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 the consent of 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 warrant to Computershare and the corporation that you first obtained all required consents for the disclosures, recording, transfer and use of such personal information from all appropriate persons before your disclosure. At the end of the meeting, we'll have a question-and-answer session. [Operator Instructions] 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.

Thank you, and good morning, ladies and gentlemen. Welcome to the 2026 Annual Meeting of Shareholders of Tecsys. My name is Dave Brereton. I'm the Chairman of the Board of Tecsys. Allow me to proceed with the introductions. With me today are Peter Brereton, President and CEO; and 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 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. Slide 2, agenda. 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, then Mark Bentler will present the financial highlights of that year. Later today, after market close, we will be releasing Q1 fiscal '27 results for the quarter ended July 31, 2026. And then tomorrow at 8:30 a.m. Eastern Time, Peter and Mark will be conducting an earnings call to discuss the results of Q1 fiscal '27. 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. Slide 3, 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 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. Slide 4, nomination of scrutineers. With the consent of the meeting, I have designated as scrutineer, Pina Pacifico, employee of Computershare Investor Services, registrar and transfer agent of Tecsys. Slide 5, 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 22, 2026. These documents will be filed with the records of this meeting. Slide 6, report of scrutineers. The scrutineers have submitted the report showing that quorum has been reached, and they confirm that 73.81% 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. Slide 7, 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 4, 2025. 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 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 fiscal year ended April 30, 2026, 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 31, 2026, who requested a copy in accordance with the applicable regulatory requirements and copies are available with Tecsys Corporate Secretary on SEDAR. Consequently, I ask the Secretary to produce the annual report and to file it with the records of this meeting. Slide 9, 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. 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, Andrew Kirkwood, Vernon Lobo, Kathleen Miller, Priya Thinagar and Stephany Verstraete. In accordance with the bylaws of Tecsys, shareholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. I now also move and second a motion to nominate the following persons as directors of Tecsys. Dave Brereton, Peter Brereton, Andrew Kirkwood, Vernon Lobo, Kathleen Miller, Priya Thinagar and Stephany Verstraete. Unless there are any questions, I will move to the next item of business. Slide 10, 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. Slide 11, vote. As we mentioned, voting today will be conducted by electronic ballot for registered shareholders or duly appointed proxy holders. The polls are open. 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 forth at this meeting. Please register your votes by accessing the voting page and selecting the For or Against buttons next to each name -- 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. [Voting]

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 resolutions. Each of the 7 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. Slide 12, termination of shareholders' 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 the 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 2026.

Thank you, Dave. I'm going to do a quick run-through of what happened in fiscal '26. And then as Dave described earlier, Mark Bentler will walk us through a few more of the details. But a quick reminder as to what we do. I mean, we -- our focus is all on clarifying uncertainty in the supply chain and equipping supply chain greatness. In fact, it was really during late fiscal '26 and early fiscal '27 that we have moved -- sort of updated our tagline and description to the market to include that we are all about the heartbeat of the modern supply chain and managing and maintaining the heartbeat of the modern supply chain. Some of that is, of course, what our platform does. Some of it relates to our journey as we continue to become more and more of a health care supply chain story, although we do, of course, continue to serve other industries as well. So we equip supply chain greatness, and our objective is to make sure that when our customers are running on our platform, they can think about their businesses, their business challenges, some of the ongoing disruptions to supply chains that are becoming more and more common and the other issues related to their own competitiveness, and they don't have to think about the platform that's running their supply chain. It does its job and enables them to focus on what they do best. So the markets we serve, and for those of you that have followed our investor deck for a while, you'll notice a bit of a shift here. We are increasingly focusing in on the end-to-end health care supply chain. So if you look on the right-hand side of the slide, you notice that the health systems and providers market is now up to what we estimate to be a $1.6 billion TAM and the health care supplier market, which is everything else in life sciences, right? That's the manufacturers, the distributors across a wide range of verticals within life sciences. I mean that can be eye care, ear care, heart care, foot care, you name it. There are many subverticals within health care that are all part of that overall life sciences ecosystem, and we're seeing increasing opportunity in those markets, partly driven by -- in fact, largely driven by our expertise and our platform's capability to manage regulated industries. And in life sciences, for instance, you've got the Drug Supply Chain Security Act. You've got equivalent acts over in Europe that tightly control and manage the process of making sure that only legit items get into the health care supply chain. So we're very good at doing that. We're very efficient at doing that, and we are seeing increased growth opportunities throughout that end-to-end health care ecosystem. If you look at the next slide, here, we break down the actual hospital market in more detail. As I mentioned, that ARR opportunity continues to grow. We're now seeing a $1.6 billion opportunity there as we target the 409 largest health systems in the United States. I mean, rough math there, you can see we estimate that there's an average of $4 million of annual recurring revenue opportunity per network. We have some that are below that. We have quite a number that are below that currently. We have a few that are above that currently. But if you look at an overall average, that seems to be a reasonable average for these health systems. On the right-hand side of the slide, you see the current accounts that we have and the upside expansion opportunity in those existing accounts we've already signed. So $153 million of SaaS opportunity is estimated within our current account base. So we continue to be the hands-down market leader in this space. There is still no one that even remotely approaches our ability to go from literally forecasting and demand planning through procurement into a centralized warehouse, from the centralized warehouse into the fleet of trucks that service the hospitals and then into the hospital itself right to the patient bedside, the OR, IR, cath lab, nursing station for both general supplies and things like implants and bone and tissue and that kind of thing all the way over to the full pharmacy supply chain. So great overall footprint there, and we continue to see some pretty exciting movement in that market as our pipelines continue to grow and do very well in the space. So overall highlights, and this is my last slide before I turn it over to Mark. Fiscal '26, record revenue, record adjusted EBITDA. And I would point out on adjusted EBITDA, we've been saying for a while, we thought we were entering an inflection point. We really feel like we're seeing that inflection now as our Elite Series SaaS revenue continues to grow at a very healthy clip. And our SaaS margins continue to expand. We've been targeting over a few years getting our SaaS margins up to 80%. We continue on that journey. We're approaching the 70% mark by the end of fiscal '26 and continuing to climb at a pretty decent clip. So the combination of rising SaaS revenue and rising SaaS margins is just getting us to the point where it's throwing off more gross margin dollars than we need to reinvest in the business and is leading us to a pretty exciting growth finally in adjusted EBITDA. I know a number of our investors have been patiently waiting to see that expansion begin to kick in, and we're actually quite pleased to see that inflection now truly hitting. TecsysIQ, which is our AI platform that we introduced in fiscal '26 is doing very well. We're very pleased with it. And, again, I'm not going to bore you with a bunch of slides on that. But for those of you that are using Gemini or ChatGPT, you can imagine how powerful it is for, for instance, a head of surgery in a large hospital network to literally be able to type into a screen and say, how many surgeries are at risk of being canceled in the next 2 weeks due to a shortage of supplies. And the system comes back and says 22, which ones? It lists the surgeries at risk. Why? Well, because we're short these 5 supplies. And to be able to just carry on that level of conversation with the real-time supply chain data in that hospital network is just incredibly powerful. I mean there's a dashboard interface, there's a chat interface, and there's also the ability to build your own dashboards and your own agents that can continue to monitor and report back to you based on whatever schedule you give it. So it's a pretty exciting platform. Hospitals have never had this kind of power before, and the uptake is very positive. We're pleased with that. India got off to a great start for us. We launched it on May 1, first day of fiscal '26, continue to grow our operation in India through fiscal '26. Total headcount, I think, in fiscal '26 roughly doubled in India from starting at around 14 or 15 people up to about 30 people by the end of the year. We are continuing to grow that operation. They are very strong support people, developers, et cetera, that are helping us across cloud operations, R&D and support, and we continue to see growth in that location. They've become a great member of the Global Tecsys team. And, in Q4, we did do a restructuring to align for the future as we are seeing shifting opportunities and shifting pressures and declining spend by our clients on some of the old legacy products. So we shifted some things around. We did restructure some people out of the organization and with the -- to create space to invest for the future. So we are, overall, very pleased with how fiscal '26 turned out and now into an exciting fiscal '27. And with that, I will turn it over to Mark.

