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.

As most of you have likely seen in the results issued last night, fiscal 2025 has been another strong year for Tecsys. SaaS revenue grew 29% for the year, just shy of our 30% guidance while our core product Elite grew 32%, driven by high-quality multi-site wins and strong adoption in our core markets.

Between new logos, renewing and expanding base accounts and continued migration momentum we are seeing sustained indicators of business health, reflecting steady progress towards our long-term value creation goals and SaaS RPO continues to grow. In health care, we added 2 new health system providers in the quarter and completed another large migration.

We also saw continued uptake in our pharmacy offerings as more health care organizations respond to DSCSA and look to drive efficiency and visibility through their supply chains. Distribution also saw continued growth with multi-site deals in electrical, industrial and health care distribution and important new customer additions in both North America and Europe.

Our strategy of being selective, but deliberate in the markets and geographies we pursue continues to bear fruit. Notably, health care distribution has emerged as a dynamic vertical with increasing demand for scalable inventory management and Drug Supply Chain Security Act aligned logistics across the care continuum.

Our pipeline is responding accordingly. We also had another standout quarter in professional services.

Q4 marked another record for PS revenue, and we ended the fiscal year with the largest professional services backlog in our history at $49 million. That's up 52% year over last year.

These results indicate strong ongoing demand. That said, we anticipate the professional services revenue will continue to remain variable, influenced by the timing of project deliveries and the level of involvement from integration partners.

We also saw several strategic milestones since our last results call. We announced a major milestone with Roche, with our SaaS platform now being progressively deployed at over 1,000 sites globally.

This rollout demonstrates the scalability of our system and reinforces the trust that Roche places in us to support their operations across multiple regions. On May 1, 2025, we announced the establishment of a new subsidiary in India as part of an asset acquisition that included the hiring of an India-based team.

This acquisition enhances our development and support capacity and capability positioning us for long-term scalability and growth. As we continue to build momentum in the market, we also saw a validation of the capability of our WMS for our 14th consecutive time by Gartner.

Included in the challenger quadrant, we were once again recognized for our product's completeness of vision and ability to execute. This is on top of the fact that Tecsys customers represent 40% of Gartner's health care supply chain top 25 list for calendar 2024.

While it came just after our fiscal year-end, our Tecsys user conference was a key event for us. It's a chance to connect with our customers, highlight new products, build stronger relationships and explore new growth opportunities.

This year, we had our largest turnout ever with over 200 customers and prospects. We also shared that we'll be making the conference an annual event moving forward.

So we'll have this important touch point with our customers on a more regular basis. At the user conference, we announced 2 exciting innovations.

First, we introduced an enhanced electronic shelf label, or ESL+, which represents an important advancement in hospital supply chain management at the point of views. These are bidirectional smart tags that add real-time visual cues and allow clinical teams to request additional product or rush orders in real time.

Secondly, we unveiled a brand-new data product we're calling Tecsys IQ. A data layer that interacts with the existing Tecsys ecosystem.

Tecsys IQ is a major leap forward in Applied AI and the excitement among customers and partners was evident. Built on the Databricks data intelligence platform, Tecsys IQ helps organizations unify fragmented data and deliver AI-powered insights across clinical, operational and financial systems.

So we have good reason to feel confident about our position in the market, our base expansion rate, our backlog in both SaaS and professional services and the strength of our vertical strategy. As we continue to invest in the products we sell and in our go-to-market strategy, Tecsys has proven to be 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 year-to-date financial results as well as financial guidance on several key metrics.

Thank you, Peter. First, I'll focus on fourth quarter fiscal 2025 results.

SaaS revenue growth was 29%, reaching $18.4 million. SaaS bookings were down year-on-year from a record $8 million last Q4, which was the high watermark so far for quarterly bookings to $6.5 million this Q4.

That $6.5 million, by the way, is the second highest SaaS booking quarter in our history. Q4 was another record total revenue quarter at $46.6 million, that was up 6% from the same quarter last year.

But if you exclude hardware revenue, that growth was 16%. Professional services revenue for the fourth quarter was a record $16.2 million.

That was up 13% from the same quarter last year. We had another solid professional services bookings quarter in Q4.

