Q4 2023 Tecsys Inc Earnings Call
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Good morning, everyone welcome to Texas fourth quarter and fiscal year 2023 conference call.
Please note that the complete the annual fourth quarter report, including M. DNA and financial statements were filed on SEDAR aftermarket holds 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 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 June 30th 2023 at 830 Eastern time.
I would now like to turn the conference over to Mr. Peter Berenson, Chief Executive Officer of Texas. Please go ahead.
Okay.
Thank you and good morning, everyone. Joining me today is Mark Miller, our Chief Financial Officer. We appreciate you joining us for today's call.
As most of you've likely seen in their results issued last night fiscal year 2023 was another remarkable year for our company characterized by strong organic growth and important milestones.
We believe that our continued momentum, notably in the context of market and industry volatility is a testament to our clarity of vision sustained investment in technology at our obsession with customer success.
At the heart of what we do is empower supply chain users to perform their tasks more effectively well.
Ensuring that the right inventories in the right place at the right time.
Done right organizations running these supply chains are able to operate more efficiently mitigate risk adapt to market demands differentiate themselves from competition and seize opportunities to grow.
Our job at Texas is to provide that to.
To the right combination of software services and expertise to meet those business objectives.
And that's what we've been doing we have consistently demonstrated our ability as a technology partner to provide tools that meet and exceed customer expectations. We.
We see the impact of that in precedent setting momentum in basic ELD conversions to SaaS and new health care customer acquisitions and in a strengthened position in Gardner's magic quadrant as well as <unk>.
Quarter after quarter of fiscal performance all supported by a growing partner ecosystem.
I'd like to take a moment to summarize the key events of fiscal 'twenty three and 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.
Our company began fiscal 2023 with strong growth underscored by solid SaaS bookings and that momentum continued throughout the year in fact, SaaS bookings were up 38% in fiscal 'twenty three compared to fiscal 'twenty two.
From forever, New a retail outfit in Australia to the Memorial Health system in New York, We are delighted to have added new logos across industries and geographies and.
In fourth quarter momentum was strong with total revenue hitting a record and with 20% growth in Q4 of fiscal 'twenty three compared to the same quarter last year.
This growth was led by SaaS revenue, which was up 44% in the quarter compared to last year.
And it was also supported by solid professional services revenue growth.
In fact continued momentum in SaaS revenue growth resulted in this being our first full fiscal year, where SaaS is our.
<unk> is our largest recurring revenue stream.
It's worth mentioning that our positive momentum and growing SaaS customer base is underpinned by excellent gross and net retention levels.
Given the recurring nature of SaaS revenue growing SaaS revenue provides greater visibility into the into our future revenue.
And with that in mind, we have decided to start providing financial guidance on several key metrics, which mark will walk through shortly.
This rounds out a fantastic fiscal year.
So added business from both new and base account wins, including nine New Hospital network logos at over 30, SaaS migration or expansion deals across verticals, highlighting the ongoing value that our existing customers see in the Texas platform.
With 24 of healthcare networks, either buying into or expanding their engagement with our SaaS solutions. This fiscal year, we are cementing our position as the system of choice for health care organizations grappling with supply chain complexity.
Due to stronger bookings in fiscal 2023, our SaaS Rps is growing at a healthy clip up 47% to $137 7 million compared to the same time last year.
We believe this is another leading indicator of where revenue growth is heading with growing SaaS backlog in many major delivery projects in the backlog, we are seeing traction for the Texas value proposition across all industries in which we do business within a market that is highly engaged.
Our efforts to strengthen and expand our global alliances program continues to gain traction.
Yeah.
Getting new partners involved in influencing and implementing our solutions and deepening engagements with existing partners has resulted in almost 70% year over year growth in the value of our partner influenced pipeline.
We have seen excellent momentum in the form of co marketing accreditation tools and training and supporting resources.
With respect to health care, we announced our certified integration status with workday and important milestone that supports the work we do at customer sites like Prisma health.
Carolina's largest health system.
At Horwell health.
Michigan based merger of spectrum health in Beaumont health.
With respect to warehouse automation, we also announced our partnership with SVT Robotics, a key technology partner that provides integration software that will give our customers brought access to new and emerging robotic solutions as these technologies become more and more important to be competitive in the industry.
All of this is translating into positive new SaaS account acquisitions and expansions with about half of our fiscal 'twenty three new logos hasnt been partner influenced.
