Tecsys Inc. (TCS) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Tecsys Fiscal Year 2027 First Quarter Results Conference Call. Please note that the complete first quarter report, including MD&A and financial statements were filed on SEDAR+ after market close yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. Some of the statements in this conference call, including the question-and-answer period, may include forward-looking statements that are based on management's beliefs and assumptions. Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Friday, September 11, 2026, at 8:30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Thank you. Please go ahead, sir.

Thank you, and good morning, everyone. Thank you for joining us to discuss our Q1 2027 results. We're pleased to open fiscal 2027 with one of the strongest quarters in our history. Q1 delivered record bookings, in fact, the second highest bookings quarter Texas has ever recorded, giving us real momentum and visibility as we head into the rest of the year. The story this quarter was expansion. Our installed base, particularly in health care, continues to deepen its commitment to the Texas Elite platform with existing customers substantially increasing their footprint with us. We're proud to count organizations like Prisma Health, UT Southwestern Medical Center and a leading cancer treatment center among the health systems that expanded their relationship with Texas during this period, a strong signal of the trust hospitals place in our hospital supply chain platform as they scale their operations. At Prisma Health, South Carolina's largest private nonprofit health system, the expansion extends beyond initial deployments of our warehouse and pharmacy inventory systems to now include our hospital point-of-use technology across their network, giving clinical and supply chain teams greater visibility as they support 1.6 million patients a year across 19 hospitals. Health care was the primary driver of this expansion activity, but it wasn't the whole story. We also saw general distribution customers continue their migration to SaaS, including Rinhem, a large global distribution customer, and we added a notable new logo in Europe with a growing life sciences company, evidence that our platform resonates well beyond our core North American health care base. Turning to our SaaS metrics. Elite SaaS ARR and revenue growth continued to accelerate. Elite SaaS ARR grew 24% year-over-year or 22% in constant currency, and Elite SaaS revenue grew 24% in the quarter or 23% constant currency. This acceleration reflects both the strength of our SaaS-first strategy and the increasing scale of our Elite platform customer base. We also passed a significant milestone in Q1 with our remaining performance obligations, or RPO, crossing the $0.5 billion mark for the first time, reaching $259 million, up 14% year-over-year or 13% in constant currency. RPO is a key forward indicator of the durability of our SaaS business, and this milestone underscores the growing visibility we have into future revenue. Our strong SaaS bookings and momentum in Q1 give us the confidence to raise our full year fiscal 2027 guidance across the board. Mark will discuss the updated ranges shortly. On the product side, Texas IQ continued to gain momentum in the quarter, helping customers turn supply chain data into faster, more confident operational decisions. We continue to invest in Texas IQ's road map with a number of new AI-driven capabilities in early development that we look forward to sharing more about as they mature. We also continue to advance our FedRAMP program throughout the quarter as we work towards full certification. This progress reflects the broader investment we've made in our security and compliance posture, and it's giving both public sector and enterprise health care customers greater confidence in Tecsys as a long-term trusted platform partner. We're also proud that our commitment to people and culture, including growth in our team in India, helped earn Great Place to Work certification for a third consecutive year across every country where we operate, with 91% of our employees telling us that Texas is a great place to work. That kind of consistency across every market we operate in is something we don't take for granted as we scale. With that, I'll turn it over to Mark to walk through the financial results and updated guidance in more detail.