And as Peter noted, we ended the year with record professional services backlog. For the fourth quarter of fiscal 2025, gross margin was 51% compared to 47% in the same period last year.

The key drivers here are increasing SaaS margins as well as strength in professional services margins in the quarter. Net profit in the quarter was $1.7 million compared to $259,000 in the same quarter last year.

Fully diluted earnings per share were $0.11 in the current quarter compared to $0.02 in the prior year quarter. Adjusted EBITDA was $4.3 million in Q4 of fiscal 2025 compared to $2.8 million in the same quarter last year.

Turning briefly to our full fiscal 2025 highlights. SaaS revenue for fiscal '25 was $67.1 million.

Again, that's up 29% from last year. SaaS bookings for the year were $17.3 million.

That was actually down 7% compared to last year. While this will have the impact of moderating SaaS revenue growth in fiscal 2026 based on the size and quality of our pipeline, we're optimistic about the future of SaaS revenue growth.

Our total revenue reached $176.5 million. That was a 3% increase from last year.

If you exclude hardware, overall revenue grew by 12%. For fiscal '25, our adjusted EBITDA increased to $13.4 million.

That was up from $9.6 million last year. That's a 39% year-on-year increase in adjusted EBITDA.

Basic and fully diluted earnings per share for fiscal '25 were $0.30. That compares to $0.13 in the same period last year.

We ended fiscal 2025 with a solid balance sheet. We had cash and short-term investments of $39.3 million and no debt.

We used about $6.9 million of cash in the year to buy back shares under our normal course issuer bid. Additionally, the Board yesterday approved a quarterly dividend of $0.085 per share.

Turning to financial guidance. We are providing fiscal '26 guidance for SaaS revenue growth of 20% to 22% and total revenue growth of 8% to 10%.

We've decided to increase our investment in R&D and marketing in fiscal 2026 to drive SaaS margin growth and SaaS revenue growth, respectively. As a result, we're revising our fiscal 2026 adjusted EBITDA margin guidance to 8% to 9%, and we expect adjusted EBITDA growth in the range of 20% to 30%.

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

Thanks, Mark. Tecsys fourth quarter and full year results reflect the consistent execution and momentum we've built throughout the year.

Our solid footprint in key markets reinforces our confidence that we are well positioned to upsell and cross-sell within health care. Our value proposition in pharmacy remains compelling.

We believe we are uniquely positioned to capitalize on the expanding opportunities in pharmacy and other adjacent health care vectors, which we see as an important growth engine for us. Our converging and general distribution also represents a substantial market opportunity.

We are pursuing targeted marketplaces and geographies within this space with an expanding emphasis on health care in this market as well. We are pleased that our pipeline is robust, and we continue to see strong buyer intent across our verticals.

As I mentioned in my opening, we just wrapped up our largest ever user conference in Nashville and the energy from our customers was incredible. We heard from a great mix of voices, including presenters from Nissan, Vanderbilt Health, Mayo Clinic, Texas Children's Hospital, WellStar Health and Accuristix.

These customer advocates shared some amazing insights on how Tecsys is making a real difference for them. It's clear we have a great opportunity to keep these conversations going, build on the momentum we've created and capitalize on the market opportunity this event creates.

So in summary, I want to share with analysts and investors our key themes for fiscal '26. First, we will continue to invest to maintain and enhance our market leadership across the supply chain landscape with an emphasis on the end-to-end health care supply chain.

This includes investments in product development and marketing to drive SaaS margin expansion and bookings growth. Second, we are unlocking the full potential of data with our AI-driven Tecsys IQ platform to drive value and innovation across our solutions.

This will be transformational for our customers. Third, we remain deeply focused on customer satisfaction, ensuring our software is reliable, scalable and easy to use, giving our customers every reason to be passionate advocates for us.

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

My first one is on your SaaS revenue guidance of 20% to 22% that below what you guys just posted like 29% for fiscal '25. I'm wondering what specifically are you guys seeing in the pipeline that leads you to expect a deceleration?

Is it you guys just being conservative? Or is there something more structural.

And maybe this is related. So like if you could maybe talk about how bookings and pipeline activity are trending early into the year.

Would both the House and Senate advancing cuts to Medicaid, I think a stark contrast from your last conference call when we last chatted. Can you elaborate on any early signs of caution from your clients or anything like that?