Significant jump from 22% just three years ago.
As we continue to invest in the products, we sell and the manner in which we sell them, Texas is proven to me among the best cloud based solutions available in the markets we serve.
The steady growth, we have experienced affirms our vision and strategy for shareholder value.
Mark will now provide further details on our fourth quarter and full fiscal year financial results as well as financial guidance on several key metrics.
Thank you Peter we're very pleased with the strong performance in our fourth quarter ended April 30th 2023.
Total revenue was a record $41 2 million, that's 20% higher than $34 3 million reported the same period last year.
Total revenue, excluding hardware increased 17% compared to the same period last year our.
Our 14% on a constant currency basis.
As many of you know a significant portion of our revenue about 72%. This quarter. In fact is denominated in U S dollars and 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 44% increase in SaaS revenue up from $7 7 million in Q4 of 'twenty two to $11 1 million in Q4 of 2023.
Constant currency basis, SaaS revenue was up approximately 40% compared to the same quarter last year.
As Peter mentioned SaaS remaining performance obligation or our P. O was $137 7 million at the end of Q4 fiscal 2023, and Thats up 47% from $94 million at the same time last year.
On a constant currency basis that growth was 41%.
Maintenance and support revenue for the three months ended April 32023 was $8 million.
Compared to the same quarter last year are down 3% on a constant currency basis.
Maintenance and support revenue generally follows the trend of license revenue.
And we expect that as current customers migrate to our SaaS offering maintenance and support revenue will decline over time.
Professional services revenue for the fourth quarter was $14 $6 million that was up 13% from $12 9 million reported for the same quarter last year or up 10% on a constant currency basis.
As we 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 increase collaboration of our partner ecosystem in helping to implement our suite of solutions.
While we expect that over time. These factors will continue to moderate our professional services revenue growth we.
We had another solid quarter of professional services bookings, which I will speak to you in a moment.
As we disclosed in our published MBNA, we expect total services revenue. So that's combined SaaS maintenance and support as well as professional services.
Ranging between $33 5 million and $34 5 million per quarter in the short term.
Hardware revenue in Q4 of fiscal 2023 was $6 $9 million that was up 35% compared to the same period last year.
As a reminder, we saw primarily third party hardware to our customers for warehouse operations and in hospital point of view storage and tracking.
Well hardware revenue can tend to be uneven it is a key component of our market offering and thereby supports our recurring revenue business.
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.
SaaS bookings were $3 $9 million in Q4 down 13% compared to $4 5 million in the fourth quarter of last year.
I would point out that while SaaS bookings can be somewhat lumpy due to the timing of quarter deal closings.
It is also helpful to look at a longer term period to see the positive trend on SaaS bookings.
As Peter mentioned, our SaaS bookings were up 38% for the full year fiscal 2023 compared to last year.
Professional services bookings were $16 $7 million in the quarter that was up 13% compared to $14 8 million in the same quarter last year.
And up 8% for full fiscal 2023 compared to last year.
Professional services bookings are in part linked to SaaS subscription bookings and are subject to quarterly timing.
Professional services backlog was a record $41 3 million at April 32023.
That was up 24% on the same time last year.
For the fourth quarter total gross profit was $18 4 million that was up 21% compared to $15 1 million in Q4 of last year.
Led by higher gross profit contribution from SaaS maintenance support and professional services.
As a percentage of revenue gross margin in Q4 was 45%.
Compared to 44% for the same period last year.
Combined SaaS maintenance support and professional services gross profit margin in the quarter was 47% compared to 46% same period last year.
We expect to see continued service margin improvement in the coming quarters as the business continues to scale and as we focused development and operational NRG on opera optimizing platform efficiency.
Some of you may recall that last quarter, we added a new slide to our investor presentation, which is available on our website.
That provide some directional indication of where SaaS and combined services margins would end up under certain projections assumptions.
Our SaaS margin in fiscal 2023 ended up slightly higher than our projection model, which is an encouraging sign as we look into the future.
As I said last quarter, we see this as a multi year journey with incremental benefits building over time.
Switching now to our expenses expenses for the quarter.
Operating expenses increased to 17.0 million that was higher by $3 2 million or 23% compared to $13 8 million in Q4 fiscal 2022.
Sequentially compared to Q3 fiscal 2023.
Q4 operating expenses were up 1.0 million.
