Sylogist Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Cilogis Limited Third Quarter 2024 Results Conference Call and Webcast. I would like now to turn the conference over to Jennifer Smith with Lodewrock Advisors. Please go ahead.

Speaker 1

Thank you, Alan, and good morning. Joining me to discuss Cilogis Q3 fiscal 2024 results are Bill Wood, Cilogis' President and Chief Executive Officer and Sujit Khini, Chief Financial Officer. This call is being recorded live at 8:30 am Eastern Time on November 7, 2024. Our Q3 press release, MD and A, financial statements and accompanying notes have been issued and are available for download on SEDAR Plus. Please note that some of the statements made on the call may be forward looking.

Speaker 1

Actual events or results may differ materially from those expressed or implied, and Solisys disclaims any intent or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The complete safe harbor statement is available in both our MD and A and press release as well as on syllogis.com. We encourage our investors to read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. Before, we will also discuss non GAAP performance measures, which should be reviewed as supplemental.

Speaker 1

The MD and A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are in Canadian unless otherwise noted. I'll turn it over to Bill first with opening remarks, then Sujeet will review our Q3 financial performance, after which Bill will conclude scripted remarks, at which time we will open it up for questions. Bill?

Speaker 2

Thank you, Jen. Good morning and good afternoon to those of you joining us overseas. Building on the momentum we generated the first half of twenty twenty four, it was a strong Q3 for the business. Our results continue to validate the successful transition to a SaaS driven enterprise with growing recurring revenue and effective and engaged partner network and an expanding presence across our 3 strategic markets. In short, we're very pleased with the results we're seeing from the execution of our value creation strategy.

Speaker 2

I'd like to add some color to our Q3 performance. We saw 14% year over year bookings growth in the quarter, especially encouraging was our success with customer upsells and cross sells that's largely attributable to happy customers using more of what our SaaS platforms now offer. I also want to highlight that nearly 40% of our bookings came from our Cylogist Ed sector, reflecting the continued acceleration I've been signaling was on the horizon is now clearly occurring. The success we're seeing from our targeted competitor displacement strategy, the success of our SaaS offerings relative to the competitive landscape and strong customer referrals drove our overall win rate even higher to above 70% in Q3. This impressive win rate is inclusive of both direct and partner led sales motions.

Speaker 2

We're now seeing an increasingly balanced pipeline in bookings across all three strategic markets, so just Mission, Ed and Glove. At the end of Q3, our bookings pipeline is up 122% year over year. These leading indicators bode well for more balanced SaaS ARR growth across all three sectors as we look out to 2025 and beyond. 1 of the pillars of our value creation strategy is a carefully selected, aligned and enabled partner network to allow us to scale profitably and capture market opportunity quickly. It's been just over a year since we turned earnest attention to building a strong partner community and we're well ahead of plan in terms of the results we're seeing.

Speaker 2

As of Q3, partner attached bookings have grown more than 700% year over year and grew 52% quarter over quarter. Partner attached bookings represented almost 50% of our total bookings this quarter compared to just 7% in Q3 of 2023. In our CELIGIS Mission and CELIGIS Gov sectors, so net of CELIGIS Ed where we don't yet engage partners, partner attached bookings came in at 77 percent of total bookings, again, a very strong result for a KPI that bodes well for future value creation. To help ensure project implementation success, we continue to maintain our expert internal team to both empower the expanding partner community as well as deliver Celgys' mission, gov and ed project services to customers directly. As our community of high quality partners becomes more self sufficient, we see increasing leverage in sales and even more importantly, broader implementation capacity in the back half of twenty twenty five and beyond.

Speaker 2

As we execute our channel strategy, one of the outcomes is the accelerating handoff of our direct to customer project service revenue. This effectively inhibits our top line revenue growth in the near term as we settle to a new top line revenue mix that's increasingly comprised of more lucrative SaaS ARR. As I've said previously, this is an exciting purposeful shift and we're very pleased it's happening at a faster than expected clip as it validates that our partner strategy is working. To that end, strong execution continues to drive robust growth in our higher margin ILTB SaaS ARR as well as our SaaS NRR. Our SaaS ARR increased by 13% year over year to just shy of $30,000,000 and SaaS NRR came in at a healthy 107%.

Speaker 2

I'll pause here and let Sujeet take you through our financial performance for the quarter in a little more detail. Sujeet?

