Tecsys Inc. (TCS) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Tecsys Fiscal Year 2026 Fourth Quarter and Full Year Results Conference Call. Please note that including MD&A and financial statements were filed on SEDAR+ after market close yesterday. All dollar amounts are expressed in Canadian currencies and are prepared in accordance with international financial results [Audio Gap] some of the statements in this conference call are in the question and answer, you may include forward-looking statements that are based on the management's beliefs and assumptions. Actual results may differ materially from statements. I would like to remind everyone that this call is being recorded on Tuesday, June 30, 2026 at 8:30 am Eastern time. I would like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir.

Thank you. Good morning, everyone. I'm joined today by Mark Bentler, our Chief Financial Officer. We appreciate you joining us. I'm pleased to report that fiscal '26 closed with records across the board, record Q4 revenue of $50 million record Q4 adjusted EBITDA of $6.7 million and record full year revenue of $193 million. SaaS grew 20% for the year, and adjusted EBITDA reached 10% ahead of our guidance range. These results reflect the continued strength of our Elite platform at our Healthcare Solutions, which remain in the core of our business and the primary driver of SaaS ARR growth. Before Mark covers the financials, I want to share some of the highlights from the year. In Q4, we added 2 significant new customers, Memorial Herman Health System, an $8.3 billion patient revenue health system and 1 of the largest not-for-profit systems in Tecsys, selected Tecsys to power supply chain operations across their network. And Shepherd Center 1 of the country's leading specialty hospitals for spinal cord and brain injury rehab represents our first win in the rehab space. These wins cap the year that also brought in Memorial Sloan Kettering, UT Southwestern and major names in Life Sciences and global distribution. New logo bookings were up 33% year-over-year reflecting both the breadth of demand and the quality of our pipeline. The regulatory tailwinds we described in Q3, TCSA enforcement, 340B scrutiny are driving increasing urgency around modernization, and we expect this to translate into accelerating investment as deal cycles mature. And as AI evaluation matures, we believe buyers are gravitating towards domain-specific partners over a general purpose platforms, precisely where Tecsys is positioned. Our Intelligent TecsysIQ became commercially available in our Q3. And in Q4, we released TecsysIQ image capture, automating a time-sensitive labor intensive step in supply chain receiving workflows. We are on track to continue to release additional agents in fiscal '27 and with initial focus areas in point-of-use operations, pharmacy workflows and administrative processes. TecsysIQ is built to draw on the health care-specific sources such as the ACIP database, good ID, FDA and then combine that with our own real-time digital supply chain data and data foundation that a horizontal vendor simply cannot replicate quickly. It is 1 of the reasons the intelligence we deliver is operationally meaningful rather than just directionally interesting. Across fiscal '26, our team completed more than 30 customer go-lives spending health systems, distributors and pharmaceutical operations across North America and Europe. These completions matter because they are proof of execution, why the customers running critical supply chain operations on Tecsys don't evaluate alternatives they expand. By way of example, in Q4, we completed a WMS go-live as a clinical operations facility for 1 of the world's largest pharmaceutical companies, a new signature -- a new e-signature workflow was designed, built and delivery in under 3 months and has since been incorporated into our latest Elite 2026.1 release as a standard capability. Also in Q4, Parkland Health in Dallas, 1 of the largest public health systems in the United States went live on our point of views and UNC Health went live on the Tecsys pharmacy inventory management system, adding to the Tecsys point-of-use solution that was already running across the system. We hosted the 2026 Tecsys User Conference in Nashville for May 31, June 3, our strongest yet with registrations up 44% year-over-year. Customer speakers included Advent Health, Vanderbilt Health, St. Luke's, WellStar Health and Kirby risk, among others, and our partnership sponsorship exceeded targets. We continue to be recognized by the most influential analysts throughout fiscal '26. We were positioned again as a challenger in the 2026 Gartner Magic Quadrant for warehouse management systems, our 15th consecutive inclusion 40% of the 2025 Gartner Healthcare Supply Chain Top 25, including 2 masters, our Tecsys customers. And we were recognized as a leader in the 2025 Nucleus Research WMS Technology Value Matrix for the second consecutive year. Since quarter closed, Tecsys has been designated FedRAMP agency often process, a meaningful milestone for any vendor operating in or adjacent to U.S. federal health care environments. And a signal of the compliance infrastructure we are building as our customer base grows. Fiscal '26 was a year of records on new logos and a platform that advanced meaningfully. We entered fiscal '27 with a 31% larger SaaS pipeline, operational AI in the market and customers who are expanding and engaged. I'll now turn it over to Mark to provide some additional financial details for the year and quarter as well as financial guidance on several key metrics.

