Tecsys Inc.

Thank you. Good morning, everyone.

Joining me today is Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call.

We continue to see strong SaaS revenue growth which was year-over-year 34% in our second fiscal quarter and SaaS bookings were solid across our market segments. This quarter, we also reached two key milestones that I want to highlight.

First, our annual recurring revenue reached $100 million reflecting the strength of our SaaS model. And second, our SaaS RPO surpassed $200 million, a testament to the solid foundation we are building through bookings and renewals.

We see these metrics as indicators of our business health reflecting steady progress towards our long-term value-creation goals. I’d like to take a moment to summarize the key events of our Q2 and first half results for fiscal ’25, Mark will then walk us through the financial results in more detail.

And finally, I will comment on our outlook followed by a Q&A session. If you are following along our companion presentation, I will be speaking to Slide 3.

In terms of SaaS bookings, we landed at $3.7 million for the quarter, matching a strong comp from Q2 of last year. This translates into year-to-date SaaS bookings up 20% over last year and up 28% on a trailing 12 month basis, driven by participation across all of our key verticals.

Healthcare drove our Q2 bookings activity, led by significant migration and expansion deals. This performance came despite major disruptions in the healthcare market, notably the saline shortage resulting from Hurricane Helene’s impact on Baxter’s North Cove plant in North Carolina.

That plant supplies roughly 60% of the saline in the US and taking that plant offline has been a significant distraction in the healthcare market. In converging distribution, we recently announced that Atwoods Ranch & Home selected Tecsys' OrderDynamics product for retail order management and we closed deals across the quarter or in the quarter across geographical markets including North America, Europe and Australia.

Our RPO is up 39% year-over-year reflecting steady bookings in renewals. Adjusted EBITDA strengthened to $2.9 million, up significantly from Q2 last year and up 32% year-to-date.

Additionally, we continue to buy back shares under our normal course issuer bid spending $2.1 million on share buybacks in Q2. In October, we rolled out version 24.2 of our Elite, I believe that our flagship product.

This release focuses on tools that help customers solve real-world problems with better data. I am highlighting this release because it captured what we’re trying to do with our solutions using data to deliver value in new and innovative ways.

In a very noisy AI space, we are identifying and delivering what we call purpose-driven innovation with specific use cases that have a real impacts in our customers’ businesses. We believe that innovation with this lens makes our solutions essential to run organizations’ operations and open stewards to new business opportunities.

The importance of these advanced consumes reinforced last month with our inclusion as a leader in the 2024 WMS Technology Value Matrix published by Nucleus Research, a global technology research and advisory firm. Also just released Gartner’s Top 25 Healthcare Supply Chains for 2024, we are proud that 40% of the providers on the list are Tecsys customers.

We're also accelerating our market access across a thriving partner ecosystem. Co-marketing with Locus Robotics, OneView Commerce, TraceLink, EXOTEC and SEDLAK, along with our recent inclusion into the Shopify App Store highlights our growing reach and value in the market.

This effort is proving valuable with [Indiscernible] deals being partner influenced over the last 12 months. Since our last results call, we’ve shared a stage with Vanderbilt Health, AdventHealth, TriVenture Logistics, and an Australian retailer Forever New on joint webinars.

Forbes has also published a highlight or a spotlight on the work done at St. Luke’s Health in Boise.

You may recall from last quarter, I mentioned that we're ramping up user groups in industry workshops. I'm happy to share that our most recent Pharmacy Summit took place in Newport Beach, California in October.

And it was a great success helping to drive innovation in the pharmacy supply chain. We're working on our next summit taking place in Spring of 2025 in Philadelphia.

And so as we continue to invest in the products we sell and in our go to market strategy, Tecsys is preventively among the best cloud-based solutions available in the markets that we serve. The steady growth we have experienced affirms our vision and strategy for shareholder value.

Mark will now provide further details on our second quarter and year-to-date financial results as well as financial guidance and several key metrics.

Thank you, Peter. I'll start with Slide 4 and focus first on SaaS.