Speaker 3

Thank you, Bill, and good morning, good afternoon everybody. Before we get into the numbers, I wanted to remind everyone that in Q2, 2024, we completed the divestiture of our managed IT Services division. In order to facilitate an apples to apples comparison of key financial and operating metrics, all comparisons to prior periods have been adjusted to reflect the sale of this division. Additionally, within our Q3, 2024 MD and A, we have included for your reference a 4 quarter table that quantifies the revenue and adjusted EBITDA impacts of the Managed IT Services division. As Bill mentioned, our Q3 results demonstrate the meaningful transformation of Cylogist into a SaaS enterprise whilst staying focused on profitable growth.

Speaker 3

Total revenue for the quarter was $16,600,000 led by 15% growth in our SaaS subscription revenues. This growth was partially offset by an anticipated decrease in project services revenue related to our strategic shift to a partner led delivery model. Overall revenue growth continues to be driven primarily by a Cylogist Mission segment that grew at 15% year over year, closely followed by Isoegist Edge segment that grew by 10% year over year. Q3's overall comparative year over year revenue growth was additionally impacted by significant levels of non core hardware sales that happened in Q3 2023. I want to remind everyone that we had a large hardware booking within our Synergous Solutions business segment in Q3 2023 and this was in the amount of $545,000 So absent the impact of this hardware sale in Q3 2023, year over year top line revenue growth would have been approximately in the 6% growth range that is year over year Q3 2024 versus Q3 2023.

Speaker 3

Our gross profit margin for Q3 2024 was relatively consistent with recent quarters coming in at 60% for the current quarter. Total operating expenses for Q3 2024 were also relatively consistent at 34% of revenue compared with 35% during the same period last year. G and A expenses decreased by $600,000 to 2,700,000 in Q3 2024 compared with the corresponding period last year coming in at 16% of revenues compared to 19% of revenues in Q3 2023. This decrease in G and A is a result of various operational savings in the current quarter. Sales and marketing expenses for Q3 2024 were $2,000,000 or 12% of revenue compared to 1,700,000 dollars or 11% of revenue in the same period last year.

Speaker 3

This increase was due to anticipated strategic investments made in additional sales quarter carrying headcount and increased marketing programmatic spending including the spend on our Cylogist Ed user conference. Our sales and marketing FTE headcount increased to 26 people at the end of Q3, 2024 up from 22 people at the end of Q3, twenty twenty three. Net R and D expenses for Q3, twenty twenty four were consistent at 6% of revenue for Q3, twenty twenty four compared to 5% of revenue for Q3, twenty twenty three. Similarly gross R and D expenses were consistent at 14% of revenue for both periods. Adjusted EBITDA for Q3, 2024 was $4,200,000 and our adjusted EBITDA margin came in as expected at 25.3% in the current quarter compared to 27.2% in Q3, 2023.

Speaker 3

At the end of Q3 2024, we had $13,000,000 in cash. This level of cash is in line with the seasonality of our operations and the renewal cycle of a material cohort of our Celgist Ed customer community. On October 31, 2024, we renewed our corporate credit facility. The renewal now includes a revolver for CAD 50,000,000 that's CAD 50,000,000 with an additional CAD 75,000,000 optional accordion feature. This is in comparison to the prior facility which is essentially a revolver for a headline amount of $125,000,000 The new credit facility is committed for a 3 year term and is renewable annually thereafter.

Speaker 3

We purposefully constructed the renewal in this manner as it saves us approximately $200,000 in standby fees annually, while at the same time preserving access to the same borrowing range that we would have had under the prior facility. And finally, I would also like to point out that at the end of this quarter, we completed the 3 year anniversary of the Mission CRM acquisition and its related earn out. Inclusive the accruals for the 3rd year earn out, the total purchase consideration for this acquisition is approximately $7,800,000 We're extremely pleased to say that the overall ARR for Mission CRM at the 3 year point or its 3 year mark is $1,900,000 This compared to $140,000 when we acquired Mission CRM back in October 2021. All of this is a compounded annual growth of approximately 141%. And so this acquisition we believe has undoubtedly strengthened our mission, platform and team.

Speaker 3

With that, I will hand it back to you Bill.

Speaker 2

Thank you, Sujeet. With our 3 leading SaaS platforms now in market, our competitor displacement strategy gaining traction and the successful shift to a partner driven model, we're well positioned to deliver increasingly profitable growth that's scalable, repeatable and aligned with long term value creation. To the credit of our outstanding team and a customer first mindset, our investments are yielding the desired results. We've laid the foundation for growing very sticky reoccurring revenue, expanding free cash flow and enhanced margins that we expect to become even more evident in the back half of twenty twenty five. Make no mistake, we envision a day when CELAGIST is a materially larger enterprise with operating leverage.

