Tecsys Inc. (TCS) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Tecsys Inc. Please note that today's meeting is being recorded. If you participate in today's meeting and disclose personal information, you will be deemed to consent to the recording, transfer and use of same. If you disclose personal information of another person in today's meeting, you will be deemed to represent and warrants to Computershare and the corporation that you first obtain all required consents for the disclosure, recording, transfer and use of such personal information from all appropriate persons before your disclosure. At the end of the meeting, we will have a question-and-answer session. Shareholders and/or proxy holders may submit questions or comments at any time by clicking on the Q&A tab. It is now my pleasure to turn today's meeting over to Mr. Dave Brereton, Tecsys Inc. Chairman of the Board. Mr. Brereton the floor is yours.

Good morning, ladies and gentlemen. Welcome to the 2023 Annual Meeting of Shareholders of Tecsys. My name is David Brereton, and I'm Executive Chairman of the Board of Tecsys. Allow me to proceed with the introductions. With me today are Peter Brereton, President and CEO; Mark Bentler, CFO and Secretary of Tecsys. The directors of Tecsys are also with us virtually today. [Foreign Language]. According to the bylaws of the corporation, I am authorized to act as Chairman of the meeting; and Mark Bentler in his capacity as the Secretary of the corporation, will act as Secretary of the meeting. As this meeting is held in a virtual format with attendance via live webcast, we think it is necessary to set out a few rules for the orderly conduct of the meeting. Questions in respect of a motion can be submitted by any registered shareholder or duly appointed proxy holder. Click the question icon at the top of the voting platform page, type in your question in the text box at the bottom of the messaging screen and then click the send button. Our moderator will view the questions and send to review for the Chairman to address them during the meeting. When asking a question, please indicate your name, which entity you represent, if any, and confirm that you are a registered shareholder or a duly appointed proxy holder. Questions will only be addressed during the question period at the end of the meeting, provided the questions regarding procedural matters or directly related to the motions before the meeting may be addressed during the meeting. Voting can be completed at any time from now until the end of the formal business of the meeting. If you have already voted and do not wish to change your vote, you do not need to vote again during the online meeting. If you vote again online, your vote will revoke the proxy you previously submitted. For those who have not yet voted, we encourage you to log on to the platform and vote. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I will move and second all motions. In today's meeting, I would like us first to deal with all the procedural matters and close the Annual Meeting of Shareholders. Following that, Peter Brereton will make his remarks on the last fiscal year, and then Mark Bentler will present the financial highlights of that year. Later today, after market close, we will be releasing Q1 fiscal '24 results for the quarter ending July 31, 2023. And then tomorrow at 8:30 a.m. Eastern Time, Peter and Mark will be conducting an earnings call to discuss the results of quarter 1 fiscal '24. We invite you to attend that call tomorrow morning, and separate dial-in instructions for the call are being provided later in the presentation. The earnings call dial-in instructions have also been posted on SEDAR. Forward-looking statements. The statements in this presentation relating to matters that are not historical fact are forward-looking statements that are based on management's beliefs and assumptions. Such statements are not guarantees of future performance and are subject to a number of uncertainties including, but not limited to future economic conditions, the markets that Tecsys Inc. serves, the actions of competitors, major new technological trends and other factors beyond the control of Tecsys, which could cause actual results to differ materially from such statements. All names, trademarks, products and services mentioned are registered or unregistered trademarks of their [ respective ] owners. Nomination of scrutineers. With the consent of the meeting, I have designated as scrutineers, Pina Pacifico and Teresa DeLuca, employees of Computershare Investor Services, registrar and transfer agent of Tecsys. Notice of Meeting. The Secretary has submitted a copy of the notice of this meeting as sent to the shareholders and the accompanying material as well as the affidavit of a transfer officer of Computershare confirming that the notice of the meeting and proxy form were duly sent to shareholders of record on July 21, 2023. These documents will be filed with the records of this meeting. Report of the scrutineers. The scrutineers have submitted their report showing that quorum has been reached, and they confirm that 74.38% of the holders of the outstanding common shares of the corporation are present or represented at this meeting. Therefore, I declare this meeting duly