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.

I'm pleased to report a strong start to fiscal '26. SaaS revenue in Q1 grew 25% year-over-year to $19.1 million, driving total revenue of $46 million, up 9% from last year or 13% excluding hardware revenue.

Adjusted EBITDA was also strong at $3.2 million, up 24% from the same quarter last year. These results reflect the strength of our SaaS model and the resilience of demand across our target markets.

SaaS ARR at the end of Q1 was $79.3 million, up $2.8 million in the quarter. Driving the increase in the quarter was the additional booking of yet another new health system in the U.S.

and continued expansions and migrations across our base of hospital networks like life sciences and general distribution customers. On top of that, we added a major biomedical brand as a new logo just after the end of the quarter.

Importantly, our SaaS pipeline continues to grow with particular strength in pharmacy and key markets within general distribution. In terms of customer momentum, we have a lot to be excited about.

From RM Educational Resources in the U.K. and LifeScience Logistics in the U.S., the Cornwall Community Hospital in Canada and entry into the one of the world's largest biomedical companies, we are experiencing activity across industries and geographies.

We also saw a 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. Together, these examples demonstrate the depth of engagement and the breadth of our solution portfolio.

Health care distribution continues to be a growth area for us. We've been talking about the DSCSA legislation for a while now.

But as of August 27, this legislation is now officially being enforced. This, together with a portfolio of referenceable customers and a proven DSCSA supporting solution is reflected in our pipeline activity.

Beyond customer wins, we are investing in the long-term scalability of our business. As mentioned on our last call, we launched operations in India in Q1.

I'm pleased to report that our new team in India has ramped up quickly and is already contributing features and code to our core product lines, accelerating delivery for our customers. As we noted on our Q4 call, we hosted our Tecsys User Conference early in the quarter, and we plan to hold this event annually moving forward.

This event is an important opportunity to engage directly with our customers, prospects and partners, and it has already begun to translate into new business and contribute to our pipeline. On the innovation front, we continue to advance TecsysIQ, building on the momentum we introduced in early Q1 at the User Conference.

By way of reminder, TecsysIQ is a data layer that interacts with the existing Tecsys ecosystem built on the Databricks Data Intelligence Platform. It is a dynamic tool that unifies fragmented data and delivers AI-powered insights across clinical, operational and financial systems.

Early feedback from customers has been positive. Use cases are being identified, and we remain confident in its role as a differentiator in the market as we roll it out for general availability in the coming months.

Continuing with innovation. As part of our upcoming mainline releases, we are excited about launching generative AI capabilities for our WMS and point-of-use solutions.

I'm also pleased to share a company culture milestone. Tecsys has earned a Great Place to Work certification across all of our global operations for the second year in a row, with 92% of our employees rating Tecsys as a great place to work.

We believe this reflects the trust and dedication of our people, which drives the innovation and customer commitments you see in our results. We have good reason to feel confident about our position in the market, our backlog in both SaaS and professional services and the strength of our vertical strategy.

And so as we continue to invest in the products we sell and in our go-to-market strategy, Tecsys is proving to be among the best modern 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 Q1 as well as financial guidance on several key metrics.

Thank you, Peter. As a reminder to everyone, our first quarter ended July 31, 2025.

I'll start with SaaS. As Peter just mentioned, SaaS revenue growth was 25%, reaching $19.1 million in the quarter.

As you have seen in our MD&A, we've refined our KPIs to better reflect our growth drivers. With SaaS now the primary engine of our business and increasing share of our revenue, we're shifting our focus to SaaS ARR instead of total ARR and SaaS bookings.

SaaS ARR is an industry standard measure of near-term SaaS revenue potential and when combined with SaaS RPO gives strong visibility into the durability of our SaaS growth. As Peter mentioned, SaaS ARR was $79.3 million at the end of Q1 fiscal 2026.

That was up 21% from the same quarter last year. SaaS RPO was $226.3 million at the end of Q1 fiscal '26.

That was up 16% from the same time last year. Moving on, professional services revenue for the first quarter was up 20% from the same quarter last year, reaching $16 million.

