Sylogist Ltd. (SYZ) Earnings Call Transcript & Summary

Thank you, and good morning to our first Investor Day as Lawrence shared. We sincerely appreciate that you've taken time to be here. Our goal for today is to provide you with the opportunity to gain a deeper understanding of our company, to meet and hear from the management team, better understand the work that's been done and why we're so excited about the value creation opportunity that we see ahead. At Sylogist, we believe in the power of innovation to drive positive change and create extraordinary possibilities within the markets we serve. Our focus is on delivering transformative solutions and creating tangible value for our customers. While we're undoubtedly a software company, make no mistake, this is not just about technology. The success we're now seeing is rooted in a purposeful strategic shift to unwavering customer centricity. By placing customers at the core of our decision-making processes, we gain invaluable clarity that shapes our product road map and enables us to anticipate their evolving needs. If you've listened to our earnings call since I joined nothing, in my opinion, matters more to our future success than earning customer advocacy due to the collegial nature of the markets that we serve, and we've made remarkable strides in doing so. We listen, we learn and iterate ensuring that our solutions not only meet but exceed our customers' expectations. So the timing couldn't be better to share and show off the transformation that's occurred and dig deeper into the achievements of our team over a relatively short period of time. So why should investors be interested in Sylogist now? First, because of the material and exciting growth opportunity ahead. Second, because of the effective execution of our strategy that's occurred and is continuing every day that's now showing up in our financial performance. Third, because of the extremely positive reception we're getting to the innovative 100% SaaS platforms and customer-centric approach we're bringing to market. Fourth, for the significant opportunity we have to grow our top line and bottom line and create shareholder value for the quarters and years ahead. To that end, all of our KPIs are materially trending up into the right, indicating the health of our business and that we've largely come through our inflection trough with increased operating leverage ahead.

I have the privilege of leading an amazing team. Everyone who sits up here is going to tell you the same thing. I have an amazing team of highly qualified passionate individuals who understand the importance of being customer-centric. And what does that mean to us? -- delivering easy-to-use software that performs the complicated work so that our customers can focus on their mission and their customers. It means being a trusted partner who understands the customer's pain points and then we collaborate with them. We don't just push something at them. We collaborate with them to help identify the appropriate solutions for them. We're leading our customers through change management. And when it comes to providing those project services, we bring the necessary structure and the accountability to successfully transition to new software. We're assisting them to leverage the capabilities of the software, so throughout their journey, they're able to enjoy the investments that they made early on. We're empowering the users by giving them access to easy to consume content, and we deliver it in multiple ways because there are so many different learning styles. I now want to speak about the customer experience North Star. And right out, I need to let you know, we are not a vendor. That is a different relationship. We have a partner relationship with our customers, being seen as an essential partner by our customers requires us to constantly think about the full end-to-end experience. We've made great strides over the last 2 years, which is evidenced by the change in our Net Promoter Score, which Bill showed you. But let's be clear, that is not a finish line. There is not a finish line for a North Star of that magnitude. All the North Star does is provide us a way to make sure we know the ship is pointed in the right direction. But to ensure we're always making progress, we have to continuously ask ourselves questions. Some of them, the tough questions. Do we have the right people in the right seats? Can we do more to educate and empower our customer-facing team members? Are we thinking creatively about simplifying the configuration and the implementation for a new customer? Are we providing customers with a positive support experience? A quick example, about 18 months ago, we were talking to our customers and pulling them and found out our support was good, but they did not like how we were delivering it to them. So we dug into it and found out that there were ways we could fix that. We've got a new system, and then we put new business processes around it. We received a virtual standing ovation. They were thrilled that we listened to them and made those changes. We need to ask ourselves, is there a better way to deliver the educational content? And this last one, I think sometimes is not fully appreciated. Can we assist our customers, those end user customers in being able to articulate the achievement and value to their executive leadership? We all know what it means to manage up. So we need to help our end users and how can we do this better, so that they can explain to their CFO to their Board, to maybe the grantor or the funding, the large donor who help -- for them to purchase the software? How do we make sure they articulate the value and the benefit? Listening to our customers is extremely powerful because it represents the firsthand opinions, needs and preferences of the customers themselves. Our end users are the ones who use and experience products and services. So their feedback provides invaluable insights into what is working well and what needs improvement. By listening to their voices, we can understand and address customer concerns. We can enhance our offerings and build stronger relationships. This ultimately drives customer satisfaction, which drives loyalty, which yields customer advocacy. That's why our NPS is 51 and that's why we'll keep driving it up and up.

