitely definitely leading the growth.
Pro it. Okay, that's helpful. And then- and yeah, I know it's been a I go in the conference call, but certainly a lot not since we lastst spoke and since we did last speak, the macro environment changed quite a bitb.
And I' through COVID-19.
The priority of supply chain spending for hospitals increased.
Does a recession changed that? Or how are hospitals thinking about inflation or potential recession impacts to spending? Does it change the priority of where supply chain investment stamp? Or does it change the- just the amount they're willingto spend? And what are they? They kind of say, you guys?
I mean so far, be back, what we're seeing, and I mean this is what I think so far. I'm talking, I'm doing sort of pretty real time to feedback. You know, as opposed to it, most what we, the F these closes, as know, last quar, rle 30 whatever, where you know this relates to sort of what is happening in the field right now. And what is happening the field right now is there's an urgency in health care to get new of lights systems selected and implemented like we've ever seen before. Know, I think the macro environment is causing a lot of distractionce in the, in the general distribution market, But in the, you know, in health care itself, you know it, it seems to be just go go, go. And you know I mentioned a few people. I was in a conference at the end of APR where you know is a health care conference with a lot of D's there and that that conference had health for a couple of years, these due to co it. But it was fast for me. I talked to, you know, quite the number of's while I was there at the conference and every single network I spoke to was either a current Texas customer, current Texas prospect, or that in their plans for the next couple of years. So it is pretty exciting. I left that conference going While this, this industry, is on the move and you know, at this point we are in- I mean that's a small sample that I price spoke to 25 or thirty's of the conference but we were literally in the plans or already in the business. I've ever single thatwork So and so it's. It's pretty exciting. In health care the macro environment is doing nothing to slow it down at this point.
Okay that's helpful for Peter and Mark. Thank you, I just have another question, follow up on margins.
Obviously on the gross margin side, mix shift and evolution changes the gross margin. But when I look at the EBITDA side, your lovel fiscal 22 is about half of what it was in 21, the portion of thats in your control. You mentioned investments.
Are you expecting to recover that portion fully in fiscal' 23 or or expect to gain on that? Gain more leverage on that in that OpEx portion spend in 23 how you kind of thin and you guys target a specific when you budget for the year. Are you target specific spend level or a margin level? How should we think about your process? Or around margins?
You I mean there's obviously a lot of factors involved. Years driving mean in some ways fiscal 22- sorry, fiscal 21, that's a comparable- was a bit of a windfulall year because of the fact that U's currency was, you know, a Canadian vec, trading in including our head de fect, it was almost was aroundon the Fu 40, So So that just gave us a a great, you know, extra patadding on the margin side this past year that it ended in some ways the exchangeence trade was more typical attorur average what we average Mark 125 ish.
I think around there. So So that is a much no typical year, and so as we look ahead into the future, we're saying we expect that number to the EBITDA margin to fully climb back during the year, but we're continuing to say that we want to have. Our overall philosophy has not changed and that is that we want. We want to lead with organic growth. We want to to invest for organic growth. We want to continue to pump money in the sales and marketing and scale the business that neededand yet we want to maintain reasonable EBITDA So that we're not consuming Investor cash in the process of grow the business. We're sort of funding our own growth as we go. It's hard to depend on the markets. The market CT sometime down sometimes. We dont want to be in a position where we've got to done at a at a bad time.
So that continues to be the strategy. Some years we come in above that rough guideline, as in fiscal 21, some years we come in below that, but that continues to be the philosophy run with. If we look at what we see in the headlights right now, it calls for continued investment in growth and marketing. I mean in sales marketing. But on the operating side- specifically cloud operations and to some extent R andd- we feel like we're approaching a point where we could moderate that growth. I mean RD growth. This will definitely be very moderated this year. We feel like we've did a lot of catch up in Q4, So we expect R D spend to be relatively flat this year and cloud offptes based upon.
Yes based on exiting on right: yes, and cloud, cloud ops we've invested a feir bid in during this past year. We know we've still got some more investment to do there, but we think that kind of by the end of this fiscal year the cloud operations group will be more or less where it needs to be, and at that point you should start to see more benefit on the margin side, our resulting as a result to growth.
So's you back to by downde BIS. I mean we don't give precise margin targets out to the market but philosophically it's focused on growth and maintain an up EBITDA margin to fund the business.
