Tecsys Q1 2025 Earnings Call Transcript

There are 7 speakers on the call.

Operator

Good morning, everyone. Welcome to Texas First Quarter Fiscal Year 2025 Results Conference Call. Please note that the complete Q1 report, including MD and A and financial statements were filed on SEDAR Plus after market closed yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with international financial reporting standards. The company has added a companion presentation to today's call, which is available on the website at www.texas.com/investors.

Operator

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 6, 2024, at 8:30 am Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Texas. Please go ahead, sir.

Speaker 1

Thank you. Good morning, everyone. Joining me today is Mark Bettler, our Chief Financial Officer. We appreciate you joining us for today's call. As many of you have likely seen in the results issued last night, our company began fiscal 'twenty five with another solid quarter, led by strong SaaS revenue and bookings performance across market segments.

Speaker 1

With year over year SaaS revenue up 33% and SaaS bookings up 57%, our momentum continues across the board. Our differentiation is clear. We are strategically positioned for growth and our team is dedicated to delivering leading edge solutions with a relentless focus on customer success. I would like to take a moment to summarize the key events of our Q1 results for fiscal 'twenty five. Mark will then walk us through the financial results in more detail.

Speaker 1

And finally, I will comment on our outlook followed by a Q and A session. If you're following along on our companion presentation, I'll be speaking to Slide 3. In Q1, we delivered solid performance with $3,000,000 in SaaS bookings, up 57 percent year over year, driven by broad participation across our key verticals. We secured a major healthcare migration with 1 of the largest IDNs in North America, representing over 100 hospitals, which I'm calling out to highlight the significant scale and white space penetration potential of each new deal. We also saw another pharmacy expansion deal, reinforcing our continued progress and growth opportunity in the pharmacy sector, as discussed in previous quarter.

Speaker 1

Contributions from general distribution include a new logo, a new cloud migration and a competitive win back, reinforcing our position as the top choice for those investing in a modern supply chain solution, whether they're new, existing or returning customers. On the SaaS and services side of the business, we are properly resourced for our guidance and growth, reinforced by a robust backlog. Our RPO is up 40% year over year, reflecting steady bookings and renewals. Adjusted EBITDA remains strong at $2,600,000 Additionally, we continue to buy back shares under our normal course issuer bid, spending $2,200,000 on share buybacks in Q1. The opportunity to expand within existing accounts is increasing across all our verticals as we continue to build up sell and cross sell value propositions and refine how we deliver that value through product innovation, features and functions.

Speaker 1

As I've shared previously, this is a particularly sorry, this is particularly true in healthcare, where we often start by addressing a single entry point, prove out the value and expand across an entire organization. This is an important growth driver for us, with inroads into pharmacy serving as a key example. We continue to experience traction in the pharmacy supply chain with a growing interest in the consolidated pharmacy service center or CPSC. This provides pardon me. This provides a centralized distribution model similar to what we do in hospital general supplies adapted for pharmacy.

Speaker 1

This quarter, we secured an add on project at University of North Carolina Health. With the U. S. DSCSA compliance legislation coming into effect this November, recently released customer stories from Texas Children's Hospital and Baptist Health and half a dozen IDNs now on board. We are well positioned to build on this early momentum as the market solution within an industry where we already have a solid position.

Speaker 1

We're also accelerating out market access with a partner ecosystem that is stronger than ever. For example, you may have seen some co marketing with Terso, TraceLink and RISE NOW, which highlights our differentiated position in key areas like the SCSA and pharmacy. This type of market engagement, not to mention newly certified technology integrations and ongoing go to market collaborations continues to play an important role in product and pipeline development. This effort is proving valuable with about a third of our deals being partner influenced over the last 12 months. Whether directly with Texas or via partners, we are solidifying our position as the system of choice for organizations grappling with supply chain complexity.

Speaker 1

To cement that position, we are hyper focused on customer sat. Last quarter, I emphasized the importance of customer success as we scale. As our base grows, markets diversify and partner ecosystems develop. That effort is taking shape in the form of higher levels of customer service. We're actively involving customers in value added activities like user groups, industry workshops and proactive customer checkpoints.