Thank you, Peter. As a reminder, our fourth quarter ended April 30, 2026. And I'll focus on Q4 results and then follow that with brief highlights on full fiscal 2026 results. Total SaaS revenue grew 17% in Q4, reaching $21.5 million. That was up from $18.4 million in Q4 last year. That growth was about 18% on a constant currency basis. Elite revenue, our core product and the predominant contributor to total SaaS revenue increased by 21% compared to the same period last year. Total SaaS ARR was $86.8 million at April 30 2026 that was up 13% from $76.5 million at the same point last year. On a constant currency basis, SaaS ARR growth was 15%. Our Elite SaaS ARR grew by 19% over the same period, representing 21% constant currency growth. SaaS was $243 million at April 30. That was up 12% from a year ago or 14% on a constant currency basis. As Peter mentioned, the Q4 fiscal 2026 total revenue was $50 million, a new record for Tecsys compared to $46.6 million in Q4 last year. Our Q4 total gross margin was 52% this year compared to 51% in Q4 last year. And SaaS margin expansion was the key driver here. Net loss in Q4 of fiscal 2020 was $0.2 million or $0.02 per diluted share, compared to net profit of $1.7 million or $0.11 per diluted share in Q4 last year. The Q4 fiscal 2026 net loss reflects $3.4 million in after-tax restructuring costs. Adjusted net profit which excludes the impact of after-tax restructuring costs was $3.2 million in Q4 of this year, up significantly compared to $1.7 million in the same quarter last year. Adjusted EBITDA was $6.7 million in Q4 of fiscal '26. That was up 56% and from $4.3 million in the same period last year. Turning briefly to our full year highlights. SaaS revenue in fiscal 2026 was $80.4 million -- that was up 20% from $67.1 million last year. Elite SaaS revenue increased by 24% compared to the same period last year. Total revenue was $193.1 million, that was up 9% from $176.5 million last year. Adjusted net profit was $7.5 million for the year, up 67% compared to the prior year. Finally, adjusted EBITDA for the full year was $20 million. That's up 50% year-on-year and represents, as Peter indicated, a 10% EBITDA margin, demonstrating continued operational scaling of our business. We ended the year with cash and short-term investments of $31.2 million and no debt. During fiscal '26, we purchased approximately 424,000 shares for approximately $13.2 million under our normal course issuer bid. That compares to about 172,000 shares for $6.9 million last year. Finally, the Board yesterday approved a quarterly dividend of $0.09 per share. Moving on now to fiscal 2027 guidance. Our total revenue growth guidance reflects sustained SaaS revenue growth and our expectation for stable professional services and hardware revenue with ongoing declines in legacy maintenance revenue, including the effects of SaaS migrations. We also expect continued adjusted EBITDA margin expansion as the operating leverage of our business model continues to play out. Finally, to provide investors with greater visibility into the performance of our core growth engine, we are introducing guidance for lead SaaS revenue growth. Our guidance for fiscal 2027 is as follows: total revenue growth of between 2% and 4%. Elite SaaS revenue growth between 18% and 20%, total SaaS revenue growth between 13% and 15%. Adjusted EBITDA margin between 11% and 13%. I'll now turn the call back to Peter.

Thank you, Mark. We are very pleased with our Q4 and full year results. And I want to thank our investors and Board our partners and customers and the entire team at Tecsys. In summary, our key themes from Q4 and fiscal '26. Record revenue record adjusted EBITDA ahead on adjusted EBITDA margin, new logo momentum and a 31% stronger pipeline. TecsysIQ live and expanding with purpose agents hitting the market this year. Healthcare leadership reinforced through a record-breaking user conference and ongoing analyst validation and FedRAMP been processed a designation and expanding our compliance posture for federal health care. We enter fiscal '27 with a strong recurring revenue base, a differentiated position in health care and complex distribution platform advancing in the direction that the market demands. We are very confident in the opportunities ahead. With that, we will open the call for questions. Thank you.