Operating expenses are up sequentially as well as compared to the same quarter last year, primarily because of higher sales and marketing costs.
And higher research and development costs.
Sales and marketing costs were up sequentially by <unk> 4 million in Q4 fiscal 'twenty three compared to Q3 on higher marketing program spend.
We expect sales and marketing cost to be relatively flat in Q1 fiscal 2024 compared to Q4 fiscal 2023.
In Q2 of fiscal 2024.
We expect sales and marketing cost to increase with added investment including costs related to our user conference which is in September this year.
I'll draw your attention once again to another new slide we added to our investor presentation last quarter that that provide some insight into how we measure sales and marketing efficiency by.
By comparing customer acquisition cost to lifetime value of expected margin contribution.
Now moving to research and development costs compared to Q3 of this year.
Search and development costs were up <unk> 8 million in Q4.
As we noted last quarter Q3 costs were positively impacted by zero point $4 million true up of R&D tax credits and E business credits.
Run rate cost for research and development increased with added head count as well as bonus and benefit costs.
We expect continued increases in R&D cost during fiscal 2024, as we continue to invest in our SaaS platform and product offering.
Net profit for the quarter was $446000 or <unk> per fully diluted share compared to $2 6 million or <unk> 17 per fully diluted share for the same period last year.
Recall that in Q4 of last year net profit and earnings per share benefited from the recognition of $1 $9 million of net deferred tax assets.
The recognition of approximately zero point $6 million gain on remeasurement of lease liability.
As well as our recognition of approximately zero point $6 million in tax credits generated in prior periods.
Adjusted EBITDA was $2 $4 million in Q4 fiscal 2023 compared.
Compared to $1 7 million in Q4 of last year.
Net profit and adjusted EBITDA were both positively impacted by favorable foreign exchange of approximately <unk> 6 million compared to the same period last year.
Turning now to our results for full fiscal year of 2023.
Our total revenue was $150 million to $4 million that was up 11%.
Appeared to have $137 2 million in fiscal 'twenty, two and up 9%.
On a constant currency basis.
SaaS revenue for fiscal 'twenty, three was $37 5 million.
That was up 39% from $26 9 million in the same period last year and that was up 35% on a constant currency basis.
Our net profit.
For fiscal 2023 was $2 1 million.
Compared to $4 5 million in the same period last year.
As I just mentioned last year's net profit benefited from the recognition of the $1 $9 million net deferred asset recognition.
$6 6 million gain on Remeasurement of lease liability.
And approximately <unk> 6 million tax credits generated in prior periods.
Foreign exchange movements had a positive impact.
Approximately $1 8 million in profit and adjusted EBITDA in the current year compared to last year.
Adjusted EBITDA for fiscal 'twenty, three was $9 5 million compared to $10 1 million last year.
We ended Q4 fiscal 2023 with a solid balance sheet position.
We fully repaid our long term loan in December 2022, which was early.
And as a result, we are debt free.
On April 32023, we had cash and cash equivalents and.
And short term investments of $37 $1 million.
That was down $6 1 million compared to $43 2 million at the end of fiscal 2022.
Had we not repaid the loan early cash and cash equivalents and short term investments would have risen by $1 $1 million during the year.
While operating activities provided cash the overall decrease in cash and short term investments was driven by the full repayment of the long term debt as.
As well as the payment of dividends.
Finally, with respect to financial guidance as Peter mentioned with our growing SaaS revenue driving up recurring revenue.
We have greater visibility into future revenue.
As some of you probably noticed in our earnings release, we are providing financial guidance for total revenue growth in fiscal 2024.
In a range of between 10 and 15%.
And total SaaS revenue growth for fiscal 'twenty, four in a range between 35% and 37%.
In terms of profitability, we are providing financial guidance for adjusted EBITDA margin in fiscal 2024 up 6%.
And in fiscal 2025, adjusted EBITDA margin in a range between eight and 9%.
I'll now turn the call back to Peter to provide some outlook comments.
Thanks Mark.
Texas performance in fiscal 2023 was strong we have a strong relative and we continue to have a great backlog and sales pipeline. We are seeing widespread buyer intent across target markets solid opportunity cycles at a highly capable sales team with the tools and tell them to capitalize on a market that is ready to invest in new tech.