Speaker 1

This ongoing effort is already reflected in positive NPS movement and it will continue to drive our business strategy moving forward. Part of that customer success is looking for new ways to deliver value to them. In July, we announced the appointment of Rex Alstrom as Chief Strategy Officer. Tapping into his over 25 years of experience, Rex will drive global initiatives to maximize the value of Texas evolving SaaS offerings and data capabilities. His expertise in digital transformation and innovation aligns perfectly with Texas' vision, further positioning us to capitalize on market opportunities and enhance customer value.

Speaker 1

We've also added depth to our Board with 2 new directors voted in at yesterday's shareholder meeting, Stephanie Verstrait and Strypria Finegar. Stephanie is Chief Marketing Officer at Teladoc Health and has had leadership roles at Expedia and PepsiCo. She brings expertise in M and A, brand building and performance marketing. Priya has extensive experience leading global teams in product and data engineering and platform development at organizations including Olo, Manhattan Associates and Bank of America. We're enthusiastic about the significant impact they will bring to the Board.

Speaker 1

In more company news, in July, Texas was named the 2024 Great Place to Work in Canada, the U. S. And Denmark. This recognition not only speaks to the culture we've built around the world, which we're very proud of, it's also about what it means for our customers. Happy engaged employees lead to better customer service and higher customer success rates.

Speaker 1

As we grow our team and capacity, this achievement reinforces our belief that a strong internal culture directly contributes to the quality of service, value and innovation we deliver to our customers every day. And so, as we continue to invest in the products we sell and our go to market strategy, Texas is proven to be among the best cloud based solutions available in the markets we serve. The steady growth we have experienced affirms our vision and strategy for shareholder value. Mark will now provide further details on our Q1 financial results as well as financial guidance on several key metrics.

Speaker 2

Thank you, Peter. We're pleased with the performance in our 1st fiscal quarter ended July 31, 2024. I'll start with Slide 4 and focus first on SaaS. SaaS continues to be the key driver for our growth and we believe the key driver for value creation. SaaS revenue growth is driving our recurring revenue and during the Q1 SaaS revenue growth was 33%, reaching $15,300,000 As Peter mentioned previously, our SaaS bookings were up 57 percent to $3,000,000 in the quarter.

Speaker 2

Our higher growth SaaS revenue has now overtaken professional services revenue as our largest single source of revenue, and we expect this to continue to play out in fiscal 2025 and beyond. Total revenue for the quarter reached $42,300,000 representing a 1% increase compared to the same period last year. It's important to note that when hardware revenue is excluded, the growth rate jumps to 9%. The strong underlying growth in SaaS revenue is somewhat muted here by year over year fluctuations in both professional services and hardware. Our primary focus remains on driving consistent growth in our core SaaS revenue stream and we're not concerned about the variability in professional services and hardware components of the business.

Speaker 2

Professional services revenue for the Q1 was $13,400,000 That was down 10% from $14,900,000 reported for the same quarter last year and down from $14,400,000 sequentially compared to Q4. As noted in our MD and A, the timing of professional services revenue is affected by project delivery schedules, which can be outside of our control. Recent quarters have demonstrated that we're staffed to deliver more than $14,000,000 of professional services revenue per quarter. And based on our current backlog and visibility into project timelines, we expect to return to this level. Supporting this, we had strong professional services bookings in Q1 at $17,200,000 and that was up 25% compared to the same period last year.

Speaker 2

We expect professional services revenue will continue to fluctuate based on the balance of integration partner involvement and project delivery timing. For the Q1 of fiscal 2025, gross margin was 47% compared to 46% in the same period last year. Combined SaaS, maintenance, support and professional services gross margin for the 3 months ended July 31, 2024 was 49%, and that was down compared to 50% in the same period last year. The impact of increasing SaaS margins in the Q1 of fiscal 2025, which by the way continued to track as planned, was offset by the impact of reduced professional service margins in the current quarter. We're very happy with the continued positive trajectory in our SaaS margin profile.

Speaker 2

Net profit in the quarter was down about $400,000 to 798 $1,000 compared to $1,200,000 in the same quarter last year. Adjusted EBITDA was $2,600,000 in Q1 fiscal 2025 compared to $3,200,000 same period last year. We ended Q1 fiscal 'twenty five with a solid balance sheet. We had cash and short term investments of $27,100,000 and no debt. As Peter mentioned, we used $2,200,000 of cash in the quarter to buy back shares under our normal course issuer bid.

