Q1 2023 Tecsys Inc Earnings Call
That.
Good morning everyone. Welcome to the Texas First Quarter Fiscal 2023 results conference call. Please note that the complete first quarter report, including MD&A and financial statements, were filed on SADAR after market close 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 answer period, are not being reported.
may include forward-looking statements that are based on management's beliefs and assumptions.
Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Friday, September 9, 2022 at 8.30 a.m. Eastern Time.
I would now like to turn the conference over to Mr. Peter Barrington, 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.
Our company began fiscal year 23 with continued strong growth underscored by very strong quarterly SaaS bookings.
This was the result of a healthy blend of new accounts, base account expansions and existing customers converting to our SaaS offering. From the outset, we knew this would be a transformative year for us as our shift to a SaaS organization intersected with a distressed supply chain industry that demanded a higher caliber of solution and the legacy systems implemented back at the turn of the millennium.
Across healthcare, pharmacy, converging retail, complex distribution and third-party logistics, a tighter labour market, digital adoption, an appetite for automation and a need for nimble fulfillment are fueling investment in modern supply chain software.
And after 10 years as a visionary in Gartner's Magic Quadrant for Warehouse Management Systems, last month we were promoted to the Challengers Quadrant, signalling to us that we are perfectly positioned to capitalize on the market conditions.
We continue to see that never in the history of this company has the world been so ready to invest in supply chain.
Getting back to business, I'd like to take a moment to summarize the key events of the first quarter of Fiscal 23 and the results of operations. Mark will then walk us through the financial results in more detail and finally I will comment on our outlook followed by a Q&A session.
There are two key indicators that I'd like to highlight which are contributing to our continued track record of stable growth as a SaaS organization. First, our revenue model continues to move in a positive direction. Our SaaS revenue model provides greater revenue visibility and makes it easier for new and existing companies to buy our software solutions.
Our total revenue excluding hardware is up 11% year-over-year bolstered by a 42% year-over-year growth in SaaS revenue.
We are at the precipice of an important milestone in that SaaS revenue.
representing 49% of total recurring revenue. We see this as a strong endorsement of our SaaS offering and more holistically of our sustained value to our customers.
I also want to take the opportunity to highlight our strong bookings performance this quarter. We added $3.9 million in SAS ARR bookings, representing a 256% increase compared to the same period last year.
This translates into a positive impact on SAS RPO or Remaining Performance Obligation up 58% year-over-year and up 9% sequentially compared to last quarter.
Booking spanned the deepening of engagement with base accounts as well as new SaaS account acquisitions. We added three new healthcare clients and we added new Australia-based converging commerce clients brand bank group.
These bookings also represent a continued strong contribution from our partner ecosystem with 35% of new deals being partner influenced.
As our customer base continues to expand across verticals, our foothold in both complex distribution and healthcare helps leverage the continued investment in our SaaS platform. This quarter has seen positive momentum across verticals with a 100% win rate in healthcare for the quarter and key deals closed in converging distribution markets.
So as we close out another successful quarter, we are pleased that we continue to capitalize on the opportunities in front of us.
We continue to add new hospital networks and global brands to our repertoire of clients. We enjoy a robust pipeline of new SaaS opportunities, expansions and conversions, and we see a solid path for shareholder value creation.
Texas is proving to be among the best cloud-based solutions available in the market we serve, and we have the people, the products, and the plan to provide what the market demands. Mark will now provide further details on our first quarter financial results.
Thank you, Peter.
We're pleased with our strong performance in our first quarter ended July 31st, 2022. Total revenue was $34.2 million. That's 3% higher than $33.2 million reported for the same period last year.
Total revenue excluding hardware revenue increased 11% compared to the same period last year or 9% on a constant currency basis.
As many of you know, a significant portion of our revenue, about 65%, is denominated in US dollars.
As a result, movement in currency exchange rates has an impact on our reported revenue and growth.
We continue to experience strong and diverse revenue streams underpinned by a 42% increase in SaaS revenue, up from $5.7 million in Q1 of 2022 to $8.0 million in Q1 of 2023.
SAS Remaining Performance Obligation, also known as RPO or SAS Backlog, was 102.5 million.
at the end of Q1 fiscal 2023.
As Peter mentioned, that's up 58% from $65 million at the same time last year.
Maintenance and support revenue for the three months ended July 31, 2022 was $8.3 million. That was down 1% compared to the same quarter last year.
The general decline in the corridor compared to the same period last year is consistent with our shift to SAS.
We expect as current customers migrate to our SAS offering, maintenance and support revenue will continue to decline over time.
Professional services revenue for the first quarter was $13.6 million.
That was up 4% from a strong comp of 13.1 million reported for the same quarter last year.