SaaS revenue growth was 34%, reaching $16.1 million. Highlighting the continued scaling of our SaaS business, SaaS revenue represented 23% of total revenue in Q2 of fiscal 2023, that was just two years ago.

And now it represents 38% of total Q2 revenue. The strong underlying growth in SaaS revenue is somewhat muted by year-over-year fluctuation in hardware revenue.

It's important to note that when hardware revenue is excluded, our overall revenue growth rate in Q2 jumps to 13%. Professional Services revenue for the second quarter was $14.1 million, up 10% from last year.

We anticipate that Professional Services revenue will remain variable, influenced by the timing of project deliveries and the level of involvement from our integration partners. For the second quarter fiscal ’25, gross margin was 48%, compared to 44% in the same period last year.

The key drivers here increasing SaaS margins, as well as strength in Professional Services margins in the current quarter. Net profit in the quarter was 758,000, compared to a net loss of $340,000 in the same quarter last year.

Basic and fully diluted earnings per share were $0.05 in the current quarter compared to a loss of $0.02 in the prior year quarter. I just leave it as Peter mentioned was $2.9 million in Q2 fiscal ’25.

That compares that $1.0 million in the same quarter last year. Turning briefly to our year-to-date highlights and that's Slide 5 in the companion deck.

SaaS revenue for the first half of fiscal 2025 was $31.4 million. That was up 33% from the same period last year.

Our total revenue reached $84.79 million, a 2% increase from last year. Excluding hardware, overall revenue grew by 11%.

For the first half of fiscal ‘25, our adjusted EBITDA increased to $5.5 million, that was up from $4.2 million in the same period last year and fully diluted earnings per share for the first half were $0.10, compared to $0.06 in the first half of last year. We ended the quarter with a solid balance sheet.

We had cash and short-term investments of $28.3 million and no debt. As Peter mentioned, we used about $2.1 million of cash in a quarter to buy shares back under our NCIB Additionally, and the Board yesterday approved a quarterly dividend of $0.085 a share.

Turning to financial guidance on Slide 6 now of the companion deck. Tecsys is maintaining fiscal ‘25 guidance on SaaS revenue growth at 30% to 32%, as well as fiscal ‘25 and fiscal ‘26 adjusted EBITDA margins at 8% to 9% and 10% to 11%, respectively.

Based on the ongoing unpredictability of Hardware revenue and a rapidly evolving business model that's impacting Professional Services, Tecsys is revising fiscal. 2025 total revenue guidance to roughly flat.

I'll now turn the call back to Peter to provide some outlook comments.

Thanks, Mark. Tecsys’ second quarter results reflect the consistent execution and momentum we’ve built As mentioned earlier, our existing footprint in key markets reinforces our confidence that we are well positioned to upsell and cross-sell within healthcare.

Our value proposition in pharmacy is compelling and it has heightened interest in this area. We believe we are uniquely positioned to capitalize on this opportunity.

We continue to see this as an important growth engine for us. Our converging and general distribution business also represents a substantial market opportunity.

We are ready to pursue new marketplaces and geographies within this space. The current discussion in tariffs could impact some of the sub-segments we serve in general distribution and we are following the developments closely.

We believe however that most of the markets we serve will not be impacted and we will focus on those unaffected markets. We will continue to invest to drive growth in the market that is changing.

Changes spurred by legacy systems, digital adoption and shifting geopolitical landscape. We often see change acting as an accelerant for supply chain transformation.

So we will find those opportunities and capitalize on them as they emerge. We are pleased that our pipeline is robust and we continue to see strong buyer intents across our verticals.

And so in summary, I want to remind analysts and investors of our key theme for fiscal ’25. First an emphasis on continuing to refine our SaaS software suit is easy to use and upgrade and even use your direct lens appears.

Second, a continued strategic partnership approach allowing us to tap into new opportunities and fuel our scalability around the world. Third, we are committed to harnessing the full potential of data to drive value and innovation across our solutions.