And our professional services backlog at the end of Q1 remained strong at $43.7 million. That's up 23% from the same time last year.

For the first quarter of fiscal '26, 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 current quarter.

Net profit in the quarter was $762,000 compared to $798,000 in the same quarter last year, basic and fully diluted earnings per share were $0.05 in both Q1 this year and last year. Adjusted EBITDA was $3.2 million in Q1 of fiscal 2026 compared to $2.6 million same quarter last year.

And unlike Q1 last year, this year Q1 included about $0.7 million in costs for our Tecsys User Conference. If you look at adjusted EBITDA on an LTM basis, it's actually up 55% through Q1 of fiscal 2026.

We ended Q1 with a solid balance sheet. We had cash and short-term investments of $31 million and no debt.

We used about $0.8 million of cash in the quarter to buy back shares under our NCIB, Normal Course Issuer Bid. Additionally, the Board yesterday approved a quarterly dividend of $0.085 a share.

Turning briefly to financial guidance. We're maintaining full year fiscal '26 guidance for SaaS revenue growth of 20% to 22%, total revenue growth of 8% to 10% and adjusted EBITDA margin between 8% and 9%.

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

Thanks, Mark. Our first quarter performance reflects a strong start to fiscal '26 and the consistency of execution that has defined Tecsys over the past several years.

SaaS revenue growth remains robust, our installed base continues to expand into white space with new cross-sell opportunities, and our pipeline positions us well for strong bookings in the coming quarters. Health care continues to be a strong growth engine for us with pharmacy and adjacent life sciences markets including medical device manufacturers, clinical laboratories and digital pharmacies, all representing compelling opportunities as we broaden our value proposition in this area.

We see this momentum in both North America and Europe, where we are expanding market awareness activities. At the same time, distribution remains a healthy growth vector across geographies.

We're also investing in the future with continued feature innovation in our Elite solution. Supported by our new India operations and the progress of our TecsysIQ offering, we have a solid foundation for reliable, long-term value creation.

So in summary, I want to remind you of our key themes for fiscal '26. First, we'll 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 SaaS ARR growth. Second, we are unlocking the full potential of data with our AI-driven TecsysIQ platform as a key driver of value and innovation across our solutions.

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

We believe these pillars will enable us to continue delivering consistent profitable growth and shareholder value. With that, we will open up the call for questions.

Thank you.

Congrats on the quarter. SaaS grew 25% in Q1 ahead of your 20% to 22% full year guidance.

Can you help us reconcile the strong starts with the more, I don't want to say muted outlook, but to the lower outlook. Is that you guys just being conservative?

Are you anticipating any specific headwinds through the balance of the year?

I think it's just a challenge of continuing to increase growth on an ever-growing base of SaaS revenue. At the end of last year, our SaaS revenue growth was 29% year-on-year.

That pool continues to grow. The last 12 months through Q1, that growth was on 27% and the quarter-on-quarter growth number you just mentioned it.

But I think if you triangulate on our SaaS ARR number and look at the growth rate in SaaS ARR at 21%, it sort of puts you right into our guidance range.

Fantastic. Since you've moved away from disclosing bookings and are focusing more on SaaS ARR and RPO, and maybe that's a contextual question.

Can you frame for us how much of your fiscal '26 SaaS growth is essentially carry-in RPO versus expected in-year additions? In other words, what's incremental -- what's the incremental lift you'll need from new contracts or bookings to stay in your guidance range?

Yes. So when we entered the year, we were about 92% booked against our revenue in our revenue forecast range.

That means our SaaS ARR was covering about -- it was 92% of our projection.

And how would that like compare to like previous years? Is that 92% a good number or?

Yes, it's growing. It's growing.

It's getting more and more covered. We're less and less dependent on new bookings to drive our target number just again as that base of SaaS ARR grows.

Okay. Sorry to harp on bookings again.

But like if I look at your SaaS ARR up 21%, RPO grew 16%. And I know there's often a mismatch every quarter.