Speaker 2

And additionally, the Board yesterday approved a quarterly dividend of $0.08 a share. With respect to financial guidance and moving now to Slide 5, we are reiterating full year 'twenty five guidance as follows: total revenue growth between 7% 9%, SaaS revenue growth between 30% 32% and adjusted EBITDA margin between 8% 9%. Additionally, we're reiterating adjusted EBITDA margin guidance for fiscal 2026 of between 10% 11%. I'll now turn the call back to Peter to provide some outlook comments.

Speaker 1

Thanks, Mark. Texas kicked off fiscal 'twenty five with solid performance, building on the strong momentum from last year. Our balance sheet remains strong, supported by a healthy backlog and sales pipeline. We are seeing widespread buyer intent across target markets with opportunity cycles accelerated by a highly capable sales team with the tools, talent and strategic partners to capitalize on a market ready to invest. As mentioned earlier, our existing footprint in key markets reinforces our confidence that we are well positioned to upsell and cross sell with healthcare and pharmacy by extension serving as an important growth engine for us.

Speaker 1

Our value proposition in pharmacy is compelling, and we see no signs of this slowing down. Over and above our IDN business, with the added pharmacy white space, we are seeing growth signs in our medical and pharma distribution sector, driven partially by that DSCSA legislative pressure mentioned earlier. I should mention DSCSA is the Drug Supply Chain Security Act. It requires traceability with Texas Solutions enable. Our converging and general distribution business also represents a substantial market opportunity.

Speaker 1

We are well positioned to pursue new marketplaces and geographies within this space. We will continue to invest to drive our growth alongside a market that is changing. Change is spurred by aging legacy systems, digital adoption and a fundamental shift in consumer expectations, which now demand more efficiency, transparency and responsiveness from supply chains. We are pleased that our Q1 results continue to demonstrate our dominance in key markets and emerging opportunity in growth markets. The wave of change in system modernization and supply chain is underway and businesses are actively investing in the tools they need to adapt to consumer expectations.

Speaker 1

As we look ahead, we are confident in our ability to seize market opportunity and presence in these rapidly growing markets around the world. And so in summary, I want to remind analysts and investors of our key themes for fiscal 'twenty five. 1st, an emphasis on continuing to refine our SaaS software, so it is easy to use and upgrade and even easier to recommend to peers. 2nd, a continued strategic partnership approach characterized by deeper and stronger alliances. This helps us tap into new opportunities and fuels our scalability around the world.

Speaker 1

3rd, we are committed to harnessing the full potential of data to drive value and innovation across our solutions. Our focus will be on leveraging data to enhance our offerings and generate greater customer value. With Rex Alstrom on board as our Chief Strategy Officer, we are developing a path to advancing our data capabilities and maximizing their impact. As a final point, I'd like to stress across our markets, we'll continue to prioritize customer satisfaction and success. We have long stood by the philosophy of customers for life.

Speaker 1

A big part of that formula is to deliver value quickly, stay connected and expand on the value delivered. With that, we will open the call for questions. Thank you.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes

Speaker 3

Congrats on the continued expansion into pharma. I understand the market is largely greenfield, but I wonder, are there any inorganic opportunities to accelerate your penetration, for instance, buying a point solution provider or another sort of software company, maybe a buy side software?

Speaker 1

Well, we don't think so. I mean, not that we haven't poked around, but as you say, it's so greenfield in terms of this approach to sort of running a completely centralized pharma, the CPSC, that there's really nobody doing it. So over the last couple of years, we've now built out the platform to properly manage 340B and properly manage the daily distribution of drugs out to a site. I mean, you've heard me say it before, but like some of this just comes down to to for most hospital networks, when somebody checks into a ward, often sort of a weak supply of the drugs they need are sent to them. And then 2 days later, it turns out they're already gone.

Speaker 1

And sort of 5 days of leftover drug is to sort of sit there and rot on the shelf. So with this approach, it's really going to a not for Tylenol and that kind of thing, but for any of the more expensive drugs, we're literally set up to run that supply chain end to end and deliver early morning every day just what's needed that morning. And the savings are astronomical. So but nobody else is really doing it. So it's a new ground.

Speaker 1

I think we just got to build it and sell it.