Thank you, Peter. As a reminder, our first quarter ended July 31, 2026. Q1 was an exceptional quarter for Texas, highlighted by record SaaS bookings for a first quarter, record total revenue and record adjusted EBITDA. Total SaaS revenue grew 18% in Q1, reaching $22.7 million, up from $19.1 million in Q1 last year. That growth was about 17% on a constant currency basis. As Peter mentioned, Elite SaaS revenue, our core product and the predominant contributor to total SaaS revenue increased by 24% compared to Q1 last year. That was 23% growth on a constant currency basis. Total SaaS ARR was $93.7 million at July 31, 2026, up 18% from the same time last year. On a constant currency basis, SaaS ARR growth was 17% -- you'll notice that we've begun disclosing Elite SaaS ARR separately in our MD&A. This additional disclosure is intended to highlight the underlying growth trend we have discussed over the past several quarters and provide greater visibility into a key leading indicator of future SaaS revenue growth. Elite SaaS ARR was $89.6 million at the end of Q1, up 24% year-over-year, representing 22% growth on a constant currency basis. As Peter mentioned, SaaS RPO was $259.2 million at July 31, 2026, up 14% from a year ago or 13% on a constant currency basis. Professional services bookings were lighter, which brought our PS backlog down somewhat. As a result, we expect PS revenue to tick down slightly on a sequential basis in Q2. It's important to note that it's not uncommon for professional services bookings to follow SaaS bookings with a timing lag. As a result, the strong SaaS bookings in Q1 may not translate into professional services demand until later in Q2 or subsequent periods as customers advance through deployment planning and execution. Q1 fiscal 2027 total revenue was $50 million compared to $46 million in Q1 last year. That's 9% growth, 8% on a constant currency basis. Net profit in Q1 fiscal '27 was $3.1 million or $0.21 per diluted share. That's up 306% from $0.8 million in Q1 last year. Adjusted EBITDA was $6.9 million in Q1 this fiscal year, up 113% and from $3.2 million same period last year. We ended the quarter with cash and short-term investments of $35 million and no debt. Cash flow from operating activities was particularly strong driven by profit and strong cash collections. During the quarter, we repurchased 17,400 shares for approximately $0.6 million under our normal course issuer bid. That compares to 21,300 shares for $0.8 million in Q1 of last year. Finally, the Board yesterday approved a quarterly dividend of $0.09 per share. Moving on now to fiscal 2027 guidance. Based on strong Q1 elite SaaS bookings, continued pipeline strength and robust hardware bookings -- we're raising our fiscal 2027 guidance ranges for Elite SaaS revenue growth, total SaaS revenue growth, total revenue growth and adjusted EBITDA margin. Our updated guidance for fiscal 2027 is as follows: Elite SaaS revenue growth of 21% to 23%. That's up from 18% to 20% in previous guidance. Total SaaS revenue growth of 16% to 18%, and that's up from 13% to 15% previous guidance. Total revenue growth of 5% to 8%, and that's up from previous guidance of 2% to 4%. And finally, adjusted EBITDA margin we're broadening the range and extending it on the high side to 11% to 14%, and that's up from 11% to 13% previous guidance. I'll now turn the call back to Peter.

Thank you, Mark. Record SaaS bookings our second highest ever and accelerating Elite SaaS ARR growth of 24% and and crossing $0.25 billion in RPO for the first time, I'll point to real momentum as we open fiscal 2027. That strength gives us the confidence to raise our full year guidance, and we are excited about what's ahead. With that, we will open the call for questions.

[Operator Instructions] One moment, please, for your first question. And your first question comes from the line of Amir Azad from Canacol Genuity.

Peter or Mark, congrats on the strong performance. Peter, clearly, a very strong bookings quarter. In your prepared remarks, you highlighted expansions, I believe, as the primary driver. And I'd like to know if you could give us a better sense of the mix between new logos and expansion. Then on the pipeline conversion side, did Q1 reflect a release of deals that have been delayed over the last couple of quarters? Are you seeing broader acceleration in decision-making?