But for our benefit, can you help us understand how the structure of new contracts or bookings is evolving over time or over the past couple of years? Are you generally seeing shorter average terms?

Or is the mismatch more about timing of multiyear deals?

Yes. I think it's more about timing of renewals and then the extent of renewals as well.

Some renewals will auto renew at 1-year renewal period. When that happens, you pick up a year of RPO.

Other contracts will renew for multiple years. That could be 3, 4, 5, even actually more than that.

And of course, that has a different sort of outsized impact on RPO. So I don't think anything fundamentally has changed.

I think the RPO number is just -- I mean, it's a little bit tricky to look at and triangulate back to the SaaS ARR number just because of timing of renewals. And I think as our SaaS base grows larger and larger, it will kind of moderate with scale that difference.

But right now, it's certainly timing related.

Okay. So the average term, if you will, of your RPO today versus like 2, 3 years ago is more or less the same?

Is that a fair?

Yes, it's pretty consistent. Yes.

Okay. Then one more and I'll pass the line.

Hardware tends to be lumpy. I think we all understand that.

But I think that the lowest level I've seen it since the PCSYS acquisition in 2019. Can you maybe give us color on what's happening there and how we should be expecting it to evolve over the year?

Yes. I mean we still -- we keep having this conversation.

And you're absolutely right that was kind of a low watermark there in the quarter. I mean we did have some pretty reasonable bookings during the quarter.

If I was going to read some tea leaves, I would say that I definitely don't expect Q2 to be lower than Q1. But yes, it's a question of timing and uptake and deliveries on projects.

And I mean there's not anything really, I would say, systemic that's happening there that would continue to drive down that hardware revenue number. It's just kind of getting to the sort of what I think is probably kind of a bottoming out rate right now.

Nice to hear the commentary on the pipeline in the summer. And Peter, you talked about the resilience of your customers in the prepared remarks.

But maybe we could just kind of check in on the demand environment, given the political backdrop. What are you hearing from customers on your investment appetite?

Are you finding additional decision hoops that you're jumping through or any bigger focus on ROI? Maybe just some comments on that front would be helpful.

Sure. It's been interesting.

The main thing we've been dealing with, I think, over the last 5 to 6 months is just a lot of distraction. It doesn't seem to have changed intent.

I haven't heard of any customers say, "Oh, we're going to hold back on this project and not do it for the next year or 2 because of concerns about, for instance, Medicaid." I mean that was one of my worries was that Medicaid would concern them.

We haven't heard that. We haven't heard concern about tariffs, et cetera.

In terms of intentionally delaying project, what we have seen over the last 5 or 6 months is in a number of cases, it was just playing hard to get the attention of senior decision-makers to get them focused on moving our project through to conclusion or through to signature just because they're so busy trying to figure out how to source product in and around all the tariffs. So we've been battling distraction.

But as I say, no, we haven't seen a situation where Boards are instructing management teams to cut back on spend or CFO is doing the same. It's been just distraction.

I mean if you're the head of a supply chain for a large hospital network, the last 4 or 5 months have been pretty complicated. At the same time, we were talking about this with the Board yesterday, everyone is kind of getting used to the distraction.

So it's kind of getting back to more business as usual. We're looking forward to a pretty busy fall.

And it seems like everyone is just kind of getting used to the noise. So it feels like it's starting to move a little quicker again.

Great to hear. And then secondly, just on migration.

Nice to hear there is another one here in the first quarter. And I know you've made a lot of progress on the base.

But how are you thinking about the amount of maintenance ARR that will still shift to SaaS over time? And how are you thinking about the shape of that curve this year versus in future years?

That is -- now you're asking us to do some crystal ball gazing, which is really difficult. But what I can tell you is that the bulk of the migration to SaaS is behind us.

I mean we have -- if you look over the last few years, we've come through years where sort of migrations from our old on-prem maintenance base over to SaaS accounted for sort of 50% of our new SaaS bookings or whatever. Well, that has continued to drop.

I don't know what it will be this year. My hunch is it will be in the 20% range, maybe 25% range this year.