called and constituted to deal with any matters appearing on the agenda. The Secretary will file the report of the scrutineers with the records of this meeting. A resolution for an exemption from the reading of the minutes of the last meeting. Unless there is any objection, I will dispense with the reading of the minutes of the last meeting of shareholders held on September 8, 2022. I direct that the minutes of the last meeting of shareholders be taken as read and approved and signed as accurate. Copies of the minutes are available with the Tecsys' Corporate Secretary. Slide 8. Receiving of financial statements and the auditor's report thereon. The next order of business on the agenda is the presentation of the financial statements for the financial year ended April 30, 2023, and the auditor's report thereon. A copy of the annual report containing such financial statements and the auditor's report thereon has been sent to every shareholder of record on July 21, 2023, who requested a copy in accordance with the applicable regulatory requirements and copies are available with Tecsys' Corporate Secretary and on SEDAR. Consequently, I ask the Secretary to produce the annual report and to file it with the records of this meeting. Election of directors. The next order of business on the agenda is the election of directors. The management of Tecsys has proposed in the management information circular, 7 nominees for the shareholders to consider today. Yesterday, Rani Hublou advised that she has decided not to stand for reelection. With Ms. Hublou not standing for reelection, 6 directors will be nominated for election at the meeting. The directors appointed at this meeting will serve as directors of Tecsys until the next Annual Meeting of Shareholders or until their successors are appointed. The proposed nominees are David Brereton, Peter Brereton, Vernon Lobo, Stephen Sasser, David Booth, Kathleen Miller. Are there other nominations? If you have a nomination, please type the name in the instant messaging service of the virtual interface. Since there are no other nominations, I move and second the motion to close the nomination period. I now also move and second the motion to nominate the following persons as directors of Tecsys Inc: David Brereton, Peter Brereton, Vernon Lobo, Stephen Sasser, David Booth, Kathleen Miller. Unless there are any questions, I will move to the next item of business. Appointment of auditors. We shall now proceed with the appointment of auditors for the ensuing year and with authorizing the directors to fix the auditor's remuneration. The Audit Committee of the Board of Directors of Tecsys has approved, subject to shareholder confirmation, the appointment of KPMG LLP, chartered professional accountants, as the auditors of Tecsys. I move and second that KPMG LLP, chartered professional accountants, be appointed auditors of Tecsys until the next Annual Meeting of Shareholders. Unless there are any questions, I will move to the next item of business. The vote. As we mentioned, voting today will be conducted by electronic ballot for registered shareholders or duly appointed proxy holder. The polls are opened, all registered holders and proxy holders who have properly logged in with their control numbers or invitation code and wish to vote will be able to see on the screen all motions being brought forward at this meeting. Please register your votes by accessing the voting page and selecting the for or against buttons next to the name of each proposed director and selecting the for or withhold buttons next to the resolution with respect to the appointment of KPMG LLP, chartered professional accountants as Tecsys' auditors. No question has been submitted on the voting procedure. We will provide registered shareholders and duly appointed proxy holders approximately 10 more seconds to complete the electronic ballots. Once the electronic balloting closes, the voting page will disappear, and your votes will automatically be submitted. I have been advised by the scrutineers that based on the preliminary results received by the scrutineers, the proxies deposited for the meeting have been voted in favor of the resolution. Each of the 6 nominees have been elected as directors of Tecsys to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The resolution appointing KPMG LLP. chartered professional accountants, as the auditors of Tecsys and authorizing the directors to fix the auditor's remuneration has been approved. I would ask that the scrutineers compile the final report regarding the results of voting on all business matters. The results of the poll will be included with the minutes of this meeting, and the results of the voting will be announced in a press release in accordance with the policies of the TSX and filed on SEDAR. Termination of shareholder meeting. We have now completed all procedural matters, and I would like us now to terminate the Annual Meeting of Shareholders and then we will continue with other presentations. I move and second that this meeting now terminate. As there is no further business to come before the meeting, I declare the formal part of the meeting to be concluded. I will now turn the meeting over to Peter Brereton, the CEO of Tecsys for the presentation of his remarks on fiscal 2023.