Sure, Mark, do you want to take the first part and I'll take the second.

Sure, sounds good. So thanks for the question, Amr.

So the thing about our SaaS -- I mean we've got -- at the end of this fiscal year, we've got what we think is a 90% plus of our revenue for SaaS in fiscal '26 already booked, right? So we're actually -- if you kind of look at that and do the math on that, if you book $1 million SaaS deal in Q4, it adds basically $1 million of revenue in the subsequent year depending if there's a ramp in it or if there's a slight delayed start, which we do from time to time.

But normally, it starts right away. So we've got pretty good visibility into the revenue in fiscal '26.

We've also got line of sight to what we believe to be some pretty robust bookings and Peter will talk maybe to the pipeline and market conditions afterwards. But we're seeing strong indications of pipeline activity and expecting strong bookings on top to add accretively to that backlog of SaaS that we have at the end of the year.

Yes. And I would just add, Amr, that as Mark's comment, we're not at this point seeing a slowdown in activity.

There's no question, it's on everybody's mind. I was down at the SMI conference, whatever it was 2 weeks ago, I guess.

And these are all supply chain leaders from hospital organizations. And the general consensus there was that all these sort of threats to cut Medicaid are sort of political posturing, most of the dates that they're talking about in terms of when those cuts would kick in if this bill passes with those cuts in it, the dates are sort of staggered out over the next couple of years with sort of lots of time to delay or cancel those cuts before those dates actually arrive.

So the feeling generally seemed to be that it was largely political posturing. It wasn't going to happen because any party that actually cuts 16 million people out of Medicaid is doomed to lose the next election.

But at the same time, there's no question, it was top of mind for everybody. I mean it was a frequent matter of conversation, but the consensus seems to be that it was unlikely to actually bite.

So we'll see. We're keeping an eye on it.

At this point, though, we're not seeing any slowdown in activity. I mean, as we mentioned, we closed 2 deals in the fourth quarter when this was already sort of in the air, like 2 new accounts plus some expansions.

So and certainly, the pipeline activity in the first quarter is showing -- is remaining quite strong. So we'll see how this ends.

We're keeping an eye on it. But at this point, it's still all systems go.

Fantastic. Appreciate the color.

I think one of the highlights of the quarter is your gross margin expansion on SaaS. Can you elaborate on the key levers driving that?

It seems to be tracking ahead of expectations. Is there anything abnormal helping the expansion in this quarter specifically?

No. I mean, it's going to continue to bounce around a little bit.

There's no question, but there's really sort of 3 core levers we have on that, and I'll sort of try to keep this brief, but first is we still have a few older accounts that first came on to our SaaS platform back in 2019 and 2020 and even 2021, when we first introduced it, they kind of on to our first-generation SaaS. They have not migrated a forward onto our mainline platform with -- that includes automatic upgrades and all those kinds of things.

And that whole infrastructure and technology stack is much lower gross margin. So we are migrating those accounts forward onto our newest latest platform that includes automatic upgrades and release and greater security and all those kinds of things.

And -- but it also as they move we end up with a client coming off of a low gross margin stack on to a high-growth margin stack. So that is a driver.

We are also continuing to rearchitect the -- our overall platform for more and more public cloud infrastructure efficiency, and we're making very good headway on that. I think we've got probably 2 more years of investing in that, where we're still dealing with pretty serious payback as we go.

I think sort of 2 years from now, there's always going to be ways to continue to improve it. But I think the bulk of that progression will be complete within about 2 years.

And then the last area is just as we continue to drive up quality and reliability and user-friendliness, we continue to drive down customer care costs. You end up with less and less calls, less and less tickets coming into the customer care team.

That's another aspect of cost that goes into supporting a SaaS account and we're making pretty good headway on that. If I look at the last 12 months, we've actually brought our severity 1 and severity 2 tickets down by about 35% compared to a year ago.

We're continuing to drive that number down, but that is another key factor in achieving higher SaaS gross margins. So I mean our objective over the next sort of 2 or 3 years is actually drive it to 80%.

We're -- we'll see how we do on that trajectory. I know our investor deck shows a progression to 75.

Internally, we're shooting a little higher than that, but we think we're -- we've got sort of these 3 key levers to make that lift.