Speaker 2

Thank you for your continued confidence and support as we push Cilogis to new heights. With that, let's take some questions.

Operator

We will now begin the question and answer session. Our first question comes from Amar Azat from Ventum Capital. Please go ahead.

Speaker 4

Good morning, Bill and Sajid. Just a few questions. The first one, can you update us on the pace of your targeted competitor displacement? I'm wondering how does it compare to the previous few quarters? Is it holding steady?

Speaker 4

Are you seeing it accelerate?

Speaker 2

Good morning, Amer. We're actually seeing it accelerate. It's now we're expanding the aperture of who those targeted competitors are as our now all three platforms are in market. So we have crosshairs in the ed, gov and mission segment. Within the mission segment specifically, we're seeing good strength in that area, continuing strength and better efficiencies as we work through each and every one and light up new customers from a given competitor.

Speaker 2

So it's the momentum is building to feel really good. It's sustainable for many quarters ahead.

Speaker 4

Fantastic. On your NRR for the quarter and still just Ed, We saw a slight dip in NRR quarter over quarter. I also expected to see a bigger sales number in education, especially with the strong bookings last quarter. The MD and A notes some anticipated attrition in the vertical that impacted NRR. Can you maybe give us color on that?

Speaker 2

For sure. There were some legacy customers deepened their cycle in terms of where they fit with our go forward, so I just said strategy. So I would consider that the kind of cycling of some strategic attrition that we had identified several customers within the legacy customer community that really weren't good fit for the go forward. And so because of the budgeting cycle, they kind of went off as a cohort in that Q3 timeframe. Nothing really should be derived from that as any tended churn picking up or whatever.

Speaker 2

It was really more of a strategic churn in that than anything that gives us pause.

Speaker 4

Okay. And is that mostly done or do you foresee more of that over the coming quarters?

Speaker 2

We see that mostly done. Well, there may be the odd here and there, but ultimately we have a good sight line to that community. We've been engaged with them for several years now and we have a very good handle on the go forward. We think anything that would happen churn wise would be minor as we think about the go forward.

Speaker 4

Great. And then I guess on your partner strategy, I wonder, can you share with us what kind of SaaS growth rates you'd anticipate as we enter 2025 with an increased implementation capacity both internally and externally? You're sort of going SaaS in the mid teens. Do you guys like foresee 2025 to be like materially higher in terms of like SaaS growth with that new or with the new capacity?

Speaker 3

Yes. Good morning, Amar. So from a 2025 perspective, one of the comments I'll make is obviously working.

Operator

Pardon me, Sujeet, is your line muted?

Speaker 3

My apologies. Can everybody hear me now? Amar, can you hear me?

Speaker 4

Yes, yes. Loud and clear. We missed all the good parts.

Speaker 3

No, my apologies. I was speaking into a muted mic when Bill was trying to get my attention. So to answer your question, Amar, I would look at it in terms of maintaining SaaS growth rates at the current rates. Since your question is more specific to the partner channel, certainly we do see lots of traction happening there. But just from a pure modeling perspective, I would view it as maintaining our SaaS recurring revenue growth in kind of the current range and part of that also is in connection with there is, if you will, a certain lag between the bookings and the revenue and essentially maintaining the growth rate at the current levels allows for that limited lag if you will.

Speaker 3

And that's kind of how we are thinking about it within R SHOP and like I said, we are at the moment looking through our pipeline in terms of the impacts on 2025 and how that would translate out into bookings and bookings into revenue. But my answer really would be to continue to maintain it in the range that it is right now.

Speaker 4

Okay. I would have thought we'd see an inflection point given that you've got like increased like implementation capacity. At some point, we see like SaaS grow from 15% to like 20 something percent range?

Speaker 3

The answer is yes. I mean there will be an inflection that will happen. I think the more nuanced or the more of the refinement to that is putting a pinpointing exactly when that inflection will happen and that's sort of where I think we need to think through the fact that there is a little bit of a lag between bookings and revenue and the inflection point has a lag effect compared to the actual booking happening.

