Q2 2023 Tecsys Inc Earnings Call
Yeah.
Yeah.
Good morning, everyone welcome to Texas second quarter fiscal 'twenty 'twenty three results conference call.
Please note that the complete second quarter report, including MD&A and financial statements were filed on SEDAR after market close yesterday.
All dollar amounts are expressed in Canadian currency and are prepared in accordance with international financial report reporting standards.
Some of the statements in the conference call, including the question and answer period May include forward looking statements that are based on management's beliefs and assumptions.
Actual results may differ materially from such statements I would like to remind everyone that this call is being recorded on Thursday December <unk> 2022 at 830, a M eastern time.
I would now like to turn the conference over to Mr. Peter Barrington, Chief Executive Officer of Texas. Please go ahead Sir.
Thank you.
Good morning, everyone. Joining me today is Mark Miller, our Chief Financial Officer. We appreciate you joining us for today's call. Our company began fiscal 2023 with strong growth underscored by solid SaaS bookings and that momentum continues into Q2.
Bookings included base accounts as well as new accounts in the U S, Canada and Australia.
Our SaaS offerings is proving to be a system of choice for organizations grappling with and data technology.
Supply chain complexity.
Since our last results call, we announced implementations at the distributor AMG medical and.
And the University of Miami Health system, each of which pointed to Texas software is the digital enabler of their supply chain strategy.
With nearly 20 projects so renewals lending in the quarter, we are seeing traction for the Texas value proposition across all industries in which we do business within a market that is highly engaged.
As much as I'd like to say that the pandemic is behind this the effects of it are not labor and supply issues continue to affect many companies.
Yes.
We need to get in there and install a system that puts a lot of path for success is what we do really well.
And this gives us confidence that the momentum we are seeing will only continue to gain speed.
Now before turning to the second quarter results I wanted to take a moment to speak about a transition that's underway in our HR leadership.
Patricia Barry who has led our HR team for more than 20 years will be retiring over the next few months.
<unk> is much to be proud she.
She's been a key part of our success and we'd like to express our appreciation and wish you all the best I'd also like to welcome Nancy <unk> to the position of Chief Human Resources Officer.
Spoken before but the important role our talented people play in the development and delivery of our software.
Nancy brings her HR experience for much larger organizations to us.
It is now leading the effort to prepare our HR team and the company as a whole for the growth ahead.
As our team expands and our business continues to grow we are excited to have Nancy onboard.
Getting back to Q2 results I'd like to take a moment to summarize the key events of the second quarter of fiscal 'twenty three and the results of operations Mark will then walk us through the financial results in more detail and finally I'll comment on our outlook.
Followed by a Q&A session.
There are a couple of key indicators I would like to highlight which are contributing to our continued track record of stable growth as SaaS organization.
First our revenue model continues to move in a positive direction. Our SaaS revenue model provides greater revenue visibility makes it easier for new and existing companies to buy our software solutions.
Notwithstanding our total record revenue up 11% for the quarter compared to the same period last year. The real headline is that our SaaS revenue is up 34% year over year, which resulted in the achievement of an important milestone in this quarter in the SaaS revenue now represents over half of <unk>.
The 2% to be specific of total recurring revenue.
That means that in the last four years, we have built a SaaS business that is driving more recurring revenue than our legacy on Prem business built two over the previous 35 years.
We are extremely proud of this achievement.
Second our SaaS <unk> bookings are up 30% in the first half of this fiscal year compared to the same period last year.
Bookings included based account expansions as well as new SaaS accounts.
As mentioned in Q2, we added two new major health care IV ends in the U S.
As well as new complex distribution and converging commerce accounts.
Sorry to the U S.
These bookings also reflects continued partner Goldman and our pipeline and in our closing activity.
It is extremely difficult to manage today's supply chain complexity relative properly integrated digital supply chain platform.
We're finding that as companies try to patch together and agile supply chain by adding on to old style model systems at some point. They concluded that the course off really were there using was never designed what they know to do what they now needed to do.
Texas has proven to be among the best cloud based solutions available in the markets, we serve and we have the people the products and the plan to provide what the market demands.
Market is.
Mark will now provide further details on our second quarter and first half financial results.
Thank you Peter.
Starting with our second quarter, we're pleased with the strong performance of our quarter ended October 31 2022.
Total revenue was $38 1 million, that's 11% higher than $34 3 million reported for the same period last year.
Total revenue, excluding hardware increased 9% compared to the same period last year or 6% on a constant currency basis.
As many of you know a significant portion of our revenue.
70% this quarter is denominated in U S dollars as a result movements in currency exchange rates have an impact on our reported revenue and growth.
We continue to experience strong and steady revenue streams underpinned by a 34% increase in SaaS revenue up from $6 6 million in Q2 2022.
The $8 8 million in Q2 of this year.
On a constant currency basis, SaaS revenue was up 30% compared to the same quarter last year.
SaaS remaining performance obligation also known as our P O or SaaS backlog.
It was $109 5 million at the end of Q2 fiscal 2023.
It's up 51% from $72 7 million at the same time last year.
On a constant currency basis that growth was 43%.
Maintenance and support revenue for the three months ended October 31st 2022 was $8 1 million down 1% compared to the same quarter last year or down 3% on a constant currency basis.
The general decline in core in the quarter compared to the same period last year is consistent with our shift to SaaS.
We expect those current customers migrate to our SaaS offering maintenance and support revenue will continue to decline over time.
Professional services revenue for the second quarter was $13 5 million that was up 4% from $13 1 million reported for the same quarter last year, but flat on a constant currency basis.