As we noted last quarter, we believe we are starting to see the impact that our transition to SAS 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're also continuing to experience the growing role of our partner ecosystem in helping to implement our systems.
We expect that over time these factors will continue to moderate our professional services revenue growth in the future.
License revenue in the quarter was $0.5 million compared to $0.4 million in the same period in fiscal 2022.
As we've stated before, with most of our software bookings now SaaS, we expect license revenue to decline in general over time.
Hardware revenue in Q1 of fiscal 2023 was $3.8 million. That was a decrease of $2 million compared to the same period last year and a decline of $1.3 million sequentially compared to $5.1 million in Q4 of 2022.
By way of reminder, we sell 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 timing.
That said, like last quarter, our hardware backlog remains strong, driven primarily by hospital network point of use orders.
Turning now to bookings, SAS bookings are reported on an annual recurring revenue basis and, as Peter mentioned, increased by 256% to $3.9 million in Q1 2023, compared to $1.1 million in Q1 2022, which was, frankly, a pretty easy comp.
I would point out, though, that we have been seeing some sustained momentum with SAS bookings. In the last 12 months, up 78%.
compared to the prior 12 month period.
Professional services bookings were $9.7 million. That was down 33% compared to $14.5 million in the same quarter last year.
This is down sequentially from $14.8 million in Q4 of last year and highlights the lumpiness and impact of timing on reported quarterly bookings.
Professional services backlog remains solid at 30.7 million at July 31, 2022.
For the first quarter, total gross profit was $14.8 million. That was up 2% compared to $14.4 million in Q1 of 2022. And that was led by higher gross profit contribution from SAS, Maintenance Support and Professional Services.
which was partially offset by the impact of a lower gross profit contribution from hardware.
As a percentage of revenue, gross margin held study year over year at 43%.
Combined SaaS maintenance support and professional services gross profit margin for the three months ended July 31st, 2022 was 46% compared to 47% in the same period of fiscal 2022.
This slight decline was primarily from lower professional services margins driven by the impact of our investment to expand delivery capacity.
SAS maintenance and support gross profit margin was actually slightly up from the prior year quarter.
Finally, license and hardware gross profit margin decreased slightly from 26 to 26 percent from 27 percent in the prior year quarter.
Switching now to our expenses for the quarter, operating expenses increased to $14.7 million.
That was higher by 1.3 million or about 10% compared to 13.3 million in Q1 of fiscal 2022.
Operating expenses increased compared to the same quarter last year primarily as a result of our expanded investment in research and development and sales and marketing.
Looking ahead to next quarter we expect only a slight sequential increase increase in research and development
On the sales and marketing side, we expect increased costs resulting from timing related marketing program spend.
seasonal sales and marketing events, and travel.
Net profit for the quarter was $40,000 or essentially zero per fully diluted share, compared to $244,000 or $0.02 per share for the same period in fiscal 2022.
Adjusted EBITDA was $1.5 million in Q1-23 audio only
Net profit and adjusted EBITDA were negatively impacted in three months and on July 31, 2022 as a result of investments in delivery capacity, sales and marketing, and research and development, as well as from lower hardware contribution compared to the same period last year.
Net profit and adjusted EBITDA were both positively impacted by a favorable foreign exchange impact of a relatively nominal 0.2 million compared to the same period last year.
We ended Q1 fiscal 2023 with a strong balance sheet position on July 31st.
We had cash and cash equivalents and short-term investments of 37.5 million dollars
That compared to 43.2 million last quarter.
For us, working capital tends to normally consume cash in our fiscal Q1 period, and we saw that in Q1 fiscal 2023.
Finally, we had debt of $8.1 million at quarter end compared to $8.4 million last quarter.
I will now turn the call back to Peter to provide some outlook comments.
Thanks Mark. Texas stable growth continues through the first quarter of fiscal 23 with a strong balance sheet and a robust backlog and sales pipeline. We are seeing widespread buyer intent across target markets, solid opportunity cycles and an expanded sales team with the tools and talent to capitalize on a market ready to invest in new technology. Our increasing market share in healthcare supported by an increasingly strong partner network and growing acceptance of the clinically integrated supply chain.
are here to stay.
And so after an impressive fiscal 22, we're pleased that this first quarter of fiscal 23 continues that trend. We believe that the remainder of fiscal 23 is tracking well against our internal KPIs, and we are well positioned to expand our footprint in this growing market.
In summary, I want to remind analysts and investors of our key themes for fiscal 23. First, we'll continue to maintain a laser focus on expanding our SAS Revenue Model.
Secondly, we will continue to deepen our partnership ecosystem. This is key for us to scale rapidly in North America and international markets.