Speaker 4

Understood. So it's happening, but it's hard to pinpoint when. That's great. Then maybe one last one, any updates on CelgisPay that you guys can share with

Speaker 2

us? Nothing in this quarter. We believe we'll have some updates in the coming periods, but nothing has materially changed from our belief that Silagistat continues to be an integral part of our strategy as we monetize the transactions flowing through the platforms. And ultimately, as we see more of the mission gov excuse me, Cilogis gov activity and the transactions that flow through those that platform within municipalities, we see strength there as well, but stay tuned.

Speaker 4

Okay, great. Thanks for taking my questions.

Speaker 2

Thanks, Omar.

Operator

Our next question comes from Gavin Fairweather of Cormark. Please go ahead.

Speaker 5

Hey, good morning. Thanks for taking my questions. Maybe just to start out Bill on the partner channel. Can you refresh us on how many partners you're up to now? And I'm also curious kind of how mature that partner cohort is?

Speaker 5

Are they all kind of reaching the level of bookings and deal generation that you would expect or are some of those still in the process of ramping?

Speaker 2

We haven't given a specific number, but it is approximately 2x from where we were this time last year. It's fulsome in terms of the coverage we're looking for at this point. I would say a solid third to a half of those are now getting their legs underneath them and we're moving into the phase where they're not shadowing us, but we're shadowing them in terms of implementations, while the newer partners are more in the former part of going through the certification and training. So it is it's very pleasing to see the activity worse inbound activity we're seeing from the partner community who are anxious to be able to carry our flag. They have identified us as a leader for the specific solutions that they're looking for, for their customer cohorts that are looking to upgrade.

Speaker 2

So we think the go forward is very exciting as that community continues to build out. But I would say about half of them are now flipping to the more partner led versus our shadowing side, which is a great signal.

Speaker 5

Yes, that's great to hear. That's great

Speaker 2

to hear.

Speaker 5

And then the KPIs you shared are super impressive in terms of the pipeline and the win rates that you're seeing. It strikes me as though you just need to see more deals. I mean, I'm curious what those metrics are telling you in terms of the need to invest in marketing and partner enablement and potentially a few more bodies and the direct sales force. Agree. As we now have the motions reflected, we're not just throwing

Speaker 6

money into the wind.

Speaker 2

We do believe as we look at enabling the partner community to be able to bring us into deals as well as us being able to activate deals ourselves, we see the ability to now get even more efficiency out of our marketing motions and as well as our customer referrals are starting to become more meaningful as our pod of gov and ed customers expand. We were starting from relatively a very small base and ultimately wanted to make sure that would progress in a thoughtful way before we got out over our skis of more people knocking on the door that we could accommodate. But we're now through that gate and we feel that there's so the scalability portion, we feel very good about. And now that's really being supplemented by the idea of our pipeline is growing with more balance and really materially year over year. We feel good about what growth can occur in the coming quarters in terms of just bookings.

Speaker 5

Appreciate the color. And then just on Gov, I know you've transitioned some customers onto the new SaaS platform and partners are increasingly working with it on deals. Can you just provide a bit of color on the feedback that you're getting from that existing customer cohort that's moved over and the partners that are increasingly looking to sell it? And how is that kind of influencing your view on the growth prospects for that platform going forward?

Speaker 2

On the customer side, they're delighted. They were able to transition from a standpoint of core business functions and now in powered with a fully SaaS platform. The prospective customers, the RFPs that are out there, we see almost an open arm welcome, thank goodness you're here because there really has been a void of new technology for the segment that we're aimed at. So the RFP activity is very strong. The desire for the Microsoft based platform is very strong.

Speaker 2

We're well positioned obviously and uniquely positioned there. So we have we're quite bullish on the gov sector in terms of an accelerator for us as we think about the go forward and as we expand the footprint, not only east to west in Canada, but into North America overall. So partners will be a big part of that. That is 100% partner driven. And they have cohorts of Great Plains customers and so on that they've been looking for a solution to be able to fit the needs and budgets of customers that really hasn't existed for some time.

Speaker 2

So we're very excited about the gov sector overall, and we think we're now in a very good position to accelerate in that space.

Operator

The next question comes from Suthan Sukumar of Stifel Canada. Please go ahead.

Speaker 7

Good morning, gents. Congrats on a solid print. For my first question, I wanted to just touch on your quarter market success to date. It's really good to hear that competitive displacements are sustaining well. But just kind of curious, how much of your go to market success to date has been driven from greenfield opportunities, meaning going after that segment of the market that has yet to adopt any meaningful technology?