As we've noted the last few quarters, we're starting to see the impact that our transition to SaaS 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 more out of the box approach to platform implementations.
We're also continuing to experience the increased collaboration 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 revenues for the quarter was $1 1 million compared to 1.0 million in the same period in fiscal 2022 as.
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 Q2 of fiscal 2023 was $6 6 million that was up 22% from $5 4 million in the same period last year.
And an increase of 2.8 million sequentially compared to $3 8 million in Q1.
By way of reminder, we sell primarily third party hardware to our customers for warehouse operations and an in hospital point of views storage and tracking.
This is 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 view orders.
Turning now to bookings SaaS bookings are reported on an annual recurring revenue basis and can be somewhat lumpy due to the timing of quarterly deal closings SaaS bookings were down 31% in the quarter to $2 8 million compared to 4.0 million in Q2 of last year.
I would point out that it is helpful to look at a longer term period to get a real understanding what's happening with momentum on SaaS bookings.
We've been seeing some sustained momentum with SaaS bookings up 30% year to date compared to the first half of last fiscal year and up 40% in the last 12 months through Q2 fiscal 'twenty three compared to the prior 12 month period.
Professional services bookings were 15.0 million in the quarter down 16% compared to $17 9 million in the same quarter last year.
But up 55% sequentially compared to Q1.
This highlights the lumpiness and impact of timing on reported quarterly bookings.
A reminder, that we do see our transition to SaaS and strengthening partner ecosystem tempering professional services growth in the long term that said professional services backlog remains solid at $31 9 million at October 31 2022.
For the second quarter gross total gross profit was $16 7 million that was up 7% compared to $15 5 million in Q2 of last year.
That was led by higher gross profit contribution from SaaS maintenance and support as well as license and hardware.
As a percentage of revenue growth as a percentage of revenue gross margin was 44% compared to 45% the same period last year.
Combined SaaS maintenance support and professional services gross profit margin for the three months ended October 31, 2022 was 46%.
<unk> to 49% in the same period in fiscal 2022, but flat sequentially compared to Q1 fiscal 'twenty three.
We generally expect services margins to flatten out in the coming quarters of fiscal 2023, and we expect to see services margin improvement into fiscal 'twenty 'twenty four and beyond.
We believe this will result, as the business continues to scale and as we focused development and operational energy on opera optimizing platform efficiency.
We see this as a multi year journey with incremental benefits building over time.
Switching now to our expenses for the quarter operating expenses increased to $15 6 million that was higher by 1.7 million or 13% compared to $13 9 million in Q2 fiscal 2022.
Operating expenses are up compared to the same quarter last year, primarily because of higher research and development costs as well as higher sales and marketing costs.
Compared to Q1 research and development costs were up 3% on a sequential basis.
We expect research and development costs to be relatively flat sequentially in Q3 compared to Q2.
Sales and marketing costs were up sequentially in Q2 on higher marketing program spend seasonal sales and marketing events and travel.
We expect an increase in sales and marketing costs sequentially in Q3 that will be slightly more modest than the increase we saw in Q2.
Net profit for the quarter was 715000 or five cents per earnings per fully diluted share compared to 708000 or five cents per share for the same period in fiscal 'twenty two.
Net profit in the current period benefited from a lower effective tax rate.
Adjusted EBITDA was $2 8 million in Q2 fiscal 'twenty three compared to $3 2 million in Q2 of last year.
Net profit and adjusted EBITDA were both positively impacted by favorable foreign exchange of approximately 0.8 million compared to the same period last year.
Turning now just briefly to our results for the first half of fiscal 'twenty. Three total revenue was $72 3 million that was up 7% compared to $67 5 million in the first half of last fiscal year.
And that's up 5% on a constant currency basis.
SaaS revenue for the first half was $16 8 million that was up 37% from $12 2 million in the same period last year and up 34% on a constant currency basis.
Our SaaS bookings are up 30% as I imagine as I as I previously mentioned to $6 7 million compared to $5 1 million in the first half of last year.
Our net profit for the first half was 755000 compared to 952000 in the same period last year foreign.
Foreign exchange movements had a positive impact of approximately 1 million nonprofit and adjusted EBITDA compared to the same period last year.
Adjusted EBITDA was $4 3 million in the first half of fiscal 'twenty, three compared to $5 7 million last year.
We ended fiscal 'twenty three with the strong balance sheet position at October 31, 2022, we had cash and cash equivalents and short term investments of $41 8 million.
That was down $1.5 million compared to $43 2 million at the end of fiscal 'twenty, two but up sequentially from $37 5 million at the end of Q1.
Finally, we had debt of $7 8 million at quarter end compared to $8 4 million at the end of the fiscal 'twenty two.
I'll now turn the call back to Peter to provide some outlook comments.
Thanks Mark.
Texas stable performance continued through.
Through the second quarter of fiscal 2023, with a strong balance sheet.
And a robust backlog.
Strong sales pipeline.
We are seeing widespread buyer intent across target markets solid opportunity cycles of the highly capable sales team with the tools and tell us they need to capitalize on our market rates or invest in new technology.
Our increasing market share in healthcare supported by an increasingly robust partner network and growing acceptance of the clinically integrated supply chain and consolidated service Center model together with our expanded healthcare sector offering gives us confidence that the health care sector will continue to serve as an important revenue stream for us.
Turning to converging distribution, we continue to hold our sweet spot there and carve out our share of the massive market opportunity driven by fundamental changes to the supply chain industry.
Changes spurred by aging existing systems digital adoption and a realization that heightened consumer expectations are here to stay.
We are pleased that this first half.
Fiscal 2023 continued recent trends it isn't hard to see the accelerated changes on the horizon when it comes to supply chain management.