Third, we'll continue to expand and refine our distribution and omnichannel business platforms to serve as evolving needs in both our healthcare supply chain and converging distribution market segments.
Across our markets, we will place emphasis on customer success. We have long stood by the philosophy of customers for life. A big part of that formula is to deliver value fast, stay connected, and iterate on the value delivered.
With that we'll open the call for questions. As I've explained a few times this week by the way, sorry I had COVID a couple weeks ago so this nagging cough is hanging around. It is getting better thankfully but it's still with me to some extent so I apologize for the extra noise you've had to listen to on this call. So thank you and I'll turn it back over to the operator now.
Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a 3 tone prompt to acknowledge your request.
If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by the 3. One moment please for our first question.
Our first question comes to the line of Amir Isat. Please proceed with your question.
Good morning, Peter and Mark. Thanks for taking my questions, and Peter, good to hear you're on the mens.
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My first one is on EBITDA margin profile and what we should be expecting for fiscal 23. Obviously not looking for a hard number but maybe conceptually.
Last call you guys spoke to most of the hiring being reflected in your first quarter P&L. So would it be fair for us to assume that this is maybe the trough quarter and going forward, do we see some fixed cost leverage driving margin expansion?
or are there other factors such as inflation or maybe increased travel that we should be thinking about?
Yeah, I'll take that one. Hi, Emerhart. Welcome to the call. Thanks for the question.
I guess in terms of our cost profile, I tried to give a little bit of indication of what was gonna be happening there in the prepared remarks. I think we indicated that sales and marketing costs are gonna continue to rise a little bit. R&D is gonna go up, but only slightly. And I think that what you're gonna find is it's gonna sort of moderate, and I think we talked about that maybe at the last call as well.
you're going to see sort of a moderation and even a margin that's going to likely hang around these kinds of levels as we continue to invest for growth and expansion.
Okay, so pretty much the cost increases are going to match what you guys expect in terms of sales growth methods.
Yeah, in the near term quarter.
Okay, then if we go back to your remarks on hardware sales, I think in the MDNA you guys mentioned it's due to timing of backlog delivery.
Can you help quantify this specifically in terms of when we should be expecting you guys to recoup it?
Yeah, I mean, I think there's some of it's, I mean, a lot of it's just completely a little bit beyond our control. I mean, we do think if I was looking at the crystal ball a little bit, you can look through our hardware numbers from last year and see where they were. And they were quite robust, you know, like our low point last year was over 5 million and this last quarter we were
you know, we were at 3.8. So I think that that's probably a low point, that 3.8. And, you know, I think that the bigger turn there will happen in probably our Q4 of this year. But I expect, at least we expect currently, based upon what we're seeing, supply availability, et cetera, that that 3.8 is probably a low point.
Okay, great. Then on professional services, I mean like through the past quarters you guys have been speaking about your implementation partners helping out.
And you guys spoke to moderating professional services with that kind of your partners helping out.
Then I sort of contrast that to be very healthy SaaS bookings.
So like going forward when I'm thinking about professional services, are they sort of flat at $13 million like the last few quarters or can we expect that?
to decline or does it increase because you guys hired more people to help with the delivery.
Yeah, I mean, we would sure expect the latter. I think this is going to, I think it's going to moderate a bit. But if you look at the profile of what happened last year, Q1 was our was actually our biggest.
slightly, fairly flat quarter on quarter, but it was our biggest PS revenue quarter last year. Don't expect that to be the case.
Don't expect that to be the case this year. That said, it's kind of hard. It's sort of new for us, the uptake in our partner ecosystem and how quickly that's gonna sort of take PS revenue is sort of yet to be determined. Just a little bit of color on that. There was a deal that we signed in a quarter with a partner who's gonna play a pretty significant role in the implementation and it looks like right now that we're gonna have it.
I won't use the correct numbers, but just in terms of order of magnitude, that's to say it's a million dollar implementation, we end up with like 300,000 and the partner ends up with like 600,000.
which is great, but it also helps us to use our existing capacity and not constrain our growth of doing implementations, which is exactly what we want to do. But we do think it'll moderate our, ultimately moderate our PS growth.
Do you mind giving us a very high level? Oh, sorry. Go ahead, Peter. Okay. Thank you. Thank you. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay. Okay.
I'm just going to say just add to that Emory, like your point is valid though about strong SaaS revenue growth. Like if you look at, you know Mark made the point on the call that our SaaS bookings I should say in the last 12 months were up 70%, 78% over the prior 12 months. You know you can't grow SaaS bookings at 78% on a trailing 12 basis and not grow professional services.
even if you've got a growing partner ecosystem, right? So we're just trying to balance those. You know, we do actually, I mean if you talk to our leadership in PS, they are preparing for continued reasonably significant growth in PS. But it will, you know, it will certainly and thankfully grow, you know, substantially slower than those kind of SaaS bookings.
totally understand that's very clear then what does utilization look like like this year versus like last year?
you
for the PST.