Speaker 2

That segment, just greenfield, is quite small. The technology may be really dated, which is very common in the ad and gov and frankly, a little less so on the mission sector. But most everyone is coming off of an existing system of some sort. As I said, it could be maybe in place for decades. The key and I'll give you a sense of displacement and our displacement strategy, almost 75% of our bookings in this quarter were with targeted competitor displacements.

Speaker 2

So that really gives you a sense of, A, our focus, the efficiency that we're bringing to those motions, the activity that's going on within those cohort communities that now have visibility to us as a viable and exciting alternative. And so I would say that the motions around our targeted displacement shouldn't be taken as a small pond. It's a very, very large ocean of opportunity. We're just focused on those where we can win at a very high rate and have good efficiency to lead to happy customers.

Speaker 7

Great. Fantastic. My second question, Bill, is really around the education vertical. Can you talk a little bit about the strength that you're seeing there? I think following last quarter, I may have been maybe incorrectly anticipating a little bit of normalization in the pace of bookings growth and how that translates to revenue growth.

Speaker 7

It looks like the strength is continuing. Can you talk about some of the factors for the success underlying the strength there?

Speaker 2

It is the validation of our lift and shift of the technology that we acquired in Oklahoma that was specific to Oklahoma and now successfully lifting and shift that shifting that to North Carolina, lighting up customers existing as well as new on that platform and then the permeation of that out to other school districts that have been looking for a solution and aren't happy with their existing. And that also is then our springboard as we think about 'twenty five and beyond into targeted other states. So it really is you got to earn your stripes in a new state, if you will. There's covenants related to what the idiosyncrasies are. But from a software standpoint now, we've taken all the hardwiring out that was specific to Oklahoma.

Speaker 2

And now any state that we move forward, it was validated in North Carolina. We can handle the nuances of state idiosyncrasies without any change to the software itself. It's more setup related. So it now gives us the ability to think about scale differently than we had thought of it before when we were first needing to validate that what we believe was true is now proving out to be so.

Speaker 7

Excellent. And on the government segment, it's good to hear you're quite bullish on the opportunity there and really the opportunity to expand across North America. Can you speak a little bit about the strategy to protect your existing base, I guess, with like from a migration standpoint? And just a reminder of what are the key levers here to drive organic growth in the government segment?

Speaker 2

The moat for protecting existing customers is largely there's few to no real viable alternatives, if you will, that meets the sophistication as well as the contemporary posture, security posture of the platform such as syllogist. We are in a very good place now in terms of our ability to demonstrate to partners that we have not just a solution on the come, but something that now is working in cities and towns that they can spin up on and take to their cohorts of customers to say we have something that you really need to look at. We also have now created visibility through technology and AI where we can go out and across North America track all of the RFPs that are going on within the gov sector. And that gives us a real good sense of timing of what our pipeline should look like, where we're pointing and where partners are already spending their efforts. So we are sharing that platform and that data with them and so that we're making sure that we're aware of opportunities that are on the horizon and are in the queue to make sure that either we're part of that bidding process, But even more importantly, some of them and many of them and it's increasing, we can get out to a sole source provider scenario.

Speaker 2

So they don't go out to or aren't forced to go out to a bid procurement because we have unique technology, the Microsoft platform built on Business Central that if their needs and desires are of that ilk, they can come in and look at us as a Salesforce provider. So that really shrinks the sales cycle as well. So we're all systems go on the gov side at this point and our partners are really enthused and they're actually adding people to better assess the data that's coming into them to be able to get their kind of attack mode of go to market using our platform ramped up.

Speaker 7

Okay, great. That's good color. Last one for me guys is just Microsoft. Can you provide a quick update on how this relationship is evolving? And what was the level of contribution to bookings and pipeline this quarter?

Speaker 7

And what do you expect in the quarters ahead?

Speaker 2

I'll take the business side of it. We feel really good about our commitment to the Business Central platform and Dynamics 365 CRM platform. We get so many advantages vis a vis our competitors on the AI front, on the security posture front, on the cloud, scalability front. And it's what our customers and what prospective customers are looking for. Microsoft is becoming almost a de facto kind of platform of choice within or provider of choice within the segments that we serve in the public sector.