Companies are starting to invest in that change we believe that the remainder of fiscal 'twenty three is tracking well against our internal kpis and we are well positioned to expand our footprint in this growing market.
In summary, I'd like to remind analysts and our investors of our key themes for fiscal 'twenty. Three first we will continue to maintain a laser focus on expanding our SaaS revenue model.
Second we will continue to deepen and strengthen our partnership ecosystem. This is key for us to scale rapidly into North American and international markets.
Third we will continue to expand and refine our distribution and omnichannel business platforms.
Service evolving needs in both of our <unk>.
Healthcare supply chain and converging distribution market segments.
Across all 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 on the value delivered with that we will open the call back up for questions. Thank you.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone you will hear three tell them problem technology a request.
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One moment please for the first question.
Sure.
And our first question is from armor is that with echelon partners. Please proceed.
Peter Mark Thanks for taking my questions.
My first one's on the economic environments, you know like it's ever weaker and I'm, just wondering how conversations with clients are evolving.
It seems like your product is still getting good traction but wonder.
Like if you're seeing some really excellent.
Net you accounts to engage in conversations at all or.
Yes.
However, overall it seems to be a multi.
Multi serve a multi speed situation I mean, we're in a lot of different markets and the health care market for instance, the Austin market is completely unaffected I mean that market right. Now is just go go go.
Frankly, it is hotter than we have ever seen it.
The retail side.
I would say is is actually doing surprisingly well theres a lot of talk of.
Resection.
Tumor spending habits, changing and all that kind of thing.
We're not seeing that in the retail markets we serve.
We just came through Black Friday cyber Monday.
Through our order management solution platform, we saw some pretty good.
Order flow is running through that platform.
And certainly we're seeing continued investment from that.
From that market.
I mean, we're keeping an eye on that.
Yes, slowdown, but certainly at this point.
The actual transaction flows and interest.
We added a couple of our accounts in the quarter in that market.
It seems to be clicking along quite well.
The general.
<unk> I would say is the one that is it's more a hit list. There are there are accounts I mean, there are sub segments in general distribution that are clearly slowing down a little bit and are being more cautious there's other segments that are not.
So that's where when we look at our overall.
Overall across the board, we look at the mix of healthcare and general distribution retail we're seeing.
Overall total pipeline is very strong.
No question No health care is the strongest I would say retail is probably next.
Complex distribution is probably less.
And yet.
They're even their lifeblood.
No it's still reasonable so, but we continue to sort of watch what's going on out there so far.
<unk> not seen any impact on slowing down the pipeline.
Great. Thanks.
Mark.
That's all the color on cost and margins in your prepared remarks.
So if.
If I were to sort of sum up to margins in and around the same levels in fiscal 'twenty three.
With an improvement in fiscal 'twenty four.
So I wonder whether fiscal 'twenty four is a year that looks like fiscal 'twenty, one where you guys were double digit EBITDA margins.
That fair or is that like too aggressive.
No I think that's I mean, that's a sort of a different question. When I was talking about margins I was really talking about you know services gross margins some thinking about combined.
Yeah, and and and and that's in and that we have to be a little bit careful about that extrapolation, because our you know our stated intent in our and our philosophy has always been that if.
If we see real market opportunity for growth and taking market share.
Get them invest into that so you know we will consider and we will continue to monitor that but at least if if we see markets and potential in pipelines like they look right now I think our propensity in the intermediate term will be to invest into that and in sales and marketing.
And in R&D, and and you know, let the let the EBITDA margin expansion.
It happened a little bit later as long as there is as long as there's real opportunities to invest in growth.
Fantastic. So so it's it's too early to call.
A proper inflection point on EBITDA margins.
I would say keep an eye on no keep an eye on gross margins.
Fantastic Fantastic. Then then maybe one last one for me can you update us on the capital allocation strategy and M&A in light of your strong belt.
Yes.
Okay.
We continue to look at there.
But nothing really has changed I mean, where we are.
We're clearly pretty conservative buyers.
The opportunities we've looked at.
I still have ended up sort of priced above a level that we think is reasonable to go in and spend and invest your money on.
And so we continue to.
Look we're looking at Western Europe , we're looking in the U S market.
We're looking for the right fit.
And good opportunity, but so far we're not we're still seeing pricing pretty high we're still seeing private equity companies with a lot of dry powder willing to pay more than were willing to pay.
And so at the same time, the organic growth we have in front of us.
We think it is Ed.
Tremendous and Sofia look we don't want to.
Unless we find it really right great fit we will stay focused on organic growth.
Great. Thanks for the color I'll pass the line.
Thanks for the questions.
Our next question comes from Man didn't you win with Raymond James. Please proceed.
Hi, Peter and Mark.
I'll just evenly when you mentioned the deal pipeline can be a complex issue.
Beauty vertical.
We've been able can you give us some more color on your outlook in that specific segment.
When should we expect any changes for the rest of the year or next fiscal year.
In that sense.
No real changes I mean.
We have always continued to run well not always but I guess, we're proud.
Of the 15 years that we've read with sort of.
<unk> primary verticals the general distribution vertical on the hospital vertical.
They have taken turns to some extent.
Being cautious.
You May remember a few years ago, we had.
We had talked with Terry on the Affordable Care Act in the U S and suddenly the U S Hospital market went quite flat for a couple of years.
Meanwhile, the general distribution side this was actually.
Quite robust.
Right now it's clear the Austin site. They went through the pandemic and came out the other side and sort of.
Many of them realize how how weak their supply chain solutions wherever they were.
I'm going to stick with.
Hello.