That's great to hear. And then maybe one last one, if you'll allow me.

Your adjusted EBITDA guidance of 8% to 9%, down from 10% to 11% and despite, obviously, the gross margin expansion. My quick math is it's like an extra $4 million of OpEx investments.

I just wonder where exactly are you guys spending in R&D than in marketing, if you could just like break down the different areas?

Sure. There's 2 -- I would lump it into 2 main areas.

There is some additional spend in sales. We do continue to invest there.

We brought on a senior expert of the hospital market to join the sales team, and he's been a senior supply chain leader at a hospital network. He's joined the sales organization as a sort of hospital supply chain expert.

He's going to be helping the entire hospital sales team. So we do continue to invest in sales, but that's probably the smallest piece of that, I would think, Mark can correct me here what -- is a high level.

But the majority is really marketing as we're looking to sort of get the messaging out around the end-to-end health care supply chain that we are not -- we're hospitals, but we're also distributors and 3PLs and manufacturers. We have a complete end- to-end platform for the whole hospital supply chain continuum.

And we want to get that message of across both North America and Europe. So we are cranking up marketing spend in that area with the interest of driving bookings -- backup bookings growth back up to a higher level.

We think we can get bookings growth back up to close to 30%. And -- but we think we've got to get that messaging out there loud and clear.

And then on the R&D front, there is some additional investment going into FedRAMP because we really need -- we do a lot of government business, and we really need to be FedRAMP compliant. So that has driven some extra costs.

But the bulk of the extra investment in R&D is it's just AI, AI and AI. I mean we're putting it everywhere across the product.

We've got some really exciting stuff coming in that whole Tecsys IQ platform is sort of underlying that effort, but we are investing across point of use the IR OR, cath lab, nursing station, the warehouse, the warehouse execution system, et cetera, right across the board to create a platform that really takes full advantage of the excellent data that we have in our platform.

I think I would add one thing to that, Amr, I think is that we just closed up badass acquisition in India on May 1, as Peter mentioned earlier in the call. And that's going to -- if you're looking at OpEx lines, of cost, that's going to add sequential cost.

There is some revenue that came with that, too, but it's going to add sequential cost into that R&D line and also in the -- a little bit on the margin but mostly in the R&D line.

Yes. And I suspect the user conference as well going to add some...

Yes, we'll see that come through in Q1. Exactly.

Maybe just to start, I mean, you guys seem to be getting more traction in the broader health care supply chain, so outside the hospitals, and you're talking about leaning in on sales and marketing. Curious if you've done any work to size up that TAM?

And what are your thoughts about the velocity of that market in the years ahead?

You're saying the U.S. hospital market?

No. Like the broader supply chain, the distributors, like have you sized up that TAM?

And what are your thoughts on the speed of that market in the years ahead?

Well, I mean it's interesting that the general -- I mean, what we're seeing in the market is some really serious activity, right? It -- we're trying to tighten our focus because that market is actually so large, right?

So if I look at the general supply chain market that we've played in for years, when we say there's 12,000 companies in North America, with an average initial ARR of $500,000 for a $6 billion TAM, that's a very, very large market. Our win rate in that very large market tends to run 30-ish to 40-ish percent.

We have decided we would rather narrow our focus in that market to only pursue the verticals within it or sub verticals, if you will, where our win rate is over 50%. So we're narrowing our focus to areas like, for instance, electrical.

Our win rate is very high in electrical. Our win rate is very high in anything to do with health care.

So that can be eye care products, ear products, foot products, joints and knees and medical supplies and safety supplies and drugs, certainly drug is a huge part of it. And then across all those subverticals, you have the manufacturers within those, the distributors within those and the 3PLs within those.

So when we narrow to that focus, we find our win rate shoots a lot higher. We are still -- as we're making that pivot, we've done some analysis to say how big is that TAM.

And it's still very large. We can't give you precise number yet, because we're also pulling in Europe.

We're doing business in the U.K. We added a nice deal in the fourth quarter over in the U.K.

in the health care supply chain space. So we're still getting a handle on what that TAM is.

If I were to hazard a guess, I think it's about a $2 billion TAM across sort of Europe and North America, but we're still -- we're still trying to get that nailed down. Velocity, it's moving at a good clip.