Yeah, I mean in that quarter last year's utilization was quite a bit higher. I mean I mentioned in a call that our margin on PS, I mean we don't disclose those separated margins but our margin on PS was lower this quarter than it was in the same quarter last year which sort of brought down that combined SaaS maintenance support and PS margin number. And that is because utilization was lower in the current quarter we had invested for some time.
Okay, maybe one last one on your capital deployment strategy. Can you guys maybe give us an update on the latest and greatest from Birdie's team?
Yeah, I mean we continue to shop. It feels like that market, basically I think I'm going to say the same thing I said last quarter, it feels like the expectations in the private market are starting to moderate and come more into line with what's happened in the public market so we think there is rising opportunity. You know, Birdie has his pipeline.
But you know, some of these situations, until you have a deal, you don't know if you have a deal. So we continue to shop, we continue to talk, we continue to look at opportunities. We would like to get a more substantial footprint in Western Europe . You know, we think there's opportunity there. We're excited about some of the growing opportunities in automation. And we think, you know, automation is a great, great opportunity. And there's some potentials around that for acquisitions related to software for automation.
We don't want to get into the hardware automation business, but this the software side could be interesting and You know in in healthcare too, we continue to see deals from time to time The last couple we saw ended up we think priced at quite an insane level. So we stayed on the sidelines But there's other than that. I would say no real update
Thanks. That's great. I'll pass the line.
after one. Thanks.
Thanks.
Our next question comes the line of Gavin Fairweather. Please proceed with your question.
Oh, hey, good morning. I thought I'd start out just on the sales production, obviously a very strong quarter in terms of bookings and IDNs added. I'm curious, with the existing team after the addition that you've made, how far up the productivity curve would you say that they are? And then maybe we can get a bit more specific in terms of your plans to add headcount to the team there.
Sure, I mean we're pretty pleased frankly with how the new team, you know, the growing team is working out. I mean you're, you know, you go through this kind of an addition. It's not that uncommon, at least in the software sector, to have.
sort of a 50% sale rate on new additions to a sales organization. And so far we're just not seeing that. We think we've managed to attract a really good crew of salespeople. We're seeing deals closed. If I look at this past quarter, Q1 quarter, we had some of those deals brought in by some of our new reps that have been with us less than a year.
So we're pleased with that. That said, we think the overall headcount is more or less right for the short term. We're seeing a fairly rapidly rising level of activity in complex distribution.
I mean healthcare, the healthcare side frankly is on fire. I mean it's going very, very well. Lot of opportunity, you know, three deals signed in the first quarter, which is amazing for a summer quarter. So healthcare is just go, go, go. But even complex distribution, and I may have mentioned last quarter, you know, there were a lot of leads that were sort of hung up at the top of the funnel. Those seem to now be moving. So that sales team is quite busy.
We're going to be watching to see if that new level of pipeline activity in the top of the funnel moving to the bottom of the funnel, if that turns out to be real and starts turning into real.
real deals and closes and so on, then it may well be time to begin to further expand that sales organization. So we're watching that pretty closely, we're going to be watching the signals over the next couple of months. Often it's a question of balancing, you know, we've budgeted for a pretty substantial increase in sales and marketing spend again this year, but the intention was to focus more of it on marketing than sales, but if that lead flow continues to...
run at current pace, then we may end up recalibrating that and growing the sales organization a little more. So we're watching that pretty closely.
You just kind of touched on my next question. I was thinking that your commentary around the distribution was more bullish than what we've heard recently. Is there being some kind of shift that you would call out that's leading to that market moving a little bit faster? Maybe you could just touch on the win rates that you've been seeing on that expanded type there.
Sure, it's like it's too early to get a solid read, but certainly...
you know, containers that they couldn't get a hold of, crazy pricing on containers. It was, they were just managing sort of crises day by day. Whereas now it seems what's happened is as we got into late August some of that sort of constant crisis began to let go. Goods are beginning to flow. You know, I mean I know in the press there's talk of, you know, high inflation and shortages and so on. But if you look sort of further up the pipeline.
it seems like that the crisis is sort of starting to lose its grip and you're seeing sort of shipping return to more more normal process. The distributors and importers are less sort of panicked about getting their goods through the ports and so on. So that is allowing them to shift their focus back to sort of okay now where are we going next? And so we seem to be starting to see some real activity of them beginning to engage with our sales organization.
and actually look at product and look at potential and get into solution design and all those kinds of things. So we'll see, it's early, we're literally probably four weeks into this shift in the market. But it's a bit strange of course, I mean normally these things change slowly over time. But I think COVID has caused sort of some very rapid shifts in the market. You know the market's suddenly seizing up and now the market suddenly beginning to let go again. So...