Thank you, Dave, and good morning. I'm going to leave most of the details to Mark, our CFO, to walk through. But just a bit of a reminder of what we do and our history. Our purpose, of course, is equipping our mission, as we call it here, is to equip supply chain greatness. Our customers range from large hospital organizations to smaller regional hospitals, wine and spirits distributors, heating, ventilation and air-conditioning distributors, electrical, a variety of other industrial type players, third-party logistics as well as retailers and other direct-to-consumer players. But what we do for each one of them is we provide them a platform and the ability to focus on their business, their product lines and their customers knowing that our platform that their business is based on will perform for them 24/7. If you look at our -- on the next slide, we've been doing this for a long time. We began this business 40 years ago and are celebrating our 40th anniversary this year. Over that time period, of course, many things have changed. We now refer to these types of systems as ERP or WMS acronyms that didn't even exist, of course, when the company was founded. The last 11 years, we've been named in Gartner's Magic Quadrant for WMS, and we were promoted from visionary to Challenger in 2022 as we continue to march up their Magic Quadrant. We have 9 customers in Gartner's -- every year, Gartner publishes a healthcare supply chain, top 25, which is a list of customers in -- or businesses in healthcare that are sort of at the top of the -- top of the list in terms of how efficiently and effectively they run their supply chains. We're very proud of the fact that we have 9 customers that have made that list and 2 of them were recognized as Supply Chain Masters in the last published list. The next slide sort of runs through our last 40 years, and I'm not going to bore you with too many details on this. I think I've sat through too many meetings where people spent too much time reminiscing and made for a fairly boring meeting for the audience. But just a quick reminder of some of the highlights. I mean, we entered supply chain management in the early '90s before it was even called supply chain management. When we began focusing on importers, import to retail really -- customers based here in the Montreal area. And that's really where we learned all about supply chain. Many of our customers were suppliers to Walmart and taught us a great deal of excellent lessons on how to run a highly efficient supply chain. In the -- we went public in 1998. But in the early 2000s -- beginning in 2003, we entered the healthcare market with some of our first deals signed with Sisters of Mercy in St. Louis as well as North Mississippi and Orlando Health. And we began a journey that continues to this day. We began in the warehousing side, covering -- providing solutions for warehousing and transportation management -- but we eventually in 2012, entered the point-of-use space, POU, as you see it on the slide, by entering it, getting into managing the nursing stations and then later the operating room and cath lab and more recently, we've entered the pharmacy area of the hospital. So this, at this point, is the fastest-growing part of our business. It's still less than 50% of our business, but not that much less and has become a substantial part of the supply chain solutions that we bring to market. In 2019, we more formally entered the European market with the acquisition of PCSYS in Denmark, an acquisition that continues to do well. It's been renamed, of course, Tecsys Denmark and represents our product lines in that region of the world. It was only 3 years ago that we reached $100 million mark in revenue. And so we're pleased to be up, of course, another 50% or so from that number just in the last 3 years. And so that's sort of a quick walk-through of the last 40 years, definitely Reader's Digest version, but we're happy to be celebrating where we are after 4 decades at this game. So today, what do we do? We continue to innovate around supply chains and drive for excellence. We continue to take a customer first approach. We have an annual renewal rate with our customers in excess of 95%. Most recently, it's been approaching 97%. And -- so your average life span on our platform tends to be in the sort of 20- to 30-year range, very long-term customer relationships. Strategic partnerships have always been a key part of our business. I'll comment on that a bit more on the next slide. And we try to lead with integrity and a solid group of people, currently around 750 people that are experts in supply chains and technology. From the standpoint of our customers, these are just a few quotes that we thought you'd find interesting. I won't read them all to you, but some interesting quotes from Parkview, you see there saying the Tecsys team has served as a trusted architect of our supply chain execution tech stack, AdventHealth talking about our valued partnership. Canon trusted and valued logistics service provider to Canon. Fuel company based in Quebec City that talks about the way our platform gave them the ability to pivot rapidly as their market changed. And Nissan most recently awarded us their digital partner of the year for the work that they've been able to do on our platform. So wide variety of accounts there, but some great quotes that we thought you might find interesting. The healthcare market, which is the next -- sorry, I'm getting ahead of myself. Talking about partners here for a minute. These are the kinds of partners that we currently go to market with. And you see some of the list there, technology partners on the left, Workday, Microsoft, Amazon Web Services, IBM and so on and advisory and implementation partners that are becoming an increasingly key part of our go-to-market strategy. Companies like RiseNow and Avalon on a more informal basis, companies like Deloitte that are assisting out in the field with getting our systems implemented and deployed. So, this is a growing part of our world. A few years back, you can see there, in 2018, we had 0% of our pipeline was partner influenced. We're now at 30% pipeline -- of the pipeline that is partner influence. And that, over time, seems to be continuing to grow. It's going to be a key part of our expansion in the marketplace. The strategic -- 40 years of strategic partnerships, these are some of the partners that we're currently going to market with from a technology standpoint. Zebra for the handhelds, SVT Robotics allows us to link to virtually any type of robotics. Locus has a great series of robots that are expanding rapidly in the marketplace and RiseNow has been a terrific service partner. So a little bit of information for you on some of the current strategic partnerships. Healthcare. This is a market that continues to expand. We're currently showing on this slide, 300 health systems. We're actually targeting 377 right now because our cutoff is look at only health systems that have over $1 billion in net patient revenue. And by that cut off, by that -- drawing that line, that focuses on the largest 370-some IDNs or healthcare networks in the U.S. market. It gives us a roughly $1 billion TAM, that TAM keeps moving up. A couple of years ago, we assessed a $600 million total addressable market for annual recurring revenue. It's now up to $1 billion. I think that's going to continue to grow. We're seeing the pharmacy segment expanding rapidly, for instance, and becoming a more substantial portion of this. So that market -- that number may continue to grow. We currently are -- have 21% of the -- sorry, 18% of the names in that market and in the names that we've signed, we're 21% penetrated. So some good opportunity in the base as well. And lastly, the distribution and retail side of the business, this is a market that is in a state of flux. It was substantially sideswiped during the pandemic, went through periods of sort of very rapid shift to direct-to-consumer delivery. There's now some shift back the other way. But the geopolitical landscape has also shifted pretty dramatically. So many things happening in this market. This market was somewhat -- it was very busy in 2018, 2019. It slowed down a lot during the last 3 years, it seems to be now coming back and coming back quite rapidly. As we've been saying for the last couple of quarters, we anticipate just picking up more speed in the fall. It's actually continuing to grow for us, but at a slower pace. We believe that's about to accelerate again. But -- so that's sort of just a summary of where we're at who we are, what we do, what customers we serve, what partners we work with and I will now turn it over to Mark to walk you through the actual numbers for fiscal '23.