It will be a lot lower. So more and more of our SaaS growth needs to come from new accounts and expansions of existing SaaS accounts.

But what that means is we're also eroding the maintenance base way more slowly. I mean what's left there is really likely to stay there for a fairly extended period of time unless they move to some competitive product.

So we're anticipating seeing that maintenance number drop. I mean you saw a drop in the first quarter.

We're down almost 20%, actually a little over 20% from last year -- sorry, 10%, 10% from last year. But -- so we're expecting it to continue to drop.

But there's a bit of a floor there at some point because most of the drop that you're seeing is related to, in effect, us rating our own maintenance base. And that is actually slowing down.

So we anticipate that number, as I say, continuing to drop, but it's going to drop fairly slowly. I don't know what number you put on.

And if I were to hazard a guess, I'd say averaging 7% to 10% a year over the next 5 years.

Helpful. And then maybe on TecsysIQ, if I kind of heard you correctly in the script, it sounds like you're in the process of starting to sketch out initial use cases now and socializing them with customers.

What's your level of excitement around this in terms of it being another kind of upsell lever that you can pull a year or 2 out? I don't know what the time line is as you start to be able to showcase the value to customers?

Yes. I mean we're definitely excited about it.

I mean I think we're going to get virtually 100% uptake. I mean the value it provides is unbelievable.

I mean imagine -- I may have used this example before, but I mean we see it in the data, we see it in how this platform operates. I mean imagine a head of surgery in a major hospital being able to just go into a chat and literally say to TecsysIQ, okay, how many scheduled surgeries are at risk over the next 2 weeks?

And it comes back and says 12. And it says, okay, why are they at risk?

Well, because you're short of these 4 products. Which of these 4 products could we find substitutes for?

Well, these 3, you've got a good substitute for. So just get some of those.

This other one, there's no substitute for it. So that means these 3 surgeries are doomed.

They're going to have to be rescheduled. Like it's literally that level of conversation that you can have with the data, and it just puts power into the hands of core decision makers like they've never had before.

So I think you're going to have almost 100% uptake in our base. And the other thing I'm convinced it's going to do is I'm convinced it's going to finally begin to flip the huge percentage of the market, which is still running what they put in back in time for Y2K.

I mean across the general supply chain, there's varying -- it depends on which analyst you talk to, but it's anywhere between sort of 70% and 82% or something of systems that are out there running are -- were put in place over 25 years ago. And this, I think, is really going to finally start to drive that flip.

And I mean, as you know, it's not just us coming out with products like this, our competitors are, too, in the general distribution space. And it's going to finally shake up and wake up that market, I believe.

I think we're in for an exciting time.

Great to hear. And then maybe for Mark, lastly for me.

Just on services gross margin, strong again this quarter. Obviously, PS utilization looks high, good backlog is still there.

And I think SaaS gross margins are continuing to poke higher. So do you think we can kind of maintain these levels here going forward?

Do you see some additional expansion opportunities? Maybe help us out on that line.

On the professional services in particular?

Just -- I mean I was talking about the overall services gross margin.

Yes. Yes.

No, we're definitely expecting continued margin expansion from those 2 areas. You're right that professional services is -- I mean, we had a good -- another good strong quarter.

And I think we've talked about over the last few quarters where the capacity lever is there with the existing team and utilization is high and this sort of $16 million number is -- it's definitely at the top end of what we can do with the team. So we're thinking about that against the backlog and do we hire there to drive more faster?

And there's always that decision to be made, but I think we can sustain these kind of levels and that kind of margin in the PS area, given that backlog. And I think on the SaaS side, we just continue to create and see pull-through on margin expansion opportunities as that revenue line scales and we continue to invest in product side efficiency.

So yes, we expect continued improvement in that margin.

I have a similar question regarding your SaaS margin expansion. So with the release of Tecsys mainline, just curious about implications to your future margin profile.

My understanding is the mainline is a more efficient form of tech infrastructure.

Yes, that's correct. I mean mainline changes quite a few things.