As a final point, I'd like to stress across our markets, we’ll continue to prioritize customer satisfaction and success. We long stood by the philosophies customers likes and a big part of that formula is to deliver value quickly, stay connected and expand on the value delivered.

With that, we will open the call up for questions. Thank you.

Peter and Mark, good morning. Thanks for taking my question.

Good morning.

Good morning.

Maybe the first one is unrelated to the quarter. In your updated investor this morning and I see that you guys have raised your projected SaaS margins for fiscal 2027 and fiscal 2028 to 70% and 75%.

And I believe the previous range was 68% to 70%. Could you walk us through the key dynamics behind this revision?

And what's driving that increased customer?

Sure Amr. I mean, as we've gone through the transition, the – well that’s for additional, we’ve invested pretty heavily in the back-end of our whole product line, the whole sort of server side and the back-end whole cloud infrastructure side of our product.

And as we have and we are now in a position where we’ve got the substantial portion of our user base – our SaaS user base running in that much more modern call it cloud infrastructure platform, we are already seeing margins on those clients. It’s in the 75% and even north of 75% range.

So we've now sort of done an analysis to say, okay? And how long is it going to take the clients that are on the older infrastructure that are pulling down the average margins.

How long is it going to take them to migrate forward into the newest infrastructure that is better for them and better for us and as we’ve completed that analysis we can see that over the next couple of years, we are going to end up at a position where the vast majority of the clients running our SaaS platform are sitting in that more modern, more efficient infrastructure. So, as a result, we can see – because we already have a whole cohort of clients sit in that sort of 75% or above margin environment.

We can see that that transition to that for the rest of them, it’s just going to move the average up there considerably quicker than we have originally anticipated.

That’s clear. Thanks.

That’s fantastic color. On the revised guidance, I think Mark, you cited the hardware revenues of which I think everybody understand, then you go a rapidly evolving business model affecting Professional Services.

Can you clarify why Professional Services are being impacted more than maintenance and support? I would have expected maintenance and support to be the culprit, I guess, as opposed to PS and I see your number on PS for the quarter.

It's not bad, like within the 14 to 15 that’s that you said like last quarter.

Yeah. So, two sort of parts of that question.

One is around maintenance and support and one is around in a way around Professional Services. You're spot on, on maintenance and support.

That decline we expect to happen just as with the transition to SaaS continues and like I see, maintenance support customers migrate onto the onto the SaaS platform. In Q2 in that regard had a little bit of a blip in it in terms of some third-party maintenance recognition timing in a comparable quarter from the prior year.

But if you look at the year-to-date sort of trend on maintenance and support, it was down about 5%. And that's kind of how we think about, that that line kind of moving out in the future directionally more, more so than that steeper 13% decline in the current quarter.

But in terms of Professional Services, I think you know what's kind of changing in our world, there is primarily a couple things. Number one, our partnering ecosystem continues to evolve and we think that's going to continue.

And that means, some proportion of our Professional Services are going to be delivered. But ecosystem partners and we actually love that.

We like that model. We want that to happen.

There's a lot of a synergy around creating that environment and opportunities arise and the word gets out broader, some of these partners are quite entrenched with customers and prospects. And so it's just kind of a helpful way to develop growth in general for our platform, for our top-line, SaaS revenue the growth.

So that's one thing. The partner ecosystem dynamic.

The other thing I think Amr is that, what we're learning and as we get better at this and invest more in the platform that Peter was just describing earlier, as we as we invest more in that platform, what we're finding is that it's easier and easier to help with these customers when they're on the latest technology stack in our main line Elite product offering. The upgrades are, yeah, they're much easier than the legacy upgrades of being on old legacy on-prem software that you're moving versions on where you had massive upgrade projects and we actually see that as a really good thing.

And again, it's supportive of our of our top-line SaaS revenue growth, but it will mean that there will be a moderation of Professional Services revenue growth going forward we expect We don't expect the decline, but we expect it's not be growing nearly as quickly as our SaaS revenue.

Understood, understood. That's very good color.