We'll watch and see. I think we'll know a lot more by the end of the second quarter in terms of how that's shaping up. Based on that we'll be deciding how rapidly to add headcount to the sales organization.
Got it, that's very helpful. And then maybe just on the SaaS migration from the base, you've been talking more and more about this. How should we think about the bell curve of customers and the pace of migrations and how that should play out? I'm curious whether some of the migrations you're seeing are as a result of your efforts to reach out or whether clients are coming to you and looking to make the shift.
Yeah, there's a bit of both. I mean, Mark could give you probably more precise numbers. I, you know, off the top of my head, I would say our conversion rate is probably, you know, 3x was what it was a year ago. On the other hand, a year ago was pretty low. So, you know, you don't need that much to make it 3x. You know, we saw our net retention rate number rose, you know, nicely in the first quarter. That was partly as a result of, you know, shifting on-prem customers that were shifting.
how that that works out but I think we're starting to get into the sort of the early part of the rise in the bell curve I would say I don't know if you'd agree with that work
Yeah I mean it's it's sort of hard to tell where we're you know we're still a kind of small numbers Gavin on in terms of how many customers have migrated you know I mean literally it's
it's like a dozen, you know. And so, you know, when it happens in the cycle, is like, it typically, it tends to be, you know, when a customer is ready to upgrade to new software, that's when we typically engage with them to do it. And of course, you know, a lot of times, these customers are with us for a long time and, you know, they don't move.
They don't upgrade platforms every year, so they tend to do that over a cycle that's
It's over years, you know, so let's say there's a five-year upgrade cycle. You know, that's kind of your window where you know, you're going to be engaging with existing customers to move them into SaaS. But I agree with what Peter said, it does feel like, and if you look at our pipeline and sort of the level of stuff, the level of engagement in the pipeline on existing customers that we're talking to SaaS with, about SaaS with, it is definitely on the move.
Awesome, thanks so much. I'll pass the line.
Our next question comes in line of Nick Agostino. Please proceed with your question.
Good morning everybody. On the hardware run rate, is the lower receipt of goods right now having an impact on your ability to finalize implementations and therefore recognize any revenues? Is it having an impact to the point where you're having to delay revenue recognition?
It's not. It's not yet. I mean the only impact it's having on revenue recognition is on the hardware line. So far it hasn't had an impact on project speed, on project rollouts, etc. But we'll see how that plays out. We think we're okay. We've got it kind of laid out. We've got, you know, some of this came as a result of, you know, the chip shortages and we've got...
we've got sort of line of sight on delivery timing for that stuff now and so we're working that through you know quite openly with our customers that are in project and kind of you know making sure that we're lining up the end of the project implementation period with the delivery of some of that hardware that you know helps solve the you know the point of use tracking in the end. There's also some things that you can do as an interim solution and so instead of using a lot of this is around our prop tech.
hardware that's causing the, you know, where we're having the part delays. You can also do, you know, some scanning. You can use like a scanner as an interim solution. And we've talked to some customers about, you know, about doing that as a step to just get live and start going and then, you know, if we're not ready with PropTech stuff, at least it doesn't slow down the project.
Okay, no, that's good to hear. And then just on the three IDN wins or hospital wins in the quarter, can you guys just talk about deal size relative to historicals? Are you still starting to see or continue to see bigger and bigger deals relative to the historical average or are any potential budget constraints just because of economic fears? Any other questions?
We're seeing smaller deals. Just any color, that would be appreciated.
Yes, these were...
I would say these were average size deals. You know, none of these networks we signed were sort of, you know, huge networks. So I would say these were close to probably the lower side of average size deals. We did also sign some pretty substantial base business in healthcare in the quarter. So the combination of the fact that there was three of them plus the base business added up to some pretty substantial healthcare business in the quarter.
But you know we do have some significantly larger opportunities in the pipeline right now actually that we're pretty excited about but this quarter I would say they were they were lower side of average. I mean they were still a nice size deal, we don't disclose actual deal size but they were probably lower side of average.
Okay, good to hear. And then my final question, just on the system integrators, I think, you know, obviously last quarter, we saw you guys were calling out a higher level of implementation on their part. We're seeing that again, quarter sounds like it's going to be sticky. And, you know, certainly from where I sit, I think that's a good trend overall for the long term nature of the company. I'm just wondering, what has
we've seen in the last couple of quarters from your partners, maybe what is starting to click in for them, that has started to increase their level of involvement.