Excellent. Thank you, Peter. Moving on to Slide 19. A quick agenda. I'm just going to talk for a few minutes here about the growth in the business and the engines for that growth. We'll talk -- we'll look at operating results. And then we'll look at financial strength, take a quick peek at the balance sheet and how that's evolved over time. And finally, we'll spend a few minutes on capital allocation priorities. So moving to Slide #20. SaaS revenue is clearly the growth driver. It's the revenue stream that's -- our revenue stream that's growing fastest. It grew at 20% in fiscal '26, now represents more than 40% of our revenue. And as Peter alluded to, that's our highest margin piece of revenue as well. So that's growing at 20%. The margin is expanding. And if you flip to slide -- the next Slide 21, you can see the results that, that is having on our profitability. Our focusing on the evolution from '25 to '26 here, our adjusted profit from operations, which essentially takes profit from operations and add back onetime restructuring costs that we incurred in 2026. That moved from $7 million in 2025 to $12 million in 2026. Adjusted operating profit from operations, if you add back noncash stock comp expense and depreciation and amortization, you arrive at the number adjusted EBITDA. And for us, that number grew 50% in 2026. So it grew from $13 million to $20 million. Again, it's that SaaS revenue growth and margin expansion that's driving that profitability expansion. Moving on to Slide #22, a quick look at the balance sheet. The highlight here is that we're in a solid [indiscernible] with very good liquidity. We've got $31 million of cash and cash equivalents and short-term investments at the end of the year. And during the year, we actually spent $13 million buying back shares under our NCIB. Moving on to Slide #23, our capital allocation priorities. I mean our priority is to maintain investment capacity. So we continue to invest in the business in order to grow the business. Any excess cash that we have, and you see this in the graphics on the Slide #23, we've paid out $5 million of cash dividends to shareholders during 2026. And then as I mentioned on the prior slide, we also spent $13 million of cash buying back shares under our NCIB, or normal course issuer bid. So that concludes my remarks. I would just -- if we flip to Slide #24, I would invite you all to join us tomorrow morning for our Q1 fiscal '27 results conference call, which is at 8:30 tomorrow morning, and the phone numbers are on the screen here. Look forward to hearing you or meeting with you at that call tomorrow. And now I'll turn the call over to -- back over to Dave for questions and answers.

Thank you, Mark. I ask now 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 would like to remind you that questions which were already answered or that are redundant or repetitive will not be published or answered. I'll give a few more seconds to see if there are any questions. All right. I confirm that we have not received any questions from our shareholders. So that is all for today. Thank you to everyone who attended our virtual meeting.

This concludes the meeting. You may now disconnect.