Thanks, Peter. So we'll be talking through growth and focusing on the P&L. First and -- look at the financial strength, focus on the balance sheet, and then we'll finish with a look at dividends and stock performance. So we've had a good solid year, as Peter mentioned, we passed $100 million in revenue back in 2020 and in our latest fiscal year ended April 30, 2023, we ended just over $150 million of revenue, which is 11% year-on-year growth. That growth was led by our SaaS business and our SaaS revenue growth. You can see here that a couple of interesting things happened in fiscal '23. Number one, SaaS revenue continued to grow at a very serious clip. It was up 39% in fiscal '23 compared to last year. The other interesting thing that happened here, and you can see the cutover happening in -- in fiscal 2023, the SaaS revenue, which is the light blue on this slide, actually exceeds our maintenance and support revenue for the first fiscal year in our history. So that old base of legacy on-premise software, maintenance and support has kind of flattened out as the growth engine has become SaaS in the last sort of 4 or 5 years. And that SaaS revenue is now surpassing the historical legacy maintenance and support revenue to become our largest source of recurring revenue, which we certainly expect to continue. Talking a little bit about -- a bit of a leading indicator here that SaaS remaining performance obligation or RPO as we call it, that number represents the amount of booked SaaS business that's contracted, but that has not yet been recognized. So that's the amount of SaaS business that's committed that will be recognized in the future. And you can see at the end of April 2023, we had $138 million of SaaS RPO. That was up 47% from the same time last year. Professional service revenue continues to underpin our growth and our SaaS growth and support our SaaS growth. That professional services revenue in fiscal '23 was up 6% and to just over $55 million. Our partner ecosystem that Peter mentioned previously, is becoming more and more of a player in our professional services delivery model, and we expect that to happen. It actually helps us and enables us to scale our SaaS business much more quickly. In terms of profit from operations and adjusted EBITDA, we closed the year at just under $10 million of EBITDA, about $3.6 million of profit from operations. which was down slightly from fiscal '22, but quite similar numbers actually. We continue to invest for growth. We're investing in sales and marketing and research and development. in order to build out the platform and continue to capture market share. And you'll see in the history here in 2021, there was a bit of a spike in profitability that was to a large extent, driven by foreign exchange movements in that period. To our financial strength that we've got a really solid balance sheet, which is important for us and important for our customers as well, given our long-term partner relationship with our customers. They want to be working with and interacting with a partner that has a solid financial underpinning. And we certainly have that with cash and cash equivalents and short-term investments of about $37 million at the end of our last fiscal year and no debt. We paid off our balance of our long-term debt during the fiscal year and now we're debt free. So good liquidity, strong cash and short-term investment position and no debt. We continue to declare and pay dividends over the course of time and continue to do that in the current fiscal year. You can see that we've inched that dividend up every year for quite a number of years now. And finally, our share price, which popped up a bit in the technology -- in the technology highlights of the COVID pandemic era. It's come back down a bit since then, but the returns on the stock and the performance of the stock has outpaced the performance of the S&P TSX index over that time. So as Dave mentioned before, we do have our earnings call tomorrow morning, we'll be releasing earnings after market close today. And we would invite you to join us on a call where Peter and I will be presenting the results tomorrow morning at 8:30 Eastern Time. The phone numbers to dial-in for that call are on your screen. Peter, I'll turn it back over to you.

Actually, back to me, Dave, for just the Q&A. We ask that all attendees who would like to ask a question use the question feature at the top of the voting platform page of the virtual interface to do so. We will answer as many questions as time permits. When asking your question, please state your name, the entity you represent, if any, and confirm that you are a registered shareholder or duly appointed proxy holder. Please limit your questions to topics relating to today's subject matter and keep your questions short and to the point. We will now give attendees a moment to type in their questions. For each question we answer, we will summarize the question, read out loud the name of the person who asked such question, and if applicable, the entity such person represents. We'd like to remind you that questions which were already answered or that are redundant or repetitive competitive will not be published nor answered. Giving it another minute or 2 here in case there are any questions. I confirm that we have not received any questions from shareholders. So that's all for today, folks. Thank you to everyone who has attended our virtual meeting. Have a great day.

This concludes the meeting. You may now disconnect, and have a pleasant day.