And even hotter market than it was before so so thats clearly where a lot of the excitement is right now.
But at the same time, the general distribution market still represents.
55% of our revenue.
Yes.
It's an enormous market, there's 12000 companies in that market.
I think it was Gartner group that just came out with a statement that said they believe close to 50% of the companies in that space will be shopping for new solutions within the next few years.
These are systems that all went in in time for y2k, and Theyre getting pretty old.
And so so that's that.
Market continues to be quite interesting. So so we will we will prioritize investments in health care right now because that's the hottest market for sure.
At the same time, we will continue to do a great job of serving the other market as they've gone through this the current distractions there.
It's largely still distractions around labor availability.
And transportation availability as well as of course, the shutdowns in China in fact that market a fair bit. So we've got to get through those that's probably going to take another couple of quarters.
Before that market really completely warms backup again.
Even so.
It's still good enough frankly, it's still a pretty decent market. So so no no no real changes on our side, we will continue to pursue them, both and so I expect that market to come back up to a more normal operating temperature within a couple of quarters.
Got you. Thank you and maybe just a question for Mark you Havent really decent quarter in terms of their capital from cash flow from operations generation.
We would expect a similar level for the remainder of the year comparing to like physical with 2022.
Yeah, I mean, I think I think we had a good I mean, we had a kind of a light Q1 on cash flow, which is kind of a little bit seasonal for US you know that kind of is are our historical trend that's kind of a low point tends to come back a little bit in Q2 are bigger are bigger cash.
Generating quarter tends to be in.
In our Q4.
So so I think Oh, I expect the back half of the year to to be generating more cash flow than the first half of the year.
Perfect. Thank you.
Hum.
Yep.
Thanks for the questions.
Our next question comes from Gavin Fairweather with core Mark. Please proceed.
Oh, Hey, good morning, I wanted to talk about health care. Obviously your comments are we're quite bullish on what's going on in the pipeline.
Obviously, you added two new networks this quarter by my Count you should be you know maybe a tick over 60.
Obviously, they hit the 100 target, we will need to see an acceleration in the number of kind of quarterly additions to that so maybe just discuss kind of how many logos in the pipe how the sales cycles are going and any other kpis and color there, which are kind of backing up your your bullish comments.
Yes.
I mean, we're currently if you look at the total in the pipeline we've got.
There's actually a couple of weeks ago I looked at that but I think we've got it in the low 20, 'twenty three 'twenty four count to the right Larry.
But what is the change is just the velocity and the pipeline I mean, they're they're moving through quickly.
If you talk to our sales teams. They are right now their main complaint is.
The speed of the legal process by the time the contract just go through legal review it.
Yes.
On the one side on the <unk>.
Client side R&R side it takes some time.
Yes.
So I would say.
It's pretty strongly if we look at our total pipeline, it's more than two thirds of our pipeline right now is actually new account health care opportunity. So it's very very strong.
In terms of reaching 100.
We're quite confident we're going to hit it I mean, we.
We've come through a couple of really weird years that were sort of a hurry up and wait and sort of what's the pipeline, but too distracted to do anything and so that seems to have ended I mean at this point it really is.
No.
Rolling so.
So we sort of look at it.
<unk> five in the first half.
Can we buy next year it would be at a run rate of sort of 12 to 15 in the year, We think Joe.
We're looking we're looking out over the next couple of years and feeling.
Like we're pretty well right on track to hit that 100 barcode schedule. So.
We're feeling good about that I mean, I think the question, we're starting to think about as sort of okay. What comes after that 100.
There is.
300 in total how many in total can we get can we ended up with 150, you I sort of said 150 is the minimum long term goals.
But.
At the same time the market acceptance is growing so rapidly it's quite possible, we could push that to more like 200.
There is also good.
In fact, almost the verticals within the hospital space.
We're still just.
In the early stages.
Growing the pharmacy piece.
Last quarter we.
We had a pharmacist.
Our U S based pharmacist joined our sales team so.
So she's now an active part of our sales team, helping to further explain our solution to the market.
And so on.
We think thats going to have a very positive impact.
So there is there's just lots of growth within the accounts, we already have plus.
We still see.
Pretty good runway for new accounts.
Awesome, that's great color and maybe for Mark your comments on services gross margins were interesting.
They have been trending in kind of the mid forty's sounds like they're going to stay there in the back half, but curious maybe for a longer term target on that front I mean, the the SaaS revenue is scaling and you're doing some work to kind of optimize the platform on the backend than you're pushing more services work out a partner so how do you.
Think about kind of the longer term potential for for that gross margin line on services.
Well I mean I think it's.
No I think when we look at the cloud componentry in there, where we're sort of in the.
So at a high fifties right now.
It's sub optimized and.
And if we look down the road in and sort of see a dart on the wall and aim for it.
It's a you know it's 10% plus expansion on that on that line of question for US is how quickly can we kind of move the needle there and and how much scale.
Does the business need to have in order to get there.
We're doing quite a bit of work on on.
Now on an <unk>.
Figuring out and running initiatives that are currently underway that we expect will have a positive impact on margins over time.
Those are focused on reducing public cloud infrastructure costs.
Making our platform more efficient to operate and support.
And the other dynamic in there of course is larger.
Average deal sizes here typically will will will tend to support higher margins. There the bigger our deals are the are the higher the higher the margin you know the higher additive margin Hasnt been how you know that was a positive effect on on moving up the averages.
So like I said, we're doing we're doing a lot of a lot of work in this area and and you know we think theres a lot of a lot of potential and that's kind of the 10 10 points out there. It's a question of for US. It's a question of when and where is the top.
Yeah.