I think there's really two things that I think are clicking in there. One is...
they're developing a much more thorough understanding of our platform, right? Like our platform is a big platform. So you're, you know, if you really want to be involved in a, let's say a big healthcare implementation, you know, you need to understand, you know, our demand planning and forecasting and how we manage the item master and, you know, the, you know, all the interface capability and the changes that are going to be required for the clinical staff in terms of how they manage it. So it's a good online.
And it takes a while to build that expertise. Like if you take an organization like Deloitte for instance, I mean they're very strong on the accounting side of ERP and so on. But when you get into the depths of sort of how a supply chain operates in a hospital network, there's a big learning curve for everybody. And partly because of course many of these hospital networks have never really run their own supply chain. So it's a big learning curve.
So they're beginning to build that sort of critical mass of knowledge to be able to deliver you know excellence in their consulting practice around our platform. So that takes a while. Rise now is in excellent shape on that. Deloitte is in pretty decent shape. Avalon is certainly very deep not in healthcare, but in other sectors, electrical for instance and some other ones. So that knowledge base is a key part of it.
And then the second area is just, you know, as our volume continues to rise and they continue to see, I mean, we mentioned earlier on the call that 78% increase in SAS bookings over the prior 12 months.
they start to see that hey, they can build a big business around this. So that takes time for them to gain that confidence. Somehow the first couple of wins they see as lucky. As they start to see some repeatability and so on, like some of these partners have 8 to 12 deals in their own pipeline that they are working on to bring to our platform, so that they can deliver the services, business around it and so on. But it takes time to build that level of confidence.
to begin to make that kind of investment. But we seem to be there in those areas. We're still looking to invest further in building out specifically the complex distribution partner ecosystem. We continue to see some growth there, but we think there's a lot more opportunity there for some good partners. So we're continuing to try to build that out.
Okay, I appreciate that caller and Peter, good to hear that you're on the mend.
Thanks.
Our next question comes from the line of John Chow. Please proceed with your question.
Hey, good morning. Thanks for taking my questions. Could you give us an update on your initiative to try to hire customer wall to share, especially in the healthcare sector? So any updates on uptake for the pharmacy or the lab modules?
Yeah I've...
Well first of all let me talk about coverage. I mean you know the expanded healthcare sales team that we've you know we've almost doubled the size of what we have approximately doubled the size of it over the last two years is providing us with much better coverage of our customer base in healthcare. I mean we're now you know as we go past that 50 network number it's quite a substantial customer base in that market. These are a lot of these are very large organizations multi-billion dollar organizations with you know huge opportunities for us in there.
So we, by doubling the size of that team, we've got much better coverage and are seeing as a result of that, we are seeing solid growth coming out of that customer base. As I mentioned, Q1 for instance had some pretty substantial wallet expansion coming from that market, specifically pharmacy. We have not yet seen further uptake. We continue to see a lot of interest. We'll see. We're expecting to win more pharmacy business this fiscal year.
but you know we'll see how that one works out. We did just release our new receiving module and it's now sort of out there for deployment. We're now showing it on the sales side and so on. And we're pretty excited about that one. That's a module that is designed to in effect allow a hospital to receive and track anything from anywhere to anywhere regardless of where it is in the system.
So it's basically an app, it's a cloud-based product line, but it runs on pretty much any cell phone. It allows you to scan a package in, label a package if it's not labeled, but it will literally track drugs, flowers, specific gifts being delivered to certain patients, shipments from medical and surgical suppliers to give a certain product to a certain doctor that they need for a certain procedure.
So it's a very flexible receiving app that is designed to be deployed with virtually zero training. I mean you pull it up on your phone and it is absolutely intuitive in terms of how to use that thing. So there's a lot of interest being kicked up in the hospital space around that. It'll be interesting to see the impact. That's something we've been working on for the last sort of year and a half and we're just launching it. But we think that's going to also kick up a lot of interest in our customer base world.
We'll see, we'll let you know over the next couple of quarters how that one works out. Okay, that's great color. Thanks Peter. My other question is on the FX situation for the quarter. I remember the company used to give the constant currency growth. So I'm just curious about whether FX has been the headwind or tailwind for revenue this quarter.
Yeah, John , it's been it's gotten pretty slight now. I mean, the difference between the growth rate and reported the total revenue growth rate reported and the currency.
Constant currency rate is only 1% one percentage point. So we you're right we did sort of take a little bit of the the gas off the explanations there on all the lines in the in the discussion in the prepared remarks etc. and it's because it's become a much smaller deal. There was a little bit of a tailwind so that 1% Delta was actually some FX tailwind in the quarter compared to last year.