Our increasing market share in healthcare supported by a growing partner network and increasing acceptance of the clinically integrated supply chain and consolidated service Center model together with our expanded health care sector offering gives us confidence that the health care sector. We will continue to serve as an important revenue stream for us.
Are converging distribution business continues to represent a massive market opportunity and we are still only scratching. The surface. We continue to hone our sweet spot and carve out our share of that pie with a rising market indicators driven by fundamental changes to the supply chain industry changes spurred by aging legacy systems digital adoption and a realization.
Heightened consumer expectations are definitely here to stay.
We are pleased that our fiscal 'twenty three results continues to demonstrate our governance in key markets and emerging opportunity in growth markets. The wave of change and systems modernization and supply chain management is underway and businesses are actively investing in the tools that they need to adapt to consumer expectations.
As we look ahead to fiscal 'twenty four.
We're confident in our ability to seize market opportunity and expand our presence in this rapidly growing market fiscal 'twenty. Four is also the year that we celebrate our 40 <unk> year in business.
As an exciting milestone in our journey as a supply chain leader and reminds us of our legacy of innovation and market leadership as we embark on another successful year and so and so.
Summary, I want to share with analysts and investors are key themes as we look to a successful fiscal 'twenty four and beyond.
First a sustained commitment to expanding our SaaS revenue model, which will drive changes in the way, we deploy solutions and delight customers.
Secondly, our continued strategic partnership approach characterized by deeper and stronger alliances. This helps us tap into new opportunities and fuels, our scalability around the world.
Third a continuous evolution of our distribution and Omnichannel business platform that takes advantage of innovative technologies of the power of data.
And fourth an emphasis on advancing and deepening our healthcare vertical covering both med surge and pharma.
We continue to solidify our position as the go to provider for healthcare solution.
Thanks, very health care supply chain solutions.
As a final point I'd like to stress 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 quickly stay connected and then expand on the value delivered.
With that we will open up the call for questions. Thanks.
Thank you.
If you would like to register a question. Please press the one four on your telephone you will hear at three Tom prompt technology a request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the <unk> III once again to register a question. Please press the one four on your telephone.
One moment please for the first question.
Our first question comes from Gavin Fairweather with core Mark Securities. Please proceed.
Hey, good morning.
On the guidance and I appreciate you guys, putting that out there. This quarter, maybe you can just discuss some of your underlying assumptions as you're modeling out.
Over the next year.
Yeah.
Yes sure Gavin.
Thanks for the question.
We won this is as you know this is the first time, we've provided that that type of guidance then.
As we said in our prepared remarks.
Driver was.
The growth of SaaS in our business so.
We looked at.
Our backlog of SaaS Rps on our annual recurring revenue on SaaS and the coverage that provides into the future.
And and.
And then added into that of course, the our expectations on on bookings.
During the year.
The tricky thing there is you know as we've mentioned previously.
Sometimes those bookings are kind of hard to call in a quarter.
Obviously, we had to make some assumptions about how those bookings would happen across the year.
And of course, we included an assumption on attrition and an impact of in your attrition on that on that model as well.
In terms of the overall.
Revenue.
Assumption overall revenue growth assumption I think the interesting thing in there that we that we talked through was was the range is fairly large between 10 and 15%.
And the reason it is so large for us as a hardware hardware revenue for us is notoriously sort of hard to call.
We've got a big backlog of hardware deals and so we sort of wanted to take that into consideration when we when we provided that range, which is why its pretty wide.
And then finally on the on the.
On the on the EBITDA margin side, we wanted to signal that.
We're continuing to invest in sales and marketing and in R&D. This year.
But we do expect.
We do expect that continued margin contribution.
Heading into next fiscal is going to is going to be what we're going to see an opportunity to create some operating leverage.
Okay. That's very helpful. And then maybe just zeroing in on the on the SaaS revenue growth of 35% to 37%.
It seems to imply that soft booking.
On your model would be kind of roughly flat with fiscal 'twenty. Three I mean, you touched on the difficulty of forecasting that line. So are you trying to be a bit conservative.
On that and am I reading that right.
Yes, I mean, I think we wanted to we definitely didn't want to put out a range there that we werent.
Comfortable with I think all I think I'll put it that way.
And the other thing is as I mentioned, it's the.
The timing of SaaS.
The timing of SaaS revenue in the year is quite dependent on.
Hitting hitting numbers early in the year.