On your first question, there's no question this quarter was heavily suited towards expansions. It's been interesting for us. Of course, we really have the contributors to SaaS bookings. We have migrations from old on-prem software. We have new accounts, and then we have expansions of customers that are already on our platform. And the we've seen over the last few years, dropping off, particularly over the last 2 years, a real dropping off of SaaS bookings coming from migrations for our base. So we knew we had to sort of get over that. It's like it was this wonderful source of SaaS bookings, but it was -- eventually you're running out of accounts to move across. And most of the sort of early and mid crowd have moved. There's really just sort of a few laggards that are left. So we know that's going to decrease. And certainly, this quarter, that was a -- it was a contributor, but it was a small contributor. -- new account bookings are typically light in summer. I mean, our year ended April 30. So typically, whatever is close to closing, we kind of pushed to get it close to year-end. So then you got sort of May is kind of cleaned out by the April push. You got June to sell something and by July, everybody is living a vacation. So it's typically a tough quarter for new accounts, and this was no exception. I mean it was light on new accounts. We did land on new account in Europe. That said, the -- well, let me just finish on that thought, whereas conversions -- sorry, expansions, I should say, were widespread. We've looked at a number of deals, 1 larger deal, a wide variety of sort of small and medium-sized deals. It was a pretty exciting quarter from an expansion standpoint. Some of that, I think, is partly driven by people understanding what Tecsys IQ is going to do for them and the fact that they have to sort of further roll out our underlying platform in order to for Tecsys IQ to have the data that it needs for the AI engine to operate. But pretty interesting there. From the standpoint of the overall pipeline, as you know, the pipeline really grew substantially a little over a year ago. It's continued to grow. It's up again over this time last year. And we knew that at some point that dramatically larger pipeline was going to start to break and convert to close business. And that's what seems to be happening. I mean, we saw some of the surge start to happen in Q4, continued with a very strong Q1. And -- and even now where we are in Q2, the activity level range very high. And that is across new accounts and expansions from our base. Again, there's a small amount still in there that's migrations. But I mean it added up, we're probably talking over -- well over 90% of the pipeline activity is a pretty even mix between new accounts and expansions of existing SaaS customers.

Fantastic. Just on expansions, and I asked you this a few quarters ago and wanted to revisit it. Among the IDNs that initially came Q specifically for pharmacy, have any expanded into your broader solutions.

I don't think so yet. No, not yet.

Although 1 of the question. One of the expansions that we had this quarter was 1 that had purchased pharmacy, but they were also using other products as well.

Yes. Yes.

Fantastic. I'll revisit in a few quarters. Just to close the loop on the noncore piece, by our mass, Elite ARR increased about $7.5 million sequentially. -- and the non-elite ARR declined by roughly $0.5 million. Is that the right way to think about to the quarter? Or is my math wrong? And are we now at a point.

Go ahead. That's good math.

Okay. Fantastic. Then -- okay. Mark, while I have you, like on the like the Q1 EBITDA margin like 13.7% already near the top of the new 11% to 14% range. At Q4, you said the restructuring savings were fully embedded in your original guidance, but not all the planned reinvestment had happened yet. So when I'm looking at your Q1 numbers, should we expect any meaningful step-up in operating investment through like the balance of the year? Or is the quarter closer to the underlying sort of earnings run rates?

Yes. No, we're expecting to -- we're expecting to increase investment. We'll be doing some hiring. We'll be doing some hiring pretty broadly across different functional areas. I mean we're continuing to scale the business. I think that investment is going to be quite measured. But you will see an increase in investment in the quarters ahead this fiscal.

Next question comes from the line of Gavin Fairweather from ABB Cormark.

Congrats on the strong quarter. Maybe just circling back to bookings. I mean, just very strong, especially for Q1, which is seasonally weak. Like I'm just curious what you attribute that to? I mean are you seeing just more buying intent or urgency in the base? I mean any kind of further color would be helpful.