Yes I no. That's very helpful. I understand that in the philosophical ansancer and the business approaches, but I was going after, So that's helpful. You do have excess cash.
On your bound sheet.
In the past it's kind of been earmarked for acquisitions if macro risk is increasing. Or do you change that view, or do you accelerate that view? howshould we think of the excess cash?
I mean we continue to see this as both questionush for security in these markets. I mean we need to. You know I mean customers that select this for a ST, there's that platform. I mean in many cases we are there forced system of record. They need to know that we're rocked all the financially here for the long haul. So we continue to see as a bubulwarwork against sort of some the crazisinginess is going on it there right now. But at the same time we continue to see some of it is dry W acquisitions. I mean we've been watching the. You know that the market that you know private equity marketts, which is we tend to compete with for acquisitions, and that mean in some ways the pricing still hasn't adjusted to what you know, to what the public markets have gone through. You know it feels like there's often sort of a six month leg from what the public market due to what theprivate markets do sort. It seems like pricing is still, you know, fairly high on the private side. But you know we still expect that to come down and get more in line public markets. And so we continue to watch that and, and you know, will move if we think there's a some reasonable pricing and there.
Okay that's great. Well, Thank you again for taking the questions on press line.
Great.
Thank you very much.
We do have another question: kid from the line of Stephen Lee with brayd James greret ahead.
Thanks APA. I'm hoping can reconcile something for me. So I heard you say it's go go in hospitals, But at the same time you did mention there's a lot of inertia. Can you reconcile with you?
Great question. I've been trying to reconcile those two for five years or.
You know, there is.
There is a lot of focus from a Board level in the hospital space to say we need to implement new supply chain platforms, we need to modernize our approach to supply chain, we need to save. You know the millions of dollars that are currently been wasted in supply chain, you know, et cetera. So a lot of that pressure is there is's now coming from the boards. It used to the other way around. If I go back two years, it because the management team during the pressure Board to invest more in supply chain. Now it's a Board's putting pressure on on management teams to hurry up and get new supply chain platforms in place. So So that's that sort of urgency that we see in the market.
At the same time, nothing happens that like. By and large, this industry is not know how to do anything fast. So as much as there's urgency there the, the contracting process, takes a while. The security process- they all have, you know, audit teams to audit the security platforms, make sure it passes the test. You know that. Then there's the teams that have to look at interfaces. They only move in a certain speed So So that's why we end up seeing this swell in the pipeline, swell and activity sales team very busy and yet the, you know, the actual growth in bookings as of the is not that extreme. I mean if I look at.
The numberbers, I mean.
You know the cars, you know our SaaS bookings actually grew, you know, pretty nicely last year over the prior year and, given the a much higher percentage of it with health care, you know we actually saw our health care bookings grow at a a pretty substantial clip over the prior year and we we certainly expect that to continue. So we are seeing, you know, I mean, as we mentioned, our SaaS revenue up 47% constant currency and so, and so we're seeing the growth that's coming through, but certainly the the IT's still not at a level that the activity in the pipeline could deliver and so we're still seeing that is, you know, future gain that we expect to begin to come TR.
What's have for bitidter and this dynamic impacts more PS. When SaaS revenues correct like we can start recognizing SaaS earlier. Is that right?
Well yes that dynamic still affect to some extent the contract closing which then does affect the faster revenue right. So this is a lot of this activity I'm talking about the security reviews and all those kind of things those all happen prior to and contracts I think so so that does hold up the FAS revenue. Once the contract signed. Then the FAS revenue kicks in and at that point the.
Sort of the ponder speeds a lot of the network to move at effective professional services revenue. More than this asset, that stage.
Okay that makes sense. And then last 1, a market. I hope you there's no plan for price increases on SAS, So this is even for rowes coming up for renew say, this year.
No I think you know we we have, we have the opportunity to increase fast pricing upon a renewal. But a lot of our contracts that we do on fast, even our three to five year contracts, So we don't have a lot of actually that are coming up for for renewal right now. You know we've only been selling this stuff for you know a little, you know sort of three plus years, So we and most of our contracts are five years. So there's not a ton that are coming up renewal right now. The ones that are, we have the opportunity to to increase them and we know we expect, you know expect to do that.
I've got it, thanks.
H.
Thank you very much and we have a number of questions on the line, So thank you very much, everyone. That does conclude the conference conference today. We thank you for your participation. You disconnect your lines. Have good day everyone.
Thanks.
Thanks everyone, both now.