[Operator Instructions] Our first question comes from [ Doug Taylor ] from [indiscernible].

I'll start with a question on the maintenance and support revenue. Some quick math suggests that if the services and hardware flood and with your SaaS growth, maintenance and support, would be declining almost 20% this year. First of all, I guess I'll ask if there's something I'm missing there and as a follow-on to that, perhaps it's worth revisiting the SaaS conversion of the legacy maintenance stream and the migrations you're talking about and the magnitude of that and how that's expected to run off and convert this year and into the future.

Thanks for the question. I had just take myself off mute there. So a couple of things to unpack in there. First of all, the trajectory of maintenance and support revenue, we're definitely expecting to decline there. It's not the -- it's not the same level that you're trying [indiscernible] Into -- it's going to be roughly kind of half that size in gross terms. I think you said 20%. So that number is declining. And what's causing that decline is -- I mean it's primarily the tail of the migrations that are winding off and [indiscernible]. So that's point one. Number two, in terms of SaaS migrations and how that's played out, we did see -- we saw big numbers of a migration of bookings in '24 and '25 and '26, we saw a very significant decline in SaaS migration bookings as we get to the, I would say, the longer tail end of conversions. We expect that SaaS migrations will continue on the sort of 2026 level, a less -- much less meaningful level going forward and also expect that there's from my point of view, there's quite a number of years of tail on that, what's left in the convert.

Okay. So fair to assume that the SaaS growth that you anticipate much of that is going to be net new customers and expansions and the conversion of your expanding pipeline you referenced versus the migration impact?

Exactly right. .

Okay. Given the mix shift that suggested as a part of that, would you expect the gross margin expansion here to be consistent with the EBITDA expansion versus the savings you're seeing...

Yes. I mean what we're providing for -- the guidance that we're providing is around total adjusted EBITDA margin expansion, and we're sort of at 11% to 13% in that guidance range. We do expect that we do expect that SaaS margins are going to continue to expand. We've got a multiyear trajectory there line of sight a 75% plus over a number of years, but we certainly expect that SaaS margins are going to continue to expand in the current year. .

And for the maintenance and support, given the decline in top line, do you expect any pressure on the margins as a result of that? Or should those remain stable as that process continues?

That should remain relatively stable. I mean I think there will be a little bit of a drag as over time, the mix of what's in that maintenance support, there is some third-party maintenance in there, and it will become slightly bigger part of the total bucket over time, but we're talking about a period of time as migrations kind of roll on things. So we don't see -- we don't see near-term pressure on the maintenance and support margin. .

Okay. I appreciate that clarification. Last 1 for me, and I'll pass the line. The restructuring savings, I think you quoted them at $8.1 million. Is that fully baked into the guidance? Or is there any of that left to kind of scale over the course of the year and we'll have a follow-on benefit in the years ahead?

Yes. That's big into the guidance, I mean, it has -- we have -- we restructured that level of cost out of the business. And then as we -- as we mentioned, at the end of Q3 in our commentary and since then our outlook includes reinvesting in the business. And so not all the reinvestment has happened yet, but that's definitely fully baked into our adjusted EBITDA guidance. .

The next question comes from the line of Suthan Sukumar from Stifel.

First question. I wanted to touch on the U.S. health care backdrop. It sounds like you guys see -- are seeing sustained traction there. Can you provide an update on the demand signals you're seeing there and how sales cycles are progressing today? .