There's been some tariff years. There's no question.

There's a lot of disturbance around tariffs. But in the meantime, as I think we've chatted about before the bulk of the systems these companies are running, we're putting in time for Y2K.

So that story is coming through its last chapter. I mean these systems need to be replaced.

So you have organizations like Gartner and others saying that this market is going to grow at 10% to 15% a year for probably the next 10 years. And it's certainly what we're seeing.

So we will see how this goes as we make this sort of shift to a narrower focus within that very broad market, but we're pretty excited about the possibilities.

Very helpful. And then secondly for me, I think last call, you talked about a couple additional customers going live on pharma.

So just curious how those implementations went, how the data coming out of that is looking in terms of the ROI and whether you think that, that will catalyze activity in fiscal '26 for you.

We certainly believe it will. The go-lives are quite recent, like we've had -- we had one that sort of did a gradual go live over April.

I guess the initial inbound was in April, and then they started some of the outbound go live in June. We actually had one of our -- one of the supply chain leaders was actually at our user conference -- pharmacy supply chain leaders was at our user conference, as their organization was in the process of going through the next phase of go-live, which I thought actually showed a pretty strong bit of confidence.

But they've now proceeded to the next phase. So like everything is progressing on track, but I would say it will be -- I would think it will be this fall by the time they have enough data to really say sort of, okay, here's the before picture, here's the after picture and here what we're seeing, et cetera.

I mean, we already have Parkview Health who's willing to stand up and say, yes, they turned it on over a year ago, and they're seeing great results. But this latest wave Northwestern and St.

Louis and others. I would think that it's probably this fall by the time we're seeing that data.

Very helpful. And then maybe lastly for me for Mark.

I think last quarter, you talked about a couple of decent maintenance to SaaS migrations. And I think the script you talked about another one in health care, maybe this quarter.

So can you just help us frame how we should be thinking about that maintenance line going forward? And how we should think about that maybe winding down a little bit as that revenue flips to SaaS?

Yes. That's a good point.

And we do see it. I mean it came down a little bit from '24 to '25 as these historical migrations kind of go like on SaaS and turn off on-prem stuff.

And there's definitely a wave of that coming. I think you'll see alike or actually probably slightly higher decline in year-on-year maintenance and support.

If you look out at '26, from '25 to '26 versus what happened in '24 to '25, which you would kind of expect because we've been selling these on-prem migrations for a number of years, and we've sold a good chunk of them. So that's going to come rippling through, and you'll see that in '26.

I'm trying to get understanding your net revenue retention. I mean it's still robust and 106%, but a bit lower compared to 2023 and 2024 levels.

So are we getting some normalizations following the COVID peaks.

Sorry, go ahead, Mark.

I was just -- I think what you're seeing there is we've got the -- that base of customers, that number that we disclosed there is ARR, so it's all ARR-based and what we have going on in there is expansions and migrations drive that number up, and churn drives that number down. And what we saw happening in the latest quarter last year in Q4 of 2024, we had a really big booking quarter.

There was a lot of expansion and migration in that booking quarter. And what you're kind of seeing here is that we do that measurement on an LTM basis.

We're no longer picking up the large sort of outsized migration expansion in that one Q4, so kind of dipped down here as we normalize. But certainly, we expect that decline to continue to climb back up.

When we look forward and look at bookings and bookings mix, we were sure expecting that our base of customers that are existing, SaaS customers now will continue to grow with us. The bookings that we reported in Q4 of this year played that out pretty nicely for one quarter where we had a big chunk of those bookings in the current Q4 coming from migration.

So we expect that to continue in the future, expansion bookings and new logo bookings together will become a much bigger part of our total bookings, and that should drive that number, we believe, back north.

Got it. You have 2 years in a row where you report strong SaaS bookings by Q4.

Is that a new trend, something we should expect going forward?

You know what we -- it's a good question. As much as we try to manage that to moderate out the lumpiness in our -- forget about our year, even our quarters -- it's really tough to do.

We've seen that historically Q4 been a time where bookings have peaked and I mean I think our -- the base of prospects is pretty well trained to -- they know when our year-ends are and they kind of tend to kind of use it as well. So it's hard to call, but I think that is -- we've tried to break that trend, but it is kind of the trend.