Speaker 2

So that's a great tailwind for us relative to Microcept as a partner. And we're also now having a couple of years of engagement and through Grant McLarnan's efforts and his deep experience with Microsoft as managing it from KPMG to Microsoft previously, we really expanded how we work with one another and make sure that we are aligned in our marketing efforts and how they think about their go to market in terms of the public sector and really showcase us as a premier partner for that side. They're vertically they're horizontally oriented, so they're very reliant on vertical partner like us to be able to deliver their technology, sell their SaaS subscriptions, but with the vertical additions that we add to their horizontal solutions. So we feel good about it, really good about it on the acceleration side and maintaining and containing our R and D spend going forward. Anything on this on the financial side you want to add there Sujit?

Speaker 3

No, Bill and Suthan, good morning. I don't believe and I don't recall us having talked about the financial impacts of the Microsoft relationship either on the booking side or on the cost side. But again, I will reiterate the huge, huge advantage of that relationship is obviously on the R and D side. And on kind of on the business side, it's that ability to leverage off the relationship and more often than not actually get walked into deals because of the Microsoft relationship. But we don't share numbers related details in terms of bookings attributed if you will to Microsoft or anything on those lines.

Speaker 7

Thank you, Sujeet. Thank you, gents. Great update. Thanks for taking my questions. I'll pass the line.

Operator

Our next question comes from Daniel Rosenberg of Paradigm Capital. Please go ahead.

Speaker 8

Hi, good morning, Bill and Sujeet. My first question was around the partner channel. And so I think you mentioned doubling the number of partners since last year, which is quite a positive to see. I was wondering going forward if you think bookings, is it about going deeper with these partners? Or do you plan on expanding again?

Speaker 8

That number was just, yes, quite doubling is quite significant. So just curious about any details there.

Speaker 2

Good morning, Daniel. As I said earlier, we have a lot of inbound from Microsoft certified Business Central and others that are well known names across North America, firms with IT consulting, digital transformation and specifically financial practices on the consulting side and implementation for the public sector. If they have a Microsoft orientation as a partner and that's really our segment and many of them have also moved to

Speaker 6

that platform for the reasons I said before, it's what people want.

Speaker 2

We do partner community expanding. We're not doing it at, hey, we're open for business, anybody want to sign up. It's not our mode because we really want to make sure their commitment to the effectiveness of the implementation and the long term partnership is sincere. And so I don't mean to say that they're coming to us with false pretense, but the reality is, is we want to peel back and make sure that they have their sustainable partners. Partners coming in and out is a costly proposition for us as we think about the go forward.

Speaker 2

There's a lot of it, Daniel, that are docking on our door that we're in discussions with now and we are in a good position to be able to kind of select which ones fit well for us. But also we're very appreciative of the additive aspect of what they bring to our team, particularly visibility and girth. Many of them have really mature programs in the public sector and deep customer relationships that are really benefiting us as we start to win more deals and they put us on more deals. So it's very positive. We see it building as we go forward.

Speaker 2

And undoubtedly, I think they will go deeper with us. And I think we will also add partners in count without question.

Speaker 8

Okay. Thanks for that. I was also curious about the displacement that you spoke of. I was wondering what is that balance between the local solution or smaller players versus some of the larger incumbents? Is that any of that displacement coming from the big guys today?

Speaker 8

And do you

Operator

see that changing as you look to the future? I

Speaker 2

have to pause. Big guys is relative in terms of who that could fit. I will say that we are our displacement strategy is not kind of one that's focused on down market. We are very much focused on our ICP and the displacement is very much associated with our ideal customer profile in each of the segments that we're working on. So no, we're not seeing any deal deflation in terms of our overall booking size whatsoever, and we're actually seeing some expansion there.

Speaker 2

So we're I would say in certain markets, we are very much displacing the big guy, if you will, or big guys, if you will. Others, in the gov side, we're never going to be a replacement for some of the high end SAP kind of solutions that really compete for those uber large cities. That's not our ideal customer profile. So I wouldn't measure ourselves against the large deal. But what we are seeing is really good strong deal value continuing and growing as we think about not only the initial install, but the upsell and cross sell as they use the platform more, bring on more users and bring on more functionality.

Speaker 8

Okay. Thanks for that. And then my last question is just around M and A. You mentioned the success of Mission or you provided some data around the success that you've had. I was wondering how you guys are thinking about the M and A market today, any opportunities or challenges when you look at what's out there as it relates to Solicitis?

Speaker 2

Yes. Our appetite has not changed. We continue to make sure that we're not adding burden to ourselves that doesn't make sense, a lift that doesn't make sense. There are continuing targets. We continue to have both direct outreach on an ongoing basis as well as through many partners that bring us possibilities as well.