That's helpful. And then maybe just on professional services I mean, I know you made.
Some additions to the team there and it sounds like that the load that's being absorbed by your partners continues to increase.
How should we be thinking about this this revenue line going forward are the partners kind of taking on more of their work than perhaps you were thinking and should we be looking for a pretty modest growth in the services line, maybe just help us out with some thoughts on that.
Yes, it's interesting I mean are are that that that line is moving it's moving pretty well.
The growth line, there seems to be changing pretty pretty dramatically.
Just in terms of the you know we measure the attach rates. So the bookings that are coming in on professional services.
Deals happen you know so when a new SaaS deal happens how much how much services is attached to it and that evolves over time because those initial implementations you tend to you tend to do a deal. There are some services do the core implementation and then Theres. Some additive work that comes off so it's it's not completely scientific but but we have seen those.
Tache rates sort of.
Sort of declining and we pointed a couple of different things for that one is as you said you know the partner ecosystem development in and how the partners are taking some of the surrounding professional services not necessarily very specific product configuration core implementation stuff, but some of the some of the.
Surround stuff oftentimes the sort of stuff that we think about as more kind of client side services that sometimes clients engage us to help them with.
We have partners right now that are doing that are doing work in that in that area.
So that's tamped tamping down that attach rate. The other thing is you know.
And I mentioned it in my remarks. This this notion that you know as we are.
As we shift more and more to SaaS just that shift itself you know that.
The market is starting to say hey, wait a second if we want to really take advantage of SaaS and and and upgrade ability in the future. We want to make sure we stay as clean as we can on the stack and really get rid of custom mods and modification work that.
You know, what otherwise be services revenue for us and and stick with the.
You know the core platform and we're in we're kind of we're kind of encouraging more so now in the SaaS world than than previously.
For new prospects and customers to stay on that on that clean path. Because you know there is there is more value in the end for them to be on a clean upgrade path and that's happening even more dramatically as health care becomes a bigger part of our of our bookings, which we've seen in the last you know them well.
Last number of quarters.
Health care becomes a bigger part of our bookings and those deals tend to be very.
Very sort of modification light.
You know where oftentimes, we're going into an opportunity where we're we're not necessarily replacing a system, we're putting in our system.
So oftentimes the networks are very keen to say hey, what's the best practice here.
You know, Texas has this and then solution, we say well. This is Ed you know put this and just like this and you'll you'll benefit here's the ROI and and you don't need to do a lot of you know I had this old system that was doing this and I'd like to go through this you know those kind of conversations aren't happening.
You know nearly as much in the health care and health care side, So that's tamping down the.
The amount of AV services, our custom work that that happens around implementation. So we think that's probably going to moderate.
Moderate growth on professional services, frankly, Kevin I'm, not sure where that's going to where that's going to land you know I mean, I think it's a it's I think it's.
In my head, it's clearly single digit growth you know is it mid singles.
I think time, all time will sort of tail.
Okay. That's that's helpful. And then just maybe a quick one I saw in the MD&A around Natasha you said that there was a.
I'm a bit of a drag from cancellations in the quarter did you see maybe a little bit of churn in somewhere in the business there.
I mean, we we we do see some churn that's that's a comp that's not a new comment it's kind of a it's kind of meant to be a.
Kind of an all encompassing oh, here's the stuff that makes that you know that number move around and if youre trying to loop the bookings through to the.
You know to what what was reported as last quarter's revenue and plus bookings and and you know, what's what's showing up as revenue. This quarter you know the dynamics there are our.
Attrition and cancellation is one of the dynamics in the other dynamics is is timing you know, sometimes we sign a deal and it doesn't necessarily start right away. It might start two months later or even three months later quite often times it does start.
Quickly.
But there can be a bit of a time delay there but.
We have we have over the course of.
Over the course of our all time, you know we've had some cancellations.
Cancellations happen.
I appreciate all the color. Thanks, so much.
Mhm.
Our next question comes from Nick Agostino with Laurentian Bank. Please proceed with your question.
Yes, Thank you and good morning, everybody.
I guess, Peter and Mark.
Trying to understand the hardware revenue I think I think it was.
Record number that you guys printed this order and if I recall correctly last quarter, you were somewhere around $4 million and you suggested that maybe you'd be down at that level.
In the near term or in the short term just because of supply chain.
Constraints, so I'm just trying to understand how the how you were able to source.
A stronger number.
There anything you guys did differently and is that something that and carry forward or should we expect maybe a drop back down to that low $4 million.
Yeah, It's a great great question, Nick and that was that was a big that was a big quarter.
And and in a little bit I mean, it didn't didn't quite see that much that much coming.
But we do we did see some you remember these deals can be pretty lumpy. So you can have you can have a half a million dollar a shipment.
<unk> come through here or more and in it you know it kind of falls into one quarter versus another quarter. So there is just that delivery timing and that's why we always mentioned that in the in the prepared remarks and in the MD&A because it's it's very real.
In terms of what's going on in our book there we still have very.
There's significant backlog.
So it does come down to a question of how how quickly can we deliver this week, we expectations around the prop tech side here, where we're still having some.
It seems like it's loosening on loosening up now, but we're still we're still kind of burned a little bit by our own supply chain issues with.
With with chips to build out those those smart panels.
But we see that kind of loosening up you know, whether that's going to impact this year or in the in the sort of Q1 of next year that backlog is going to start releasing here.
Chile, but what does that mean for.
The next.
The next a couple of quarters.
I think we're at a high watermark right here.
But I also don't think we will will probably be back down below four.
You know in the next couple of quarters, it looks like because of the backlog that we have in the delivery schedules, we have right now it's.