Thanks. I'll stop the line.
Thank you. Our next question comes from a line of Rini Sharma. Please proceed with your question.
Hi, good morning. Can you hear me?
Yep. Yeah.
This is Rini on behalf of Deepak Koshal from BMO. So my first question I guess is going back to the investments to drive growth. Could you talk about the split of this incremental spend between sales and marketing R&D and cloud infrastructure which is in terms of which is the largest and which starts to normalize first? Let's look back at the D
Yeah, I can take that. In terms of the investment in cloud and cloud infrastructure, most of that is around building out the team.
we've sort of commented in the past about the fact that, you know, whether you have, you know, 10 SaaS customers or 110 SaaS customers, you need a 24 by seven team that can handle all the stuff that needs to be handled in an operating cloud environment. And that includes security, the security aspects. But once you have that team build up, you can kind of scale up on, you know, from that point. And that's kind of feel, that's where we feel like we're getting to.
on the cloud investment side. We've also talked about, Renee, about investment in professional services capacity and...
And I think, you know, we're at kind of a good place there. I mentioned before that, you know, our utilization was a bit lower this quarter than it was the same quarter last year. And that's because we've invested in that team. And we think that that team, you know, and it's current size can drive some additional professional services revenue. In terms of R&D and sales and marketing, again, the color there is that...
The investment that we've done in the past is kind of flowing through, you know, the P&L from a comp perspective right now. But actually as we look ahead, we currently don't have...
plans to grow that investment super materially. It'll grow slightly, like I indicated, quarter on quarter. Sales and marketing is really the one where, and Peter alluded to that a little bit earlier in the call, we're monitoring that one to figure out, which we always do, to determine how much gas to put on the fire there, which depends on demand and what's going on in the pipeline and what's going on top of funnel.
in terms of lead generation. Right now our budget for sales and marketing is to increase the spending there this year. And we're managing as we go, whether or not we think that's in lead gen, but as these leads start to come through the funnel and turn into opportunities and as success happens there, our investment in that between sales and marketing may tend to shift over time and more on the sales side.
Okay, and then in terms of the normalization, which…
One would you think is expected to normalize for between the.
I mean it's a good question. I mean our overall philosophy here Renee is to is to kind of keep investing as long as we're growing the business and I think that rings most truly in terms of sales and marketing. So you know well that one as long as there's opportunity I think we just keep going because you know every dollar that we spend on sales and marketing if it's bringing in you know some x factor of dollars on on SaaS bookings.
you know, we're building our PO and growing future revenue. And so we're gonna keep investing there. I think R&D and our plans are to continue to invest, but it'll be more moderate there. It's really around sales and marketing and how much fuel we put on the fire. And that sort of depends if there's sparks. And right now there are sparks, so.
Okay, that makes sense. That's very helpful. And then my next question is just about, you know, the environment in Europe versus North America, especially with regards to PCSYS. So what is the customer activity looking like there?
If that makes sense, that's very helpful. And then my next question is just about the environment in Europe versus North America, especially with regards to PCSYS. So what is the customer activity looking like there? What should we be expecting?
I mean I think first of all the, I can say the vast majority of our sales and marketing activity is you know is focused in North America. We are seeing on the retail side we are seeing some pretty good activity overseas. I mean this past quarter we signed some nice business in Australia. Both actually an expansion with a base account as well as adding a new account. We are seeing more activity in that space but if we look over
overall that the bulk of our pipeline, the bulk of our pipeline is North American based.
And that's where we're seeing, I would say healthcare, healthcare moved out of being sort of too distracted by COVID probably six or eight months ago. So we're seeing sort of concrete rapid activity. I mean healthcare is always a bit slow frankly. They're not a fast moving sector. But as fast as that sector can move, they're moving at that speed now. So we are seeing, we just had a sales meeting a couple weeks ago in August .
And the healthcare sales team is very, very busy. So we are pleased with that. We are seeing a ton of activity there. And I mean, if you think of it from the standpoint of what's happening in healthcare, I mean, you know, nurse salaries are rising. There are shortages of nurses. There are shortages of doctors. There are shortages of all kinds of things. Meanwhile, there are rising demands coming from an aging population. The insurance companies don't want to pay a lot more money. So there's, you know, you've got the Affordable Care Act that's keeping a lid on revenues for these hospitals.