Speaker 2

We have a strong appetite. We continue to look at a credit facility that allows us to matriculate on deals if they make sense. We haven't seen a lot of the deal values come down. Overall, we still feel that good assets are demanding or getting a lot of activity, if they do come to market in a more public process. We continue to look at opportunities that may not be yet in a process and provide a compelling case as to why preemptively we would be a good buyer.

Speaker 2

So we're very much on that hunt, Daniel. We just over the last few quarters haven't been able to bring across something that we thought made sense for our value creation product.

Speaker 8

Thank you. I'll pass the line.

Operator

Our next question comes from Adam Wilk of Greystone Capital Management. Please go ahead.

Speaker 9

Hi, good morning. Thanks for taking my questions. You guys had, there's been a lot of focus on the sort of inflection of SaaS revenue growth in the near term and I guess over time. But you have previously mentioned the sort of balance of your internal capabilities and resources, making sure that the customers are taken care of rather than just plowing forward with as much growth as possible. Do you still feel like that remains the case in terms of where you sit today?

Speaker 9

Or can we just get an update on that sort of, I guess, bottleneck, my word, not yours, in terms of where that sits today?

Speaker 2

Hey, Adam. Good morning. Yes, great question. And I think it's kind of somewhat of an adaptation of a prior one. We do see undoubtedly SaaS ARR revenue growth increasing.

Speaker 2

We're just trying to make sure that over through mid-twenty 25, we're not overstating what we believe is possible, but our capacity is growing both in terms of our direct and indirect. The efficacy is sky high and our ability to have greater implementation capacity with partners now being able to stand on their own 2 feet and deliver that. So that allows us to get to SaaS ARR more quickly and through implementations with a high degree of success. So I would say that we are coming out of the bottleneck. It's still we're still consider the success to be precious.

Speaker 2

We were not necessarily just saying, come 1, come all. But we're now in a mode where we have clear visibility to greater capacity, both on the booking side and in all three markets, whereas we were kind of a single piston machine before. So I will generally say that in the back half of 'twenty five, we see and I tried to speak to that in my opening comments that we see strengthening acceleration and leverage as we get into the back half of twenty twenty five.

Speaker 9

Okay, excellent. And then just an update on capital allocation priorities would be great. I know previous caller asked about M and A and maybe I'll just add, if there was a deal that made sense for you guys, would it could you just talk about what that might look like in terms of would it be are you more focused on the product side, geography type of customer? Would just love to get your thoughts on that. Thanks.

Speaker 2

Sure. It really does continue to be consistent with where we were previously. We will look at exercising our NCIB. We still feel there's lots of headroom in share value. And so we do and the renewal of our NCIB undoubtedly will be occurring and we'll be exercising that as the Board sees fit.

Speaker 2

But that continues to be a value creation opportunity for our shareholders. On the M and A side, I'm staying true to my word there. We're not as our win rate reflects, we are very, very complete on the IP side, but that does not in any way prohibit us from bolt on, add on IP to our platform. That's the concept of a platform where we can easily think about complementary synergistic IP that would apply to a school district, to a municipality and to a charity. So we look at it from the standpoint of strategic.

Speaker 2

I don't want to call them just tuck ins. It could be material, as well as the idea of how do we think about customer density as a key priority of M and A. Can we find an entity that maybe has legacy solutions that has a good customer cohort that has made the decision that they are not going to bridge to a full SaaS platform or that is just a risk in cash to do so is going to be too daunting. So that is very attractive in terms of our crosshairs of where we could already have existing technology and think about a deal and a deal structure that would allow an owner of a legacy customer community to work with us to upgrade those customers to our platform. So and also on the M and A side, it may not always be an acquisition because we now have a broadened partner community.

Speaker 2

They have relationships with many, many solution providers that may not be in the business to be not thinking of sale, but may be in a situation where they and we can derive royalties and dollars from them plugging into our platform and having access to our customer community. So that's another area where we see revenue opportunity, not necessarily through acquisition, but through a kind of partnering with synergistic providers. So that necessarily isn't capital allocation required, but it broadens out how we think about adding value and adding scale. M and A for, as I said in my closing, we see Cilogis as a materially larger enterprise with leverage. That's both organic as well as inorganic.

Speaker 2

So we're committed to both sides and we are we have the team, we have the muscle memory and then we have a really good playbook to be able to think about acquisitions in a positive light.

Speaker 9

Excellent. Thank you. Just one follow-up on that, the synergistic partner efforts that you mentioned and as a source of revenue, what has to take place for you to sort of turn that on, so to speak?