It's going to be somewhere in between those numbers.
Okay.
Just a follow up.
I recognize the strong demand side of it you guys called it out on the hospital side.
Did you guys change anything.
Any change from your suppliers when it comes to the shipments.
Are you able to access shipments.
At a fast pace.
Yeah.
Yes, you kind of cut off.
You kind of cut out there, but I think you're sort of you think you were asking about you know where their components in there that are where we're where there's less constrained on the in the supply chain then than others and that's that's certain.
Some of the stuff, we deliver as well.
We really have the I would say, we really have more of the supply chain.
Chain constraints around the prop tech stuff that the core storage stuff that we sell into the hospital point of view says.
You know theres, not what where we're able to get that stuff and in fact, that's that's some of the stuff that was driving the pop there and in the in Q2.
Okay. That's helpful. I guess, Mike My other question is and I'm not sure. If you discussed in the prepared remarks, but.
<unk> recently announced a new I think it was rapid implementation for the order management system market I guess, a solution that can be installed.
Faster, it's a little bit easier to get guys up and running quicker and then hopefully they do bigger deployments if I understood that.
Restaurants.
And I'm just wondering have you.
Rolled that out yet what the timelines there and if you have pulled out what's been the market reception.
Hi.
And next we have rolled it out.
We actually have.
We signed two accounts so that in the second quarter and.
At this point both of those accounts that we signed in the second quarter are already live.
So it's been successful.
And is proving itself in the field. So we're we're pretty happy with that I mean that that's very much aimed at the sort of the retail market, where the implementations seasons in retail tend to be very short.
Nobody wants to mess messed with the system around Black Friday, Cyber Monday, where Christmas.
They've been got sort of a few months in the spring a lot of them don't want to do anything close to Valentine's day mother's day. So they have sort of a couple of other things in there.
The summer time is fairly popular.
Implementations in early fall, but <unk> got three of these big big events that are sort of total blackout periods in terms of implementation. So that they have something that you could sort of.
Sign a contract antibody that quickly.
It's pretty important for that market. So were pretty happy that we were able to sign two accounts and bring to life.
Since we rolled out.
Okay, and maybe just as a follow up what's the relative I guess revenue.
Versus this solution versus somebody went with a full on.
Order management system deployment.
Oh, there's like the SaaS revenue is the same.
It's really just.
They are highly prioritized and pre templated approach.
To implement it.
So it's starting to.
Get hung up and trying to do it.
Things all at once which is off to the temptation when you're rolling out a new platform, while we're putting a new platform left at four new payment methods unless at <unk>.
The style of the store.
Et cetera.
And just sort of focus is the implementation around shortly but let's just.
Implement.
<unk> talked about a quarter of orchestration.
And we will cycle back for the rest later.
Pre templated interfaces it uses restful API.
Sure.
Preset workflow that just takes a lot of guests.
Work in process development and white boarding and.
Unsecured wireless and so on sort of takes that all down to a minimum we're right out of the process entirely and it just brings you why it's so you're immediately getting value.
Sure.
Sure.
Consumer experience is already elevated.
And then he can cycle back to address but it doesn't change that.
The SaaS.
Foot print at all.
Okay. That's that's very helpful and my last question before I pass. The line just wondering are you seeing pieces.
Tracks.
For renewal.
Pushing through any pricing increases.
So what percentage of your contracts.
Have you done that with and what's been the market reaction to that.
I mean, we're doing a regular price increases with our old on Prem maintenance revenue stream, but the SaaS side, we're just coming up to just start seeing renewal trade I mean, most of these contracts signed on a five year contract basis, we really only entered the SaaS part of 40 years ago.
So.
We're just now starting to see sort of coming up on the horizon as we get into fiscal 'twenty four youll start seeing some renewals, which will of course.
Start to impact our Apio and so on because you will have not only new accounts coming in to that but also renewals pushing out.
But.
Look right now and what kind of.
What kind of price increases.
It will be.
We'll be right for the market over the next year or so.
The.
We do of course continue to rollout additional modules as well so some of that some of the increases come not just direct like for like price increases, but through added value can provide.
Yes.
Okay I appreciate that color that that was excellent I'll pass along.
Yeah.
Our next question comes from <unk>, <unk> with BMO capital markets.
Please proceed.
Hello. Good morning. Thank you for taking my question. So I guess specific to this fast rather new.
Wondering how much of that was being driven by new customer wins voices expansion with existing customers and then if you could also talk about the different strategies that you're using to drive throughs, among new and existing.
Yeah.
So the yeah.
Oh can you hear me.
Yeah Yeah.
Okay, great yeah, so the the spread between new and existing in the quarter was it was pretty close to 50.
It was pretty close to 50 50.
And in the other part of your question I think was can you can you repeat the other part of your question yes.
Yeah. We're just wondering you know what are the different like what are the differences in terms of the strategy that you think to kind of.
You know drive greater penetration amongst existing customers with it getting new accounts.
Mhm.
Yeah, I mean, I think I mean.
Okay, I'll take that Peter the it's kind of more for US it's kind of more of that approach is more of a story of of which market and in a way.
If you look at health care, where it's a very defined space you know where our go to market strategy. There is we've got these 300 identified.
You know hospital networks, and where we're very proactive about spreading our sales force out with.
With with Terror in territories.
And going after named accounts are going after you know expansions in existing accounts. So it's kind of a finite.
Some more finite in terms of number of hospital networks with some more finite.
Population, so we approach it very very directly.
In terms of.
In terms of the complex distribution market or our go to market strategy is much much broader so we're doing a lot more sort of typical digital marketing lead generation to drive.