Yes. I mean, the demand seems very strong. we're continuing to see a very active pipeline. The sales team is extremely busy. We're even as we head into summer months here, we're seeing pretty strong action. I mean it's interesting. There's no question there's concern in the U.S. health care market, the hospital market, about reimbursements. They're talking about potentially 20% of the people. It's only this number are 20% of the people that were covered by the Affordable Care Act seem to be dropping coverage as fees go up. But that said, the hospitals seem to be taking a long view of it. They can't cut doctor salaries. They can't cut nurses salaries and reimbursements are going down. So they have to find efficiencies throughout their whole operating platform. And I mean that's where we come in we recently looked at a midsized hospital network that we're -- it looks as though if they roll out our platform through their -- just their general supply space, they'll save $80-plus million after the full cost of our platform and the product and everything else over the next few years. So -- so there is a lot of money to be saved by properly managing the supply chains, whether in general supplies or in pharmacy. So we seem to see -- feel like the stronger momentum is going to continue. I mean the user conference was really exciting. I mean the place was back to -- we actually had to shut down registrations 2 weeks before the conference because we were just sold out. It was going to be standing room only. So and a lot of those were hospital networks coming to talk, coming to figure out how to further expand on the platform, a number of prospects came into the conference to be able to sort of see the platform but also to be able to talk to other customers and hear how their experience has gone. So the momentum seems really strong in spite of a lot of distractions that you would think could slow it down, but they don't seem to be doing that.

For my second question, I want to touch on ARR growth and the full year SaaS guide. So you guys delivered on 13% ARR growth and the full year SaaS get, you call for 13% to 15%. So a little bit stronger on the [indiscernible]. What are your assumptions underlying the strength here on the upper end of the guide? Is that more a function of lower potential for lower churn? Or is there a potential for stronger bookings activity or something that's more top line accretive?

Yes. sorry, go ahead, Mark. .

No, please, Peter. .

I'm just going to say we have a legacy product, right, that's varied in our overall side, which is sort of slowly fading away. And it's -- last year, it was about [ $80 ] million SaaS and this year, it will probably be, I don't know, [ $4.5 ] million of SaaS or something like that, it's going to sort of disappear over the next couple of years. So that ends up pulling down the top line overall SaaS growth number. So -- and that's why we're separately disclosing the elite growth SaaS growth over because that's really the go-forward platform. And that's where we're saying it's really remaining close to 20% growth. So if you look at what's driving that, the churn on that platform almost couldn't go lower. I mean it's the churn on Elite right now averages less than 1.5% a year. So it's very, very low. So really, the growth number is being driven by new accounts and expansions. We see very strong new account activity for that platform. We see a lot of expansion opportunity for the platform and a little bit sale of migration revenue coming from old on-prem accounts migrating over. Most of that's done. So if I look at this year, I'd be surprised if we book more than $2 million of additional SaaS coming out of old on-prem accounts, the vast majority is going to be to account expansions.

Okay. And in terms of the SaaS growth trajectory, how do you expect that to play out over Q1 to Q4?

Do you want to take that one, Mark? .

Yes. I mean I think we're -- I mean, obviously, that will ramp up the ramp up as the year goes because the effect of bookings is stimulative on revenue. But that said, like we've got -- as Peter said, we've got a very significant pipeline that's really quite active. We always -- when we're planning our year. We're we're always planning on the sums to be slightly slower months, which covers -- which hits our Q1 and Q2. So we always have a little bit more expectation. And if you look at the timing of our plan, it tends to be -- deals tends to -- deal closer tends to be higher in the back half of our year. So that's kind of how we plan out the year and model it. .

Got you. And so from a trajectory perspective, deal activity should pick up in the back half of the year and that should also be reflected in stronger ARR growth than over the course of the year. Is that the right way to think of it?

That's what we would expect.

And then last 1 for me, just on, I guess, more corporate development perspective, you guys are getting to a more normalized EBITDA profile, that obviously signals a stronger cash flow generation ahead. Is M&A a priority for capital allocation over the near to midterm?

We don't really see a lot of M&A in the near term. I mean, we continue to see -- and some of that is just the math of the marketplace right now. I mean most M&A opportunities are private companies, private company valuations right now remain significantly elevated as compared to public company valuations. So it creates a bit of a complicated acquisition market for us. We know some companies are doing in any way. We continue to feel like our own shares are probably the best deal for capital allocation. So I think as we go forward, it will be a question of if the stock stays low, it's -- we probably can do an NCIB approach if the stock rebounds to higher levels perhaps we turn up the dividends. But the problem is in the private market, we've looked at companies that if we paid $30 million to buy them, the day we own them, they're going to be worth $15 million. So the math is not overly helpful to -- for creating shareholder value. So I mean, if we see something that's a good snap in, we continue to look for those, a small add-in that would strengthen our moat in the health care space. And there's some interesting possibilities there around procurement or bone tissue or surgical instrument trait tracking or that kind of thing. There's lots of sort of small pieces like that, that if we came across the right opportunity, we'd make a move, but they would not be significant.