So I would expect that in the future. I would -- when we think about planning, we're certainly ramping up our bookings in the back half of our fiscal year and into Q4 as opposed to in the front half of the year.

This is Essey speaking on behalf of Suthan. Just a few questions for me.

I know you mentioned that process is variable. But pro services backlog and bookings were strong this quarter.

So I was curious to know if you can just give some additional color on what is driving that and what that implies for SaaS revenue growth.

Yes, it's a good question. And I think if I could take maybe that question, the back half of our bookings here for PS this year was super robust, and that's driving that and in backlog.

And I think what that tells us is the market. The purse strings of our prospects in that hospital network market have loosened up, we believe.

And we saw that in the back half of the year with these big projects extending and more capital flowing into -- from the hospital networks into our professional services projects. So that's great because that means projects will continue to move, they'll move more quickly and customers go live.

And that's great for us because it just firms up the customer commitment to the platform. So we feel good about that.

And I think in some ways especially that happening in light of kind of some markets, some geopolitical turmoil and things, I think, gives us cause for optimism and hospital network budgets at least for the near term and the future. So we feel like that's a good positive sign.

In terms of what that's going to do to professional services revenue, we crossed over -- we just reported this $16 million professional services revenue quarter, which was bigger. We've never been in the 16th before -- in fact, I have been in the 15 of course.

So we think this -- with this backlog, we think this -- we will not be at the sort of $16 million level in the coming quarters, but we're going to be a very -- we believe we'll be at a very robust level of professional services revenue in the coming quarters on the back of that backlog.

Maybe a follow-up for that. SaaS backlog was up 10%, and it seems like there's still elevated activity in demand here.

Could you provide maybe a quick rehash on backlog conversion and how we should think about that and how that looks like.

Well, are you talking about like how contracts sort of convert into SaaS revenue and how that backlog converts into SaaS revenue?

Yes.

So I mean, our typical contracts are 3 to 5 years long. So when we track our SaaS backlog, we're taking the totality of the future value of that contract.

So if we sign a 5-year contract, the test backlog is 5x that SaaS ARR amount. So the revenue recognition of that, Chris, is typically recognized ratably over the contract periods over the 5-year period.

That backlog itself is made up by now of a mix of many different multiyear contracts all with varying sort of end dates. So that's when -- that's why when you look in the footnotes and you look at how we actually disclosed when that revenue was expected to be recognized on those contract commitments, you can see that in our notes to our -- on our financial statements.

So that's kind of how we disclose that backlog and how it looks like it's going to roll out in the future. Of course, every quarter, we book more SaaS, which increases that RPO and revenue recognition, of course, reduces that RPO.

Great. And just one last one for me.

I was curious to know what the fiscal '26 guidance baking in, in terms of -- with regards to contribution from health care versus distribution?

Yes. I mean if you look at kind of what we've been seeing over the last number of quarters and even a number of years and especially as we look at our marketplace, our health care market plays more broadly now, i.e., hospital networks, plus it's hospital-related distribution companies like the medical equipment supplier that Peter referred to that we signed in Q4.

And if you look at that broader definition of the market, like a significant majority of our business and our growth is coming out of that health care marketplace. So that's where we're focused.

That's where we're putting more marketing energy now with this additional investment, and that's where we expect the majority of our -- the significant majority of our bookings to come from.

Peter, your comments on not seeing any slowdown in activity. So when we think of SaaS bookings for fiscal 2026, you would fully expect to see like good bookings growth, right?

Like you would be very disappointed, let's say, if it's flat year-over-year, is that correct?

Yes, I would be very disappointed. I'm not about to make a prediction, Steven, which I know is what you're trying to draw me into, but I would agree with you 100% that I would be very disappointed if I didn't see bookings growth in fiscal '26.

Okay. Got it.

And then I might have missed it, but did you say how many IDNs you won in Q4?

2. We added 2 new IDNs in Q4.

Great. Well, thank you, everyone, for joining us.

I'm glad to have you with us. Thanks for taking the time out of your day to be with us on the call.

And as usual, if you have additional questions, please don't hesitate to reach out to Mark or myself, and we look forward to chatting to you in September after we release our Q1 results. Thanks, and have a great summer.

Bye for now.