Then, I might have missed Peter's comments in the front end on health that the industry being I guess pre-occupied. But there were notable clients wins that you guys like spoke to during the quarter in health, right?

Sorry what was the question? There were what?

There were not any notable clients wins that you could speak to during the quarter in health right? You were mentioning.

I missed the front-end comments on…

Yeah, I know they were - I would agree with that. There were not.

I mean there were some notable expansions, notable migrations. We are actually pretty pleased and frankly relieved with the overall actually we were book in healthcare in the quarter.

But the – I mean the obvious is pretty quiet and as we came into September that Baxter plant got taken out. I mean, I mean I was at a healthcare conference in mid-October.

And quite a number of probably, I know 50 or 60 heads of hospital supply chains were at the conference. And most of them were spending several hours every day trying to figure out how to navigate the shortage of saving.

And you may have read they literally gone to using – in hospitals to help the high graded refill rather than using an IV drip – just on [Indiscernible] saline. And so, gathering at a long straw and hopefully just wait for someone to rehydrate.

So, it is a tough situation. There is an overconcentration in the supply chain around certain key low margin products and saline is certainly one of them.

That plant is expected to – it’s coming back online now. They are already shipping product into that plant.

But it’s going to take another couple of months for that plant to really basically catch up in the supply chain. In the meantime, there is no question the markets somewhat distracted.

Fantastic. Thanks for taking my questions again.

I'll pass the line.

Thanks, Amr.

Thanks, Amr.

Hey, good morning. Thanks for taking my questions.

Maybe just on the political landscape, Peter you referenced in the prepared remarks a little bit. But maybe you could just expand a little bit in terms of what you are hearing from your distribution and healthcare clients given the shifting landscape down south?

The actual hospital space seems to be pretty relaxed about the sort of change in administration. Last time, Trump came to power, he was talking returning of the Affordable Care Act.

There is no such talk this time. Like that time years ago really did distract the healthcare market.

We had quite a slowdown for about a year. This time, there is maybe no talk of that.

Mike Johnson mentioned once the potential to tweak that act. But in the last eight years, the Affordable Care Act had actually become quite popular in the US.

So nobody really wants to touch it. So the hospital side seems pretty chill about it all.

The general distribution side is more distracted. I mean, we are seeing just – I think, just while they wait to see how that settles out.

What are the tariffs going to do? Where are the tariffs going to land?

My view is that marketplaces like electrical, we do a fair bit of business in electrical that’s not likely to be affected. Most of that stuff is made in the US and used in the US.

Wines, spirits not that likely to be affected. The US is a major exporter in that market.

The [Indiscernible] and electronics, home furnishings, clothing, these are all markets that may be affected and suddenly cost go up anywhere from 10% to 25%. You will see slowdowns in those markets.

So we are watching it closely. We are seeing boards that are just sort of continuing circulars and projects and whatever but actually slow rolling of decline with signatures while they wait to see how to settle then.

But as I say, there is a lots of sub-segments within general distribution that are – in our opinion will be unaffected and the team’s in the opinion those markets will be unaffected and those seem to be rolling heads quite nicely. So it will be a bit of a gain for a while on the general distribution side of making sure we are focused on the hot spots and not investing in marketing to the distracted segments.

But we are – maybe that marketplace is so baby. We are quite confident it’s not going to affect our numbers.

Okay. That’s super helpful.

Thank you. for that.

And you talked about the healthcare distractions in your Q2. I think you also said that the pipeline was pretty healthy and buyer intent was healthy.

So do you expect to be able to maybe catch up a little bit in the back half of the year? Maybe you can just discuss kind of the overall pipeline for us.

Yeah, the overall pipeline looks very strong. I mean, the back half of our year is usually by far the strongest half of the year in terms of bookings, right?

So, and we certainly anticipate that again. That said of course, at that point I am crystal ball, Gavin.

So, you can’t really count on that. But as we look at – I mean, if you look at last year, our second half was, I don’t remember in total, I think it was about 60% of our bookings, maybe 65% of our bookings in the second half of the year.