Speaker 2

Not a lot. Not a lot has to happen Not a lot. Not a

Speaker 6

lot has to happen technically.

Speaker 2

We're continuing to build out our API suite to make that happen in a way that is kind of doesn't require don't look behind the curtain, but is very much plug and play because we are part of that Microsoft Business Central as well as CRM platform. We get a lot of those plug ins that happened technically kind of out of the box. So it's just really making sure that we are first focusing on our own knitting and bringing customers on and making sure that we have really good success in that gov and ed sector at a high level and we can it's very repeatable. And then we think about complementary IP. But those discussions and those from a strategy standpoint are already going on and our Director of Partnerships and our Chief Revenue Officer, Grant McLarnon, are all ears and engaged in conversations around how we what that could look like going forward.

Speaker 9

Okay, excellent. And then last question for me. You've been obviously know the sort of margin targets or sort of soft guidance that you've given in terms of your level of investment. But as you scale, I think I may be asked this question every quarter, but as you scale, if there's opportunity to invest more or to throw some dollars at something you're trying to accomplish, whether it's white space, displacement, are you comfortable maybe giving up some margin to do that? Are you holding firm on where you guys are?

Speaker 9

Can you just talk a little bit about the trade off there?

Speaker 2

I'll try to be consistent. We undoubtedly still because it's foundational to our thesis as well as kind of how we're thinking and what the Board is thinking about in terms of building the business. Profitable growth is key. We're not looking to drain the piggy bank and try to Hail Mary it. But undoubtedly, as when we have that kind of efficacy in our close and win rates happening, it certainly supports more and more lean in in terms of and the questions happen a few different ways today on the call here.

Speaker 2

We're very comfortable with more lean in because it now is if we can get 1 plus 1 equals 3 or 4 because of our sales and marketing motions and the efficacy of then also the wallet share expansion that we're seeing, The lean in for us to be able to think about top line, it's a big part of how we think about it. Again, I just want to stay, our top line right now growth is just

Speaker 6

wonky because we're decelerating a major contributor to what that was

Speaker 2

in years past on project services. That's to what that was in years past on

Speaker 6

project services.

Speaker 2

That's purposeful. And so I just bring that back as a key theme. We want to get to SaaS ARR. That is happening now at a good clip. We see that expanding going forward and we see it expanding with leverage in terms of the sales marketing motions directly as well as the idea of what our partners could add to our leverage on the sales and marketing side.

Speaker 2

So growth continues to be focused and we will think about a balanced rule of 40 discipline, but ultimately how that flutters between growth and EBITDA will be something that is generally opportunistic as we think about it. Now is the time. We've put in the investments. We've actually now come to market. There's a lot of excitement.

Speaker 2

We'd be remiss not to lean in and push on that. But it's going to still be done through that rule of 40 posture and the discipline that we've demonstrated so far.

Operator

This concludes the question and answer session. I would like to turn the call back over to Mr. Bill Wood for any closing remarks.

Speaker 2

Yes, I appreciate the questions and I really appreciate the continuing support of our investor community, excited about new dollars coming into the story that maybe we just didn't have enough breadcrumbs of performance that to bring them in and bring them to the table. That's an exciting development for us and we're very pleased that we're looking at an investor community that's been really incredibly supportive of our efforts And I guess coming through a 4 year anniversary just a couple of days ago for me coming into the company, I couldn't be more proud of what Cilogis has been able to accomplish over that time, not to my credit, but to the credit of the team and how much we've really stayed true to our mantra. If we can get our customers at a good point, get our technology at a good point, there's very little to hold us back as we think about being growing our footprint within the 3 sectors. So that is at a higher state of excitement for me than ever before. I continue to think about our team being the best in the business.

Speaker 2

I feel like the foundation we've laid at this point positions us well for really good things ahead. And I appreciate the support of our investor community and certainly our Board, which is at an all time, I guess, I've never felt more supported, but I say that through a Board that has now got really good expertise, really good wisdom, really good perspectives of companies at scale, technology companies, SaaS companies, the commercial side, the financial side. So I also want to give credit to our Board and appreciation to our Board. We our Board punches above its weight class. I think our management team does the same and I think so just from the standpoint of our execution is really hitting on our cylinders very well.

Speaker 2

So thank you for your time today. Thank you for your continued support. Be well.

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Earnings Conference Call
Sylogist Q3 2024
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