New opportunities.
And the base opportunities we have people that are.
We have as part of the sales team that's a that's focused on.
Staying in contact with existing customers.
Keeping up to date with them on you know when the when are they planning to upgrade it wasn't upgrade looked like having those discussions about SaaS and when it's time to upgrade why SaaS is why SAS is the right answer we've mentioned before that you know those those those conversions to SaaS, we're kind of at the front end.
That you know in.
In our history right now we've we've had some customers that have you know.
Migrated from on Prem to SaaS, but it's but it's fairly limited you know theres about a dozen so far that have done that.
But as we as we look at the pipeline, we see we see building.
Interest from from the existing customer base on on converting to to SaaS. So we've kind of got those identified customer with my customer. There are two different purchase you know the sort of the migration discussion is a different.
Discussion then the new opportunities and like I said, our go to market strategy is slightly different between the complex distribution market and in the health care market.
Okay. Thank you that's very helpful and I guess my second question is just you know.
About the environmental waste so outside of U S and Canada, what are you seeing in terms of cool.
Are there any specific investments, you're making to drive international expansion.
I mean, nothing new or specific at this point in time, we are continuing to see actually a pretty decent activity in the Scandinavian region, where we have a presence there in Denmark.
I keep that.
Waiting to see if that market is going to slow down.
Given that.
A lot of sort of energy cost concerns and so on and in Europe , but so far that market is doing very well the third party logistics market for instances is booming over there and there's a lot of.
A lot of the consumer goods companies are doing really well.
So we continue to see good business there.
Other place, we do a fair bit of business outside of Canada, and the U S.
And other than Western Europe .
Is Australia.
And it's been interesting to see that market continuing to do.
Do quite well.
We added a couple of.
Water management solution clients there in the quarter, we saw expansions with another account over there in the quarter.
That market continues to do well.
Have looked for a long time to find the right acquisition in Western Europe too.
Feet up our penetration of that.
Main part of Western Europe , sort of France, Germany et cetera.
Haven't found one.
We will need to decide at some point, if we just begin to sort of beginning to build something directly ourselves rather than continuing to wait for the right acquisition, but we haven't made any decisions on that yet.
Okay. That's great color. Thank you very much.
Great. Thank you.
Yes.
Our next question comes from Bhutan, So Kumar with Stifel. Please proceed.
Good morning, Peter.
Good morning.
First question I, just wanted to touch on sales cycles.
Can you provide a little more color on what youre seeing in steel cycles across both health care and retail.
Are you guys still seeing an elongation or as you can see starting to see deals get done faster.
I mean overall the sales cycles are are actually I mean, especially in health care.
Real quite compressed at this point.
I mentioned there earlier on the call.
Legal for instance is continuing to get a bit of a pause.
Bottleneck there as you're we're seeing sort of the financial side of health care networks ready to go ahead as the operation side ready to go ahead.
Chief Nursing Officer, Chief Medical Officer Officer, everybody's onboard, but it just takes time to get through procurement and legal.
And the fact that that is a bit of a bottleneck.
Just highlights the fact that sales.
Sales cycles, right now were actually somewhat compressed.
You also have the partner effect and that in many cases by the time, we're getting involved in some of these opportunities a partner may have already been in there working for months and has already helped him go through the cost justification and sure brighten up the analysis to prove that this is worth doing and so on so by the time, we jump in in a sense, we're halfway through the sales cycle so that.
It makes the sales cycle feels a lot shorter as well.
Gotcha.
And on implementation timelines I'm thinking a hardcore as you've kind.
Talked a little bit about some of the challenges with project delivery, particularly in the health care space.
Is there any are there any changes you're seeing from that perspective.
And sorry on my end it broke up a little bit can you just repeat that.
Yeah. The question was around implementation timelines I think in prior quarters, you've kind of touched on some of the challenges you've seen with <unk>.
It kind of project delivery and in the health care segment, just curious what you're seeing now.
Yes, I would say no real change there I mean, the market I mean this is and this is more of an across the board comment right.
It continues to be somewhat starved for good.
Technical people good implementation people and project managers.
And our customer experience that I mean, they need some of that that was on their side for these projects. We obviously need that talent in our site our partners need that talent.
And there is still a labor shortage in the market across all of those.
Sort of implementation professionals.
And we don't see that I mean, it's not as crazy as it was last year, but it does continue to be a challenge I mean every time, a large tech companies have to lay off that.
It becomes a news item but.
But I think those people are getting.
Sort of hired back into the market.
Very very rapidly so there's not so theres still a talent shortage.
You also still have this challenge in health care that most of them have never really run their own supply chain before so so we ended up and up.
Taking time to build up the in effect. The Org chart kept the right people in there to actually run the supply chain. So those challenges at all continuing.
At the same time, there are far more.
Experienced chief supply chain officers in health care than there were a couple of years ago.
As the markets become more aware of the need and we continue to penetrate the market.
We've seen chief supply chain officers moving from one hospital network to the next and bringing their expertise with them.
So so we see sort of limited of light there that we think are going to further accelerate the space.
There is definitely still at over <unk>, So implementation timelines I was there or not really changing at this point.
Thanks for that that's helpful.
Mark maybe question for you.
Bookings this quarter, how much of that was.
Expansions and migrations versus net new business and how.
How is that going to pull the pipe towards.
How do you think these trends going forward.
Okay.
Yeah, well it was it was pretty close to to half and half I mean, I think what we've seen more recently and if you take it bigger than a quarter and look at what's going on there and look at the.
You know look at what's in the pipeline I think we see we definitely see a skew towards new business.
I mean, I think the pipeline is.