Okay. Okay. Great. And then just conversely on the M&A discussion, given what looks like some elevated activity from a health care M&A perspective, do you see opportunity to be acquired as part of your journey by a larger or large industry or a strategic partner? Or is really the opportunity here to remain independent and really focus on what looks like to be a pretty significant organic growth opportunity?

Yes. I mean our focus continues to be driving this company as its own force going forward. I mean we see a huge total addressable market. We're the leader in the health care space. Our win rate is typically north of 80%, sometimes north of 90% in that market. There's really no direct competitor. So for us, it's just all about execution. Go, go, go, let's get it done.

Your next question comes from the line of [ Karim Maher ] from ATB Cormark Capital Markets.

This is Karim on behalf of Gavin. Just have 2 questions. Concerning on order dynamics, we discussed in the past churn impacting that business through fiscal '26. Can you discuss the timing of renewals and what type of headwind to ARR you're expecting in fiscal '27?

With respect to order dynamics?

Yes.

Yes. I mean that story -- I mean, the big part of that ARR impact, remember, SaaS ARR is the leading indicator, right? So the way we measure that is we look at the ARR at a point in time, and we look how much contracted revenue we have for the next 12 months at that point in time. So it's a real leading indicator. And we assume it's going to renew unless we know it's -- the customer is leaving. So it's a pretty good indicator of the forward growth rate for that revenue. And you saw the impact of the most significant part of the order dynamics attrition come through our SaaS ARR numbers in fiscal '26. That's why they didn't grow as fast as they would have otherwise grown. In fiscal '27, you're going to see going forward, and you see it in our total SaaS revenue growth guidance, you're going to see the drag from that SaaS ARR actually flow through revenue in fiscal '27. By the time we get to the end of fiscal '27, what's going to be left in order dynamics SaaS ARR is going to be at a level where we don't expect that it's going to be causing any kind of a real significant drag on revenue growth after fiscal '27. So I really expect that '27's total SaaS revenue growth dip, which is exactly why we're highlighting this Elite SaaS revenue growth underneath, like that Elite SaaS revenue growth number is going to start to -- the total SaaS revenue growth number is going to start gravitating towards that Elite SaaS revenue growth number, and you're going to see that play out pretty dramatically in fiscal '28.

Perfect. My second question is on professional services. We've seen the backlog normalize where you exited in fiscal '24. But in your guidance, you called for relatively flat. Fair to say we need to see the bookings picking up back to keep that business flat? And can you discuss what you're seeing in the pipeline for professional services?

Yes. There was definitely a decline in our opening backlog of professional services coming into this fiscal '27. Our ending fiscal '26 backlog was quite a bit lower than the end of fiscal '25. I did indicate in the MD&A that we've got pretty good visibility on the near-term impact of that on revenue in Q1, we're pretty positive on the PS sequential number there. But we do expect it to be, as I said, as we said in the prepared remarks, sort of a stable revenue number, $26 compared to '27. The pipeline looks really good and very strong. And that's primarily because a lot of that pipeline comes through connected to SaaS ARR deals. So you kind of look at that pipeline and you look at the SaaS pipeline, which is up 31% and think through that well, all that -- all those deals come through with attached PS, PS revenue and PS bookings, and you can sort of triangulate what that should do to continued backlog growth in the coming quarters. So we need to -- we definitely need to book PS revenue to continue to fill that backlog. But like we said, the pipeline does look pretty strong right now.

[Operator Instructions] I can see there are no further questions. I'll turn the call back over to the presenters. Please continue.

Okay. Well, thank you, everyone, for joining us for these results and the discussion of the results. And as always, if you have any questions, don't hesitate to reach out to Mark or I, and we will look forward to speaking to you in September with our Q1 results. Thanks. Have a great day. Bye for now.

Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.