I mean it utilizes much more advanced sort of plumbing on the back end that allows us to share CPU capability and memory capacity and so on in the public cloud infrastructure. It automates the maintenance and upkeep of those environments.

So in effect, if we've got 150 customer environments to maintain, we can literally push one button and update all of them in terms of security updates or patches or any of those kinds of things. And when it comes to migrating forward release to release, what used to be a more significant project can now also happen with the push of a button.

So we -- for a client that's out on mainline, we grant them access to a sandbox with the next release, gives them time to do some of their own testing and work and so on. And when they're ready, we just push the button and within literally a few minutes, they're on the next release.

So it it's more reliable, it's more scalable, it's more maintainable. Our labor costs are a lot lower.

The effort for the client is a lot lower and our public cloud infrastructure costs are lower. So it's pretty significant.

Like in our march to drive SaaS gross margins, I mean, we've been moving them up year by year. The goal is to get them to 80% and mainline is a key component of the strategy to get them to 80%.

That's great color. Regarding your R&D costs, how should we think about this cost line going forward, given the establishment in your offshore R&D center?

Do you think the cost will flatten out at a current level and will become a source of future margin expansion?

Yes. I mean we've got some things in there that are heavier lift right now.

I mean, to give you an example, for instance, we're currently going through FedRAMP certification to comply with -- I mean, in order to service the U.S. federal government as well as many of the state agencies and state health care organizations and so on, you have to be FedRAMP compliant.

That's a pretty significant effort and is driving some of the increase you're seeing in R&D costs this year. But that's sort of already baked into the numbers, the run rate this year.

So I would anticipate that you'll continue to see increase in R&D costs, but more at a level of sort of if I were to hazard a guess, it's mid-single digits as opposed to what you're seeing right now. I mean what you're seeing right now is the impact of a couple of heavy lift items that we had to get behind us.

After this, I think you'll be back to a much more muted growth level.

Got it. On FedRAMP, I remember that discussion has been around for a while.

So could you give us an updated time line on when you think it's going to be completed?

I mean we anticipate that we will be FedRAMP-ready and FedRAMP-certified by about a year from now. There's an effort.

The process is now sort of well documented and well defined. We think we'll be ready by sort of more or less Christmas time to enter the certification phase.

But the certification phase involves an auditor going through and auditing literally hundreds of internal processes from how you hire people to how you cut staff to how you deploy software, what type of software you deploy, what type of cameras you have at your offices, how your doors lock. I mean it covers a vast array of subjects.

So those audits have to happen. That will happen through sort of the winter and spring.

And so we expect that it's sort of into the summer and early fall next year by the time we have our full authorization operating. So that's our expectation there.

The marketplace is beginning -- I mean, the governments are beginning to enforce compliance with it. We're still in early phases of that.

We've got a contract running with one of the major U.S. federal government departments, which is actually our sponsor for FedRAMP.

And they will have -- they have temporary permission to work with us, pre-FedRAMP authorization. But within a year, we have to be FedRAMP-authorized.

So it's is getting to that point where these various departments and agencies are having to be -- work only with FedRAMP-compliant vendors. It's going to be interesting to see what it does in the market because from what we can see, if you look at, for instance, the general WMS and supply chain execution space, there's only going to be a handful of vendors from what we can see right now that are going to be FedRAMP-certified.

So it certainly means in those market spaces, I think the competition will be a lot less than it used to be. So we'll see how it goes.

I wanted to touch on the pipeline growth that you saw in the quarter. This sounds like it was pretty healthy, pretty robust given the -- a more seasonally slower summer period.

So with respect to kind of sales cycles and deal sizes, what changes are you seeing quarter-to-quarter and over last year? And curious how do you think that might translate to -- that pipelines translate to bookings trajectory over the course of the year?

Just wondering, is it reasonable to expect a more consistent pace of bookings growth? Or is there potential or still potential for some outsized contribution in a given quarter?

I mean these are always hard to predict. I mean our deals are still lumpy.

I mean if you look at a full year, we try to add anywhere from sort of $16 million to $20 million or more to our SaaS number in a year. So when you look at that and say, okay, but what's your average size deal?