And it's like I said for us, it's kind of hard to call. The timing of some of these deals can slip in and move around by a couple of months and that can have some sort of some impacts on the on the in year impact of revenue from.
Those bookings so we wanted to make sure that we were providing some guidance that took that into consideration.
Got it I appreciate it and then maybe just on the booking this quarter or Peter can you just discuss kind of the mix between health care and in distribution I don't think I caught it.
Are there any audience in there that were new this quarter.
Maybe you can just discuss kind of the sales performance that you saw in the fourth.
Yes.
It continues to be similar to what it was last quarter census that it's health care, that's absolutely on fire.
That's where we're seeing new account wins expansions migrations.
We're seeing it.
It looks like pharmacy, it's finally really heating up.
Expect we'll be doing several pharmacy deals in the next.
In the next couple of quarters.
Mark compared to remember at Q4, we did what.
We ended up with $9 for the year.
Three and three in Q4.
Three in Q4 right, yes, so yeah. So it.
It was a pretty strong quarter, but it was definitely a pretty strong quarter in health care and the overall mix was definitely dominated by the health care side.
Average deal value in health care also moved up a little bit more.
So it was.
In terms of Q4 it was.
It was a health care was the story I would say.
And as we look at Q1 Q2, I think it's going to be pretty much the same.
The general distribution.
Converging distribution side continues to get more active.
We continue to see we were just looking at the pipeline. The other day the lead lead count is way up from this time last year and so on so it is getting more active but I still think it's going to be the fall before that really starts to turn into regular deal flow.
So.
At this point it's.
Healthcare is dominates the story.
And you'll you'll you'll note given the mixed for the for the year, which looking at these things on a quarter is sometimes a little bit a little bit tricky and can be a little misleading for the for the year we had about.
70, I think it was 73% of our of our bookings were for health care.
That's helpful. And then maybe just on services the backlog has grown pretty substantially despite increased partner activity I'm curious if you can kind of deliver on that with the existing team or if.
This will be an area, where you're doing tomorrow.
Yes, we actually we actually expect a little bit of hiring, but it's going to be pretty pretty moderate we think the team is going to.
A lot has capacity to lever. This you know you've been following the story. We started we started building that team up over the course of.
At the end of <unk>.
'twenty three but fiscal 2022 came.
Came into 2023 with a pretty big pretty good size pretty good sized team.
And we've kind of grown the revenue into that into that team and a lot of ways. So there'll be there'll be some hiring going on there, but it's not going to be we don't expect it to be material.
Okay I'll re queue. Thank you.
Our next question comes from John Shao with National Bank. Please proceed.
Good morning.
Taking my question so so Peter.
Desktop deal is actually getting bigger so how should I think about that margin profile between small and large deals.
You mean in terms of SaaS version.
Yes, yes.
Yes, I mean, we're.
We are seeing.
Larger deals are coming in with.
SaaS margins up in the <unk>.
Up in the sort of mid to high seventies.
Smaller deals come in with SaaS margins closer to around 50.
What's interesting to us and it's something we continue to look at is the SaaS customer base grows.
The most accounts that start small.
Three years later they are not small.
So we're trying to look at that in terms of sort of where we place the emphasis in the market.
<unk> continued to sort of invest in in landing some of these smaller opportunities.
They'll become growth opportunities within our customer base.
Could also end up over time, moving up to being higher margin accounts. So so we're looking at.
But those are the reasons why we were able to put that slide in the deck starting in Q3, showing evolving SaaS margins over the next few years as we're just seeing.
The new deals coming in and the growing deals in the <unk>.
Growing relationships and our customer base are all driving those margins higher.
At the same time, we continue to take advantage of SaaS.
Technology.
Decreases our public cloud infrastructure costs.
So you end up being able to reduce your cost per account, even as the average deal value.
Expense so the combination of Enzo.
Accretive fairly powerful updraft.
On the SaaS margins overtime.
Okay. Thanks, that's good to know.
I understand the investment in sales and marketing and R&D will be the main focus in the coming years. So my question is how much of the investments.
<unk> two health care vertical relative to the complex distribution can assume majority of them.
For health care.
Yes, you have to sort of split that out a little bit in the first of all in sales and marketing.
The.
The investment in sales certainly is heavily weighted towards health care at this point I mean thats the.
And I think new investment Youre going to see over the next couple of years would be.
I guess would be at this point youre going to be looking at sort of 80% of the investment going into health care.