Around 4 weeks prints. At the end of those 4 weeks, we do a user acceptance testing with Donna and her team. Customer service is part of that, so that they're very aware of every new module that we're rolling out, how do you support it if you don't know it. So they are step QA children to me. They help us tremendously. We gained deeper customer engagement through shorter cycles and ensuring that they have a seat at the table the way Donna has done. They also have a seat at the table in validation and making sure that what we delivered meets the mark. Getting everyone in Azure is going to allow me to take advantage of Infra as Code, to expand and contract using elasticity, ensuring that if the peak comes, because the Infra as Code, the ability to build that next server in the farm just spins up systematically. As you all know, cloud is certainly not new nor is SaaS, but for our verticals, it is a significant paradigm shift. I believe that COVID pushed many of them to think about things differently. And through that, we've got people asking. They're all welcoming it now. And I don't -- 3 years ago, I don't think that was the case. They're all welcoming it, but many are asking some demanding to get moved to the front of the line. That's a beautiful thing. Because we carry a consistent A+ security rating. We really will not compromise. I know Bill can attest to this. It was a weekend, and I thought I've never been breached, and I do not want it to happen here. We need to invest and with that, we've done. We have a fully certified security team that focuses on all aspects of security, keeping that A+ security rating. Again, we remain vigilant. The fraudsters do. It's never going to change, and we have to just always be thinking ahead and [indiscernible] in step, but trying to stay ahead of them. And that only happens through a dedicated security team that is constantly training is constantly aware of what the next scheme is. My North Star for operational efficiency is to have an 80%-90% based and a 10%-20% customization. So we achieved that through writing a top Microsoft. So if I've got 80% of that, think how much innovation Donna is going to get out of this team because they're not doing the based. That's our goal. And then again, for that 10% to 20% to be consumable. But every solution we have today and every solution we may buy tomorrow. So it is built, it's modularized such that it is a multi-tiered architecture and whether we buy or sell a division has 0 impact on this infrastructure. We're already delivering on our goal of serving up one personalized front door to this platform. It's driven by single sign-on. And again, we expand to AI to ascertain client footprint on our platform. This enables us to cross-sell, upsell. Think about when you log in your personal travels, when are you greeted with welcome Terry, nice to meet you when you're a loyal customer? No. I want to know who you are, how I should respond to you when you log in, and what I should serve up to you. If you're using our Gov product, maybe you need payments, maybe you need reporting and analytics. So I want to know when you log in, who are you? What is your customer base? What are you using? What are you not using? So that we can cross-sell and up-sell. I also want to take it that a step further and take that AI to begin to tell me what are these cycles that I mentioned before. There are peaks, there are valleys. So if there are peaks and our loyal customers haven't logged in 30, 60, 90 days before that, it's a pretty proactive way to tell Donna, you better get out there and figure out from an account management perspective, why they aren't swimming in this product on the daily. So those are the things that we're looking to drive. I'm in lockstep with finance from a capitalization perspective, as well as an ROI perspective, right? We're not in the business of just building functionality because somebody was not on a whim or had a feeling one day. We measure it. So once that rolls, for me, I might fall off. I know Sujeet is going to talk to you about how he measures it entirely, but I make sure that 60 days post deployment, is it being used? How many people are using it? What are we doing with it? And once I feel that we've covered our dev cost, I'll do whatever Sujeet needs me to do, but I stay pretty close to that to observe return on investment.