And that’s not untypical. So we are looking at our year-to-date bookings up 20% year-to-date compared to last year, in spite of the distraction in healthcare.

So we are actually feeling pretty okay. But that and the pipeline is very active.

So we are pretty confident looking forward.

Okay, great. And then maybe just lastly, on Hardware, I mean, we've discussed some of the chip shortage backlog dynamic and how that kind of unlocked last year.

I am curious if there is anything else going on like, are you selling less modules with Hardware tops? Like I'm thinking about point of use in particular is that do you ending up selling more pharmacy versus point of use and that's also having and impact?

I guess, I'm just curious if there is anything other than that chip shortage unlock anything that you can discuss.

I mean, probably, Gavin is those are so lumpy. Like we'll go and it's partly why we just said what we're going to - it looks like overall revenue is going to be close to flat and just kind of leaving at that.

But it’s so hard to predict. I mean, we’ve got deals in the pipeline that it’s being moved forward some of them will come with one to two million bucks worth of hardware just tied to a single deal.

On the other hand, as you are saying if it’s mainly pharmacy to move while there tends to be less hardware sales associated with pharmacy. There is other vendors that really sell direct to lot of the hardware to pharmacy and we don’t want getting that business at all.

So it is very hard to predict. And so we still have lots of opportunities that are buying our – putting this hardware and certainly in the WMS side and we’ve got, we end up reselling hardware for warehouses.

So, but we are just saying it’s going to continue to bounce around. It’s not strategic for us if customers end up deciding they rather buy direct from a manufacturer that’s okay with us too.

So, our expectation is though that on average it’s going to kind of remain where it is roughly where it is now.

Okay. Helpful.

And then lastly, for me just on the pharmacy summit which you done in Newport Beach. Can you talk about the attendance that was there?

Were those all are existing customers? How many prospects were there?

And how are the follow-ups going?

Yeah, I mean, it was it was pretty exciting. We had - I guess in total it’s about a 100 people showed up, but there were clients that came from right across the clients and prospects that came from right across the country literally east coast to west coast they flew out there and some going to California for that summit.

We did have a number of existing customers there, St. Luke’s was there and Baptist Health was there and others to talk about what they were doing.

How they were doing it and to take questions. We had an industry speaker that was there.

She did a great job during the conference. So that was quite a success.

I was – that healthcare conference I referenced earlier that I was at in October was actually is a week after the pharmacy event. And the feedback I was getting at that conference is also very positive.

So, we are seeing at this point roughly a third of our pipeline in healthcare is pharmacy which given the fact that we just think we are the only started to pick up speed about 18 months ago. We are pretty pleased to see the mix going to that level and the pace of the pipeline in that particular area.

So all – they are pretty pleased. We are looking forward to the one in Philadelphia, which is also starting up a lot of interest and I mean, some people couldn’t make it for the California and just because of the distance and some because of the timing.

So I expect we’ll also see pretty good turnout in the Phili. I would say by the way, if I know there is a number of analysts on the phone.

If one of you wants to – for a couple of you want to come to the one in Phili let us know, we’ll be happy to set it up for you to attend that summit.

That sounds great. I might ping on that.

Thanks a lot. I’ll pass the line.

Okay.

Thanks, Gavin.

Hey guys. Thanks for taking my question.

This is SA [Ph] speaking on behalf of Suthan. I guess, my question would be on partners really.

How much did they contribute in the quarter? Is the strategy to expand to pull up partners or perhaps go deeper with the existing partner base?

And maybe lastly, how are you investing in partner training and just overall how that is going? Thank you.

Yeah. I mean our partner activity continues to go - yeah good, your question is well, quick – we intending to do a deeper rather wider at this point.

We are already doing a lot of work with RiseNow in the healthcare space. Also some work with Z Fetch, some of KPMG.

We probably have, I mean, there is other partners that are doing more ancillary work as well. But those are the ones who are sort of working more in depth work with.