That could change.
The general distribution market.
<unk> to heat up and gets more active we could twist that but if you look at the way things are looking right now I would say, that's where it's going to go.
Marketing is a bit different just in that.
Just curious such a contained market.
We know the networks, we're going after the any network in the U S with more than $1 billion in net patient revenue. So we know their names, we know where they live we know their executives.
So it is less of a marketing lead.
Effort than a sales led effort.
Heavy investment tends to be more on the sales side of the account executive side than on the on the marketing side, whereas general distribution and retail is very much sort of it.
You create digital demand in the marketplace you use.
In digital marketing engines, and so on to create demand out there, which then drives into the website and then eventually flows through into the sales team. So that so there you'll see it's more balanced I would say in terms of.
Marketing spend.
Queen healthcare in general distribution.
R&D, it's much harder to divvied up just because it's all the same platform.
So we just thought it was in a meeting earlier this week, we're looking at.
A number of improvements we're looking at making to further strengthen our competitive advantage.
On our platform and we at the end of the meeting we look back through everything we decided to do and realize that everything on the list.
Both health care and general distribution, so because it's.
Single platform.
The investment there really is predominantly just in the platform. There's a few specific things.
Like we're continuing right now to do a lot of work on 340 B.
Central.
Pharmacy management.
That is proving to be the fastest growing.
Part of the pharmacy market for us.
And so that will definitely require some investment but it's not.
That's still a relatively minor component within the overall R&D team.
Okay. Thank you Peter I guess my last question is you just mentioned the newly hired account executives how long does it how long does it take for them to fully scale and to potentially breakeven.
Yes, I mean, we typically expect them to be landing their first deal within about 12 months.
I think at our in our internal planning.
Sometimes even use that sort of a nine to 12 month window is the where we expect their first deals to be coming in at the same time its really the third year by the time, we consider them fully up to speed.
And some of that is sort of a training building knowledge and understanding of our products in the market and so on but a lot of it is just due to the fact that sales cycles are still fairly long.
Especially in health care I mean, they are shorter than they used to be but there is still fairly long so a year.
The deals that are the relationships that they are building in the first year tend to start paying off in the second year and by the third year, they've really got some serious run rate going so that that's the way it tends to work out.
Payback is pretty quick.
Because you are.
If you look at the investment is fully loaded account executive including.
Salary and the support we provide to them and travel costs.
Everything looking at it fully loaded youre, probably looking at 5 million Bucks.
Our account executive.
And yet.
They land.
One average size health deal.
The gross margin on that deal.
It's going to come pretty close to covering that that cost.
No.
So it.
The payback is pretty quick and I mean, thats one of the reasons why the LTV to CAC.
It looks as strong as it does.
Okay. Thank you on top of the line.
Thanks, Dara Thanks, Sean.
As a reminder to register a question. Please press the one four on your telephone. Our next question comes from Suzanne So Kumar with Stifel. Please proceed.
Thank you.
Good morning Gents.
Congrats on a strong quarter.
Wanted to touch on the.
The broader demand environment today.
Try to get a sense from you guys on what you've been seeing sort of play out and evolve.
Post the quarter.
With respect.
With respect.
Sales cycle than kind of spending priorities from here from.
From your customers.
We're we're seeing a pretty strong demand environment.
I mean I understand your question at least I think I do I mean, there is there seems to be so much uncertainty in the news.
There is still concern about what's happening with inflation and interest rates and everything else. We're just not seeing any of that affecting our customers where our sales pipeline.
It.
The.
Business is rolling along deals are coming in et cetera.
We always have the normal stresses I mean right now we're in our first quarter.
Our first quarter ends in July and a lot of people go on vacation in July so.
So I think this is roughly are.
Well this is actually our 100 public quarter. So we've been through this cycle quite a few times.
This is just feeling like a pretty typical July that we're stressing it Moreover, vacations and getting things through legal and so on than we are.
Any of those kind of economic issues. So.
So it feels like it's a pretty normal busy looking year.
So I keep watching for sure the size of these sort of the overall sort of economic angst in the market in terms of.
Is it affecting our our target markets is affecting our customer base.
And so far not.
It looks like a great year coming up.
Thank you.
Wanted to touch on your.
On your priorities for growth investments going forward I know you spoke a little bit about.
Sales and marketing and R&D broadly, but on the field.