Terry and Donna already talked about and discussed how we are a completely different company today, and I want to talk about that as well. We have made a remarkable transformation to address the challenges that previously held us back. In recent months, we have seized the opportunity to rectify this and emerge as a nimble, well-organized and highly effective go-to-market team. Now let me discuss in practical terms, how we've done this. So we are steadfastly growing our sales and marketing teams. We are bringing in new people, and we are bolstering our capability to reach our targets more effectively and efficiently. We've implemented behavior-driven incentive plans and established quarterly targets that didn't exist previously. It allows each member of the team to understand precisely what they're working towards and why. We are integrating, and you've seen this already. We are integrating our legacy brands under the Sylogist umbrella, creating a unified and consistent image that resonates with our stakeholders. We are effectively tracking the return on our investments, which we weren't doing previously from customer acquisition to revenue generation. We've revolutionized our sales operations. We have migrated. Previously, we had separate systems through all the acquisitions, different people, different agreements, different CRM systems. We've migrated to a single CRM system, and we've instilled discipline in our approach to sales and the use of our systems. We now have clear content messaging with new leadership, and we pivoted towards a more strategic, goal-oriented approach to marketing that resonates with our target market and positions us favorably against competitors. We've established a repeatable and systematic sales methodology, and this is important because it enhances our sales efficiency and predictability leading to higher conversion rates. And something I'm going to talk about more of which we've already touched on, both Terry and Donna have touched on, is our commitment to building a robust channel partner -- our partner channel. In essence, we've really become a completely new company today. And this change and transformation isn't just about changing our practices but about fostering a culture of urgency, of discipline and of consistency. It's about continuously evolving to stay ahead of the curve and delivering value to our employees, our customers and, of course, to our investors. At the forefront, we're investing in creating a space where our sales team is engaged and motivated, and this was missing previously. We believe in creating targeted repeatable sales motions that aren't just about getting the numbers, but are about forming genuine and lasting connections that create long-term value for our customers. As Donna has already demonstrated, this is evidenced through our industry-beating NPS scores, and that is a significant competitive advantage for us. Next, we're being brave about our identity. We are shining a light on the Sylogist brand and integrating our legacy brands, not just to amplify our presence but to show a uniformity in our commitment to our purpose, one that shares a common set of values and a vision for the future. Thirdly, we're putting our faith in the power of collaboration, building a robust partner channel. And really, it is about the magic that happens when we join forces with other companies to expand our horizons to serve more people and to push the boundaries of what's possible with our solutions. And now when it comes to waiving the Microsoft flag and Bill talked about my experience, I'm going to talk about that more in a minute. We're owning our story. Our alliance with Microsoft isn't simply about partnership. It's a testament to our commitment to leverage leading-edge technologies, bring them to market and our ability to trust -- to build trust and reputation in the market. And most importantly, truly, it is about monetizing our investments in our Microsoft relationship. So let's talk about how we go to market. Our go-to-market strategy starts with truly understanding our ideal customer profile and Bill talked about that. That is at the center of everything we do in sales and marketing. We truly tailor and direct our messaging to the buyer personas in those organizations. And we do this through leveraging modern account-based marketing techniques in online ads. We seek out opportunities at speaking engagements and industry and technology conferences where we have been making significant investments. The objective is to demonstrate through that, the strength of our thought leadership in our markets to be seen as experts in our markets. Obviously, once we have identified these marketing qualified leads, we employ rigorous qualification processes to ensure that we are focusing our sales efforts on the most promising opportunities. We are making sure that we are very targeted in our approach to sales. And then through thorough analysis and interactions, we evaluate their fit, the needs and the potential for success. This strategic approach allows us to prioritize our resources and align our solutions with the specific requirements of each prospect, and that increases our chances for conversion. We engage in personalized and consultative selling techniques, actively addressing the unique pain points and goals of each prospect. By nurturing relationships, showcasing the value of our solutions and by providing exceptional customer service experiences, we build trust and report that ultimately leads to successful closures. We've talked here at length about the importance of our partner channel strategy. And this is one of the most important initiatives that we're building here at Sylogist, is that forming of strong alliances. By expanding our network, we are strategically positioning Sylogist to capitalize on a wider range of opportunities to leverage the expertise and the reach of our partners. We understand that in order to reach exponential growth, we get to increase our capacity, not just to sell and to market but also to deliver. I have been in the Microsoft channel for 20 years. And I appreciate and understand how to be successful in this market. Microsoft's technologies are at the core of our products. Being a Microsoft partner differentiates our solutions in the market. So by leveraging Microsoft's trusted and widely adopted technologies, we build robust and scalable solutions that meet our customers' needs. The association with Microsoft's brand and reputation adds credibility to our offerings in the sales cycle and it instills confidence in our customers and our prospects. In addition, Microsoft has a massive, as you all know, a massive global base, including effectively all of our ICP. So by partnering with Microsoft, we get to tap into this extensive network and gain exposure to an exhaustive pool of potential customers.