Is something like you know like 70% new business and in health care.
So that's kind of the.
Sort of a broader the broader trend and and kind of afford outlook trend.
Yes.
Okay, great and.
What are you guys seeing with respect to.
Churn and an expansion renewals activity within your base.
Any trends to kind of call out between health care and.
In retail.
Not really I would say I mean, Peter mentioned before like we have.
We have the cycle a lot of our we haven't had a lot of.
Contracts coming to term those are three to five year deals they tend to be more on the on the five year duration than the three year duration. So we haven't had a lot of we've only been really kind of been doing this SaaS thing for four.
Four years for three years to four years.
So a lot of the contracts haven't haven't come to a renewal yes. So if we look at fiscal 'twenty four that's where we're going to start seeing some some activity happening there on renewals.
Okay. Okay.
And just quickly on your outlook foreign investments it sounds like you guys are still.
Looking to invest given the expanding market opportunity ahead.
Yeah, we saw some modest growth in Opex sequentially, how should we think about the pace of investment.
And then.
From a margin perspective should we be looking at margins being range bound or is there still some modest expansion.
Yeah, I mean, I think I think in the very near term I would think you know pretty range bound and that's really because you know with them one of them. When we talk about adjusted EBITDA margin. It's it's because our plan is to.
You know as long as we see market opportunity than we do right now our plan is to invest into it.
You know so I provided a little bit of guidance on my prepared remarks on where we see where we see sales and marketing and R&D costs going in in Q3 versus.
Versus Q2 and that was you know we expect.
The sales and marketing cost.
To increase slightly more modestly than what we saw in the last quarter.
Sequentially and then on R&D, we actually expect it to be.
Pretty pretty flat quarter on quarter.
Okay, great. Thank you for the color John .
Best of luck.
Yeah, Thanks for the questions.
Our next question comes from John childhood National Bank of Canada.
Hey, good morning, and thanks for taking my question I just wanted to ask about your outlook for Q3, I remember last year. The January quarter was a relatively slow one given the holiday season. So do you still expect a similar pattern or is it going to be more organized this year.
That's a good question John Thanks for the thanks for the question.
You know, we do you know what sort of that question comes into the whole discussion around moderating.
Professional services revenue and what's happening there over time. So you know as we kind of read the tea leaves for you know on this one for next quarter. We do think that does tend to be a quarter, where you know both on our side and on the customer side.
Cross the holidays, you tend to do tend to see implementation activity.
Slowing down a little bit I don't think that's going to have a a.
<unk>, you know kind of negative impact.
Quarter on quarter for us at least that's kind of what we're seeing right now where we're seeing something that's probably you know a little more flat versus versus down and that's just because we've got we've got pretty pretty robust.
Backlog here.
Okay. Thanks, and my other question is I just wanted to ask about the rapid implementation as well as a new API that purpose. So do you think those new newly created API along with this new implementation partner isn't going to help you grow the partnership channel given even more easier to rollout and more automation.
Yeah, we think it will over time, I mean, not that rapid implementation was specifically aimed at there at the retail space right. So that's the retail order management solution that fits underneath.
E Commerce platform.
Underneath for instance, a salesforce commerce cloud platform or <unk>.
It can fit underneath.
<unk> e-commerce platform and others, so it fit.
Under there so in effect.
All of that goes to our website at places order.
The order back drops down through the website and lands that are already radisson solution that our Oems and figured out where to source inventory and process is the invoice.
That is loyalty points and manages returns and if it's a buy online pickup in store than it handles the pick up in store. So it does all the logistics. After you click the place order button on the web site right. So that is that space that we aimed at rapid implementation.
That said the newer than newer approach to interfaces with Chinese restful, API, which you started spreading throughout the industry. At this point, we are beginning to move those across all of our product lines and Theres. No question that those are more partner friendly.
So we may end up seeing more of that kind of work.
Continue to move out to partners over time.
Sure.
Okay. Thanks, I'll pass the line.
Okay. Thanks.
Our final question comes from Steven Li with Raymond James. Please proceed with your question.
Thanks.
Peter Maag.
The 50 50 split.
And new migration can I apply that to the dollar growth. So you grew SaaS revenues six shipped $6 $68 eight so right to point to growth in such revenues can add probably about 50 50.
That was I was when I was talking about 50 50, I was talking about the.
<unk> bookings yeah.
So I'm not sure that I'm not sure that I have that number for that revenue growth with you know in that quarter, what that split was between the two.
I I suspect that its more its more tilted towards new business.
Right and maybe milestones. So I know about 50 50 was for the quarter, if I take a longer view like LTM I mean, what what would actually be for bookings.
Yeah, I mean, I think it's it's you know I think I talked about the pipeline there and in general you know or you know kind of looking at what we have and are in the pipeline and from from a perspective standpoint.
Now, we're seeing definitely more weighted to new business.
There's there's definitely growth in the pipeline to that's coming from migration opportunities, that's going to drive that kind of expansion number that.
That base number a little bit but.
We're seeing like 70% of the.
Health care pipeline is new business for example on that.
That's looking like in the in the intermediate term.
Health care chunk is gonna be.
More than three quarters of our bookings, so that's going to tip things towards new business.
Alright got it thanks.
Mhm.
And there are no further questions on the phone lines I'll turn the call back to you for closing remarks.
Great well, thank you for joining us today and for sitting through all.
All in all this detail and as always if you have additional questions. Please don't hesitate to reach out to Mark correct.
And we look forward to talking to you at the end of Q3.
Thanks again.
That does conclude the conference call for today, we thank you for your participation and I. Thank you. Please disconnect your lines.
Hum.
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Perfect.