Well, we've got deals that signed that are as low as $250,000 or $300,000 a year of SaaS. Now we've got deals that signed that are $2.5 million, $3 million of SaaS.

So it can get -- it will still be lumpy. But when we look at the pipeline, we have -- I think one of the reasons why you're hearing a lot of confidence from us about the pipeline is we've actually on the -- sort of on the non-hospital side, we've really narrowed the focus.

In fact, if you look through our latest investor deck, you'll see we've changed some of those slides. We're really going after the verticals within the distribution space where we know our win rate is over 50%.

So those are the life sciences area, pharmaceutical, podiatry, eye care, ear care, et cetera, the 3PL businesses that are related to those verticals, et cetera. So we've got some other ones, too.

Electrical is one where our win rate is super high. So we've got -- we've narrowed our focus to the markets where we know our win rate is very, very high.

And in spite of narrowing that focus to high win rate markets, we're finding strong pipeline growth. So overall, we're looking at this and saying, this looks like a pretty interesting year.

Pharmacy as well in the hospital space, has -- we now had a number of successful go-lives and those customers are ready to talk about their successes. So that's another factor, right?

It gives us sort of we think it's going to unleash the next wave of pharmacy expansion. So all in all, we're sort of looking across the landscape and saying, okay, we know there's a lot of political noise going on and a lot of sort of complex issues in supply chain spinning out of that.

But the marketplaces that we serve seem ready to roll, and the pipeline looks ready for a pretty good year.

Great. That's helpful color.

I also want to touch on the pro services strength that you guys saw during the quarter. Can you provide some color on what you're seeing there with respect to ongoing implementation and delivery time frames?

Is there any notable difference between your internal pro services capabilities versus the deals that are being partner-led?

Yes. I mean some of this has just been -- I mean there's an ebb and flow that goes on here.

I mean our partners continue to do well. RiseNow continues to expand their business around our platform.

We've got ongoing relationships with Avalon and Deloitte and others. But again, lumpy deals can drive pretty big swings in professional services and professional services backlog.

And the profitability of American hospital networks also drive a pretty significant swing there. So calendar '23, most U.S.

hospitals lost money. They had very little money to spend in calendar '24.

They made money in calendar '24. So now in calendar '25, they've got more money to spend.

So they're funding more projects. They're moving more quickly with their implementations.

They're hiring bigger teams. That's driving this sort of expansion in the pro services backlog.

But I mean, we don't expect -- I mean, as you can see, I mean, the pro services number this quarter was up 20% over the same quarter last year. We don't expect that level to -- we don't expect to continue to grow at 20%.

I mean we expect strong numbers this year in pro services. But if I look over the next 3 years, I think you're going to see pro services revert back to, I don't know, what, Mark, what high single digits, something like that?

Yes, mid- to high.

Yes.

Okay. And more broadly, just on partners, how has partner engagement been trending to date?

And what do you expect from the partner channel this year in terms of their contribution?

Partner engagement has remained pretty consistent. I mean if you look at our pipeline, I mean, we're continuing to run with -- even if the pipeline expands, we continue to see 25% to 30% of our pipeline is what we call partner-influenced.

So I mean what that tells you is we continue to lead the charge in most cases in terms of finding the opportunity, getting it into the pipeline and bringing it through to a conclusion. We would like to see the partner-influenced pipeline get closer to the 50% level.

But so far over the last couple of years, it's remained in that 25% to 30% range. Now as I say, the pipeline has grown significantly.

I mean our pipeline is roughly double what it was 18 to 24 months ago. So it's -- the pipeline has grown pretty significantly, which means the partner piece has also grown significantly.

But as a slice of the total pie, it's remained in that 25% to 30% range.

Great. Thank you.

Well, thank you, everyone, for joining us for this update on Q1. And as always, if you have additional questions, please don't hesitate to reach out to Mark or myself.

And we look forward to speaking to you in -- at the end of November for the release of our Q2 results. Thanks.

Have a great day. Bye for now.