In a way that’s probably enough partners. It’s we want our partners to really get into our product line that we really committed to that product line and be able to run a substantial revenue stream against the product line.

So that’s probably enough for now. We are continuing to see if there is opportunities that make sense to bring in additional partners.

The deal flow – the deals that are actually getting signed continue to be roughly a third - somewhere between 30% and 33% partner influenced. Over time, I would expect that to continue to rise and in these products in a year or so we are – over the next couple of years at least we get that up to 50%.

But it’s somewhere in that 30% to 33% range now. On the general distribution side, we are working with Avalon mostly.

They do a lot of work in the electrical space with us. And we need to broaden our partner base in the general distribution space.

There is we’ve got some interest in some partners there. But we really need to broaden that base and we’ll continue to look for the right partners there.

Thank you. That's super helpful.

Let me just one last question from my end. Maybe, if you can give us some color and I think you already added some color, but maybe demand trends and end-markets and maybe some more color on sales cycles and how deal sizes have been trending?

Thank you.

Yeah, I mean, the deal size is more or less remaining pretty hard. I mean, on the new account side, we tend to see average deal size to healthcare consumed around 650 and staying in little bit below that, probably 20% below that in general distribution is kind of your average deal size.

But overall, pipeline size and activity is hit pretty robust. We don’t give a specific numbers there.

I do think there has been some wait and see during the fall depending relative the US election. With that behind this and with it being quite a decisive result and uncontested and pretty clear in terms of who is going to be running things.

That sort of can certainly extend relieves the uncertainty. I mean, we can’t for obvious and can’t predict at this point what the Trump administration is going to do.

But at least we know who is going to be running what and that gives a lot of business with some degree of certainty in terms of we can move ahead with some decisions. So we do feel like the whole market sort of collectively starting to breadth a little bit during the fall.

But I tell you right now it’s pretty strong. So we are pretty confident.

I don’t remember if I got all your questions, there that was kind of a compound question.

Yeah, it was. But answer nonetheless.

Thank you so much.

Okay.

Thanks.

Thank you. Hey Peter.

Just your healthcare comments, just want to make sure I got it. It was all expansions.

There was no new IDN wins for this quarter, right?

That's right. No, new IDN wins in the quarter.

It was expansions and migrations

Okay.

And we’ve actually got quite a number of new IDNs in the pipeline. But I think it was just flatter too much this action.

When you are running a supply chain in healthcare, and you can’t get savings. You can’t really think about much so we are expecting that to sort of resume and catch up over the next few months.

We’ll see.

Got it. And then, just for comparison, what was the IDN – number of IDN wins in Q1, Peter?

Mark, what that was it? One or two I don't remember.

It was one.

One in Q1.

Yes. Okay.

Thanks. And in terms of Pharmacy the momentum in pharmacy, at this at this stage, how many of your IDNs has pharmacies?

Is it still a small number like, less than five?

We're at seven right now.

Seven.

And Interestingly enough the – that was the last sort of six that have signed. Three of them were brand new accounts to Tecsys that literally came to us for pharmacy.

And three of them were base accounts that added on pharmacy.

Oh, and the six that came to you just for pharmacy. Did they that’s all they bought or they bought up their stuff?

It’s sort of just to clarify, there was – we’ve got seven in total. So, six that have joined in the last couple of years.

And of the six that joined in the last couple of years, three were brand new and came just for pharmacy and three were existing accounts that added pharmacy. The three that came to us just for pharmacy, right now, that's all they are doing.

They are just doing pharmacy. There it is end-to-end.

So they are doing consolidated pharmacy service center right through the hospitals to patient bed side. So it’s very comprehensive pharmacy.

But it is they are only doing pharmacy at this point.

Got it. Very helpful.

Thanks guys.

Thank you.

Thanks, Steven.

Great. Well, thanks you all for taking the time to join us.

And as always, if you have additional questions, don't hesitate to reach out to Mark or I. And we will look forward to talking to you at the end of Q3.

Thanks and have a great day. Bye for now.