A willingness in my mind to endure short-term discomfort to build out that long-term scalable, sustainable business model. And I think this is important because it shows a lot of courage from a management team to say, we are going to spend more. We are going to take that, if you will, that EBITDA hit for long-term growth. And then additionally, I would add to that the onboarding of what you see is a high-quality management team. And we'll talk a little bit about this later in my presentation, Bill's touched on this. The use of M&A, but the use of M&A only as a synergistic accelerator. When I look at the chart, I mean, as a finance person and even as a -- from a business lens, it's -- there are a lot of data points that are heading in the right direction. GAAP revenues growing in the 12% range. So a healthy and robust growth on the GAAP revenue side of things. But more importantly, and you guys will relate to this from a SaaS lens perspective, ARR growing at a rate higher than the GAAP revenues. So all this essentially combining with the 100% cloud strategy and the fact that foundational investments have been laid in the last 2.5 years, what does that mean? It essentially means that flywheel is beginning to take momentum. I mean it's -- you can see that gathering of the momentum of the flywheel. M&A. I'm not going to spend too much time on M&A. Bill has talked about this. But really, the key point here is -- and repeating a little bit of what Bill said, M&A for us is an accelerator. It is an additional lever that we can pull on, but it is not critical to our ability to achieve our growth targets. I will reemphasize this point here. We see M&A as a key to accelerating organic growth. It is not an enabler of growth for its own sake. Said differently, we are not interested in chasing the next new shiny object. We see the ARR flywheel gathering even greater momentum. Like I said, we've crossed over in that classic SaaS sense. So in conclusion, to kind of boil this down into an equation, really, the way we think about it is steady revenue growth plus enhanced profitability is equal to shareholder value creation. Hopefully, that's a simple way to think about Sylogist.

So in closing and before we get into our question and answer, which we very much invite. A few points that I hope you keep forefront in your mind when you leave today. First, we have the self-funding capacity and access to capital necessary to execute our strategy. We have the most modern and competitive 100% SaaS IP for the markets we serve. We see increasing operating leverage in the quarter and years ahead that will already -- that will improve our already strong Rule of 40 Plus posture. While we remain ready to move on strategic M&A that makes sense, we won't allow it to distract us from the high ROIC initiatives that we've queued up. We are disciplined capital allocators and 100% aligned with shareholder interests. Our recent stock buyback reflects our confidence in the outlook for the company and also increases shareholder value. Expect more the same as it makes sense. Moving forward, the North Star is driving balanced profitable growth and accelerating long-term shareholder value creation. This is the most excited I've been about upside and doing something material in the markets that I care deeply about in a very long time. I am confident we're on the right path. We're effectively balancing growth and risk and that everyone at the company is pulling in the same direction and aligned with investor interests, and we're just getting started. We're just getting started.