So they're looking for efficiency gains and they've kind of used up all their other places to look. I mean, you know, what they need to focus on now is supply chain where there's literally millions of dollars being wasted and now supply chains are being managed. So supply chains are becoming front and center for these organizations. So we're seeing a lot of activity there.
the general distribution marketplace as I mentioned earlier that it feels like the log dam is starting to break now but I think we'll really only see for sure this fall. You know we are signing deals in complex distribution but relative to the size of the pipeline relative to the you know how many opportunities are in the you know have been in the top of the funnel for the last number of months you know the actual deal signing pace is still relatively slow and the log dam seems to be moving
As I will probably know by by November , I would think. Thank you so much.
Great, thank you.
As a reminder to register for a question, please press the 1-4.
Our next question comes from the line of Sudhan Sukumar. Please proceed with your question.
Good morning. Thanks for taking my question. It's Daniel Anfursut. So my first question is actually a follow-up on the complex distribution front.
Can you provide us some color on the last 12 months in addition to some of the opportunities and challenges that you encountered as well?
Yeah, I mean as I mentioned that market has just been massively distracted, right? So like I don't, I mean we've been in complex distribution for 25 years and we've never been through a time like this where you have virtually every single subsector within complex distribution that has been massively distracted. You know from, I mean literally it doesn't matter if it's wine and spirits or chips or you name it.
I mean it has highlighted for them the challenges around their platform. Their platforms are old and can't cope with the nimbleness needed in today's supply chain world but at the same time they've been sort of right in the middle of the swamp dealing with the alligator that's already taking a bite out of them rather than focusing on the one that's 10 feet away. So it's a, so that's the mode they've been in. We've done some good business in complex distribution. If I look at overall bookings, healthcare has been
you know, roughly 55% I think of our bookings over the last year. Complex distribution has been more in the sort of the mid 40s. You know, I think that'll probably continue. I wouldn't be surprised if healthcare even gets up as high as two-thirds for the next little while because healthcare is, you know, moving so quickly. But the sheer size of the complex distribution market we think will eventually bring it back to more of a balanced picture.
That's helpful. My second question here is, given the current economic backdrop that we're in, how are you viewing your overall investments and how are you looking to balance these investments versus perhaps margin expansion?
Well, Mark can comment on this as well. We want to run a relatively balanced ship. We want to generate enough cash to fund our own growth. We don't want to be dependent on raising capital in markets that are not friendly to raising capital. We've been in this game long enough to know that the market is rising and falling. Sometimes tech is in vogue in Canada and sometimes it's not. So you never want to be in a position where you've got to dilute your shareholders at a bad time.
So we want to run a business that cash flows. At the same time, if I look at the last 12 months, for instance, our EBITDA has run maybe, I don't know the exact last four quarters, it's probably, let's say 8 million bucks. But during that same time period, we've grown our remaining performance obligation from roughly 65 million to 102 million. So we've grown our sold and booked.
SAS by you know 37 million dollars over that 12 month period which if you figure you know even pick a relatively conservative sort of 60% gross margin on SAS it means we've in many ways we've made 22 million bucks more in the last 12 months above and beyond that 8 million of EBITDA it's just it's future earnings that are already booked sitting on the books committed contracts that have you know 22 million bucks of margin sitting in them that were that the all the work to sell them in
begin the deployment was done in this past year. So we sort of look at this past year and say well you know in terms of our investors in some ways we generated 30 million bucks of profit in this last year not just the 8th that chose on the book. So as long as we can continue to grow that that RPO number at anywhere near that kind of speed then it makes sense to just continue to invest for growth. Grow our market share, grow our customer base, grow our top-line revenue.
grow that remaining performance obligation and just make sure we're making enough money to cash flow the business.
Thanks, I'll pass the line.
Thanks, I'll pass the line.
And there are no further questions at this time. I will turn the call back over to you.
Great, thank you and just one closing comment by the way, you may have seen hints of it in what we covered today and you know some of the financials we published. We are going to begin to disclose sort of more numbers x hardware and it's partly just to sort of make it easier for everyone. We know that some of the analyst community already sort of separated the hardware and published the numbers x hardware so we're going to start to try to make that clear.
Hardware is going to always bounce around. It's got you know, sometimes there's supply chain holdups Sometimes there's specific project holdups at the customer site. So it's always going to be lumpy It's not really core to our business. Our core business is the SaaS platform we sell and the services around it So if I look at this last quarter for instance, you know X hardware our recurring revenue hit almost 54% of revenue So those are the kinds of trends we want to continue to track and and sort of just let hardware bounce around wherever it needs to bounce around
So we're going to try to clarify that in our reporting. We'll probably get better and better at it as we go through this year. But that's just a new breakout you're going to start to see a little more. Okay, that's it for now. Thank you very much for joining us. And as always, if you have additional questions, please don't hesitate to reach out to Mark or myself. And we will talk to you again at the end of November . Thanks again. Have a good day.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.
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