Yes. I mean, first of all, Gavin, there is always a certain amount of lumpiness in our business, right? You just the sheer deal size relative to our size, creates lumpiness. And I don't think that lumpiness is going to go away for quite a while. So we -- some of it, I would just attribute to normal lumpiness if there's such a thing as normal when you're talking lumpiness. But the other factor is I think our -- like in fact, we know our sales organization is getting much better at using the data out of the hospital networks to put together a return on investment prediction. that can now be backed up with sort of realized stories for other accounts that have already done it. And once you get an ROI study, in front of a hospital executive team that shows they're going to save $200 million over the next 5 years by deploying our platform or whatever the number is. it creates some real urgency around it. And most of these hospital networks are now in a position where whatever -- I mean, politics in the U.S. continues to sort of ebb and flow, and there's lots of different factors going on there. but the overall long-term trend is reimbursements are declining, and the population is aging, and doctors want to make more money every year and nurses want to make more money every year. So there's only so many places they can go to save money and try to sort of balance the cash flow picture. And better, much better management of supplies and drugs is a huge source of potential savings and maybe, in fact, the primary source of potential savings. So as we're getting better at sort of data backed to ROI studies, we're seeing across the board acceleration in the pipeline. So we're continuing to invest in that. We've continued to build out the team that puts that together. We have a pharmacist. We have a nurse. We now have a part-time surgeon that's part of that team as well as some good sort of math and supply chain guys that work together as a team to build out these ROI studies. And it seems to be proven very effective.

You talked about pipeline still growing year-over-year, but I'm curious if you grew it sequentially in the quarter given the strong bookings.

We did. Actually, it actually continued to grow in the quarter in spite of the bookings that obviously came out of the pipeline.

Awesome. Good to hear. Maybe just on FedRAMP a few things, like maybe you can just update us on the timing of milestones to completion -- also curious if you've done any kind of work to size up the TAM and also curious for your thoughts on some of the political noise around the GSA this week and whether that could impact opportunities out there?

Yes. I mean, first of all, on the -- your question about the what's happening at FedRAMP. I mean the FedRAMP process is underway. There's sort of 2 main phases to FedRAMP certification. One is you work with a FedRAMP consulting firm to basically review, I don't remember the number. I think it's processes and procedures and technologies that have to be reviewed to make sure they can form the FedRAMP standards. That work is done. We've produced sort of the 900-page book that documents all that. We're now in the stage where there's a second company, which is considered a FedRAMP auditor that's now in their reviewing everything we've done to make sure that it passes muster. -- and we are in that process right now. So assuming that process goes well, we expect that we will achieve full certification by sort of late winter, early spring is kind of where I would put it. We might be able to beat that quite a bit. But right now, that's what it's looking like. In terms of the sort of the political noise going on and discussions around GSA schedules and so on, we do a small amount of business through GSA. but it's a very small amount of business. And we are also set up with a -- we do quite a business in the U.S. So we have a U.S. subsidiary, Texas U.S. Inc. And so it's possible that we may need to sort of shift more contracts to our U.S.-based business, but we don't anticipate it being a problem. It may just be a change in sort of which 1 of our legal entities as the contracting.

Great. And then lastly for me, just on SaaS gross margins. Can you update us on where those stand? And when I look at your slide deck, it looks like you're still targeting 70% for this fiscal year, but can I dig through the services gross margin this quarter feels like you might order to be operating there within kind of striking distance. So maybe just discuss where those are right now and the pace of gains for the rest of the year.

Yes. Mark?

I'll take that 1 Peter? Sure. Sure. Yes. Gavin, you're right. We are -- we are very close to that level now. But we do have -- as I mentioned on 1 of the prior questions, we have some investment coming. So we see some expansion opportunity from new bookings that are always accretive to margin. We do expect to continue some investment there in the current fiscal year. So we sort of -- we've got line of sight on that 70%. We're still holding our -- we're still holding our objectives on that number for the short term. Clearly, longer term, our eyes on a much bigger price. And just by way of example, the these expansions that we put on in this quarter, a lot of expansion dollars in the bookings. Those are coming in at incrementally quite high. quite high margins, 80% plus. So there is definitely a runway for continued expansion beyond this fiscal.