Sales and marketing side.
Just kind of sort of adding to.
Adding to that.
Head count on the direct sales side or is it or is there some element of customers customer success as well.
On the R&D side.
What's kind of the core focus areas is it really just expanding on the product roadmap or building out infrastructure.
Sure.
Would appreciate some color there.
Sure I mean on the sales side.
Yes, it's both so we are expanding the head count not dramatically, but we're continuing to add in.
Additional account executives and support for those executives I mean every time, we add a couple of existing account executives you need to add another.
Pre sales solutions person to work with them and support them and so and so.
Team just overall continues to grow at a steady pace the customer success side. This.
This year, we have a pretty small customer success team at this point.
But our plan is to.
Grow that.
A fair bit this year.
We will.
We will probably by the end of the year I would think we will probably be.
Doubled our investment in customer success this year, but again, it's not we really have two full time customer success people right now we'd like to get that up to sort of a team of four or five by the end of the year.
On the R on the R&D side.
The.
The investment is.
It's fairly widespread I mean, we continue to put probably a third of our overall spend it goes into.
The back end of the platform scalability security.
Efficiency in public cloud infrastructure.
All the boring stuff that customers don't really see but which is absolutely necessary to continue to strengthen our.
Technological position.
And sort of structure for future growth and margin.
We didn't have.
Roughly another third of it goes into.
Sure.
The core sort of ongoing supply chain demands that come in from various sectors Theres always new regulatory issues that we need to update sport. There is new sometimes new taxes that we need to build into the platform in terms of supporting and calculating.
We've added support for Europe , and European taxation.
Due to some of the demand we're seeing from there.
So so that that continues and then the last third tends to go into what is really sort of the new the new and interesting stuff I mentioned, what we've been doing with pharmacy.
The pharmacy looks like it's getting very active at this point I mean, we've been sort of trying to crack open the pharmacy market within the health care networks for the last five years.
And it looks like that Dan has finally bursting so that's creating some demand for for some interesting stuff there are around 340 <unk> management.
If you look at the.
What we're doing using utilizing AI to.
Increased warehouse efficiency.
Using automation.
That's looking pretty interesting.
We are also using AI to.
Streamline and standardize item Master files, which is a huge challenge to the health care sector.
So we've got.
We have a product that's just in testing right now, but it looks like you can do sort of 80% to 90% of the work of cleaning up these item Master files.
Helping these healthcare companies deploy much more effectively and efficiently. So so there's so that's sort of the innovation side and that tends to be about.
Typically also about a third of the spend I mean, I'm rounding all over the place there, but thats typically how it breaks out.
Thank you how does that one one other comparable sales and marketing side there.
John where we have been I think you know we've been in we've been investing in.
Partner ecosystem development, and we'll continue to we plan to continue to.
Ramp up that investment that's around just the basic ecosystem development partner enablement. We're.
We're seeing a lot of good things happening there with our with our ecosystem growing and having a more important impact on our on.
Our pipeline growth and pipeline development, and we expect to continue to invest there.
Okay.
Any color.
Last question for me.
More around the prospects for inorganic growth, but do you see opportunities to leverage.
M&A too to enhance or accelerate.
Some of your strategies on.
Whether they be on the regions vertical specific like healthcare or or more on the product or technology side.
We're obviously not seeing any great opportunities there right now.
The market.
I mean pricing has come down pricing has become more reasonable.
So it's not that we don't continue to kick tires and look around but we are.
<unk>, we see private equity firms that are willing to pay.
Lot more than it makes sense for us to pay given our current valuations.
And add to that the fact that we've got an organic growth opportunity in front of us that.
We think he is harder than it's ever been so we're sort of looking at the overall scalability of this thing and saying.
We more or less double the company in the last four or five years, we think we can double it again faster than that.
So there is a.
So there's a strong emphasis internally right now and saying, Okay don't get distracted just execute execute execute to Steve.
The organic opportunities nothing short of fantastic.
Perfect.
I appreciate the color.
Thanks for taking my questions all Tesla.
Great. Thank you thanks for your time.
Gentlemen, there are no further questions at this time.
Great well, thank you everyone and thanks for joining us and have a great summer and as always if you have any questions don't hesitate to reach out to Mercury and we'll look forward to chatting in September . Thanks, again bye for now.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line have a.
Great day, everyone.
Okay.
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Okay.
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