Speaker 3

Fantastic. Then is it like still early days, I guess, to talk about how that could expand your ARR per network? I know you always mentioned like average ARR per network is like $3,000,000 and obviously not all networks will have pharma as a target, but can you maybe help us quantify where the ARR might go for networks where pharma is a target? Yes.

Speaker 1

And we haven't updated our slide on that, the total ARR. But on average, like we're looking across sort of very large networks and medium and smaller networks and so on. And there's a wide variation in terms of how they adopt, how they deploy, etcetera. But we think on average that it adds somewhere around $1,000,000 CAD to the ARR.

Speaker 3

Fantastic. And that's just for the networks where pharma is a target as opposed to Right. Okay.

Speaker 1

Right. One of the things that's interesting with pharma while we're on the subject is it spreads across a much wider segment of the market. I mean, a lot of what we sell, we only go after networks that have $1,000,000,000 in net patient revenue or more. One of the things we're seeing now is even networks that go down to $500,000,000 in revenue can still get some serious ROI from the pharmacy platform. So it may be that in pharmacy, the number of networks we're pursuing expands as well.

Speaker 1

That's good color.

Speaker 3

Mark, like regarding your comments on professional services, like nice uptick on the bookings and actually a very nice uptick over the last three quarters. But I just wonder, like with more work being handled by implementation partners, how should we think about professional services revenues longer term? Do we sort of think it stabilizes around like $14,000,000 $15,000,000 or could there be some upside eventually, just like big picture?

Speaker 2

Yes, I mean super big picture there, Emera. I think we've hit on this before. We certainly expect that professional services revenue growth will be moderated because of those exact factors that you mentioned among others. That said, we do see some growth there. We don't see it sort of flat lining.

Speaker 2

The business is going to grow and we're always going to be playing we think we're always going to be playing a key role in the real product side of our implementation processes even as more broad professional services work and implementation approach gets covered by service providers. So we don't see that in general decline. We don't really see it flat lining. We see it growing. We just see it growing a lot more, obviously, a lot less quickly than our main growth driver.

Speaker 3

So we shouldn't read too much into the revenue line when we see like the bookings go from $9,000,000 to $12,000,000 to $17,000,000 on professional services?

Speaker 2

No, I don't think so. I mean there's it's about timing and the balance that a bigger implementation timing and some level of consistency on that delivery. But yes, I don't think you read that 17 and say, okay, well, that's going to translate if it was $12,000,000 last quarter, that's going to pop it quickly, that $5,000,000 is going to pop into them.

Speaker 3

Fantastic. Then maybe one last one on Rex Ahlstrom joining the company. Two things like how did his hiring come about and can you speak to the specific areas where you expect to see immediate impact or new initiatives under his leadership?

Speaker 1

Yes. I mean, there are guys out there in the market where when they come available, you just hire them. And Rex is one of those guys that we've known sort of roundabout in the industry for a number of years. And when we learned he was on the market, we literally just sort of created a position for him. He brings a great deal of experience in basically monetizing data, a combination of using AI, machine learning, etcetera, to create value for clients.

Speaker 1

And we're now at a point where we've got we have a massive amount of data residing in our public cloud infrastructure. Some of it contractually we're not allowed to use because our customers see it as very private data. So part of what Rex is working on is coming up with a value added offering where he could go back to those clients and say, okay, if you will give us access to the data, this is how we'll anonymize it. This is how we'll make sure that the names and private information remains private. But this is the value you're going to get out of it.

Speaker 1

And we think there's a very compelling offering to take to our clients. Some of the stuff we were already working on, I mean, we've got a release coming out in October that is going to be using machine learning to present to a VP of supply chain or an SVP of supply chain literally sort of what are the 5 metrics he needs to worry about today. So out of 60 or 70 metrics, it's going to be analyzing the whole network and sort of presenting him when he logs in, in the morning with sort of, okay, forget the other 75, these are the 5 that you need to sweat about today. But there's a lot more we can do there. And so Rex is sort of learning our architecture, learning our market and then putting together a strategy to take advantage of all that.

Speaker 3

Fantastic. Congrats. I'll pass the mic. Thanks.

Operator

Your next question comes from Gavin Fairweather with Cormark. Your line is now open.

Speaker 4

Hey, good morning. Thanks for taking my questions. Maybe just to start on the distribution business, given the green shoots that you've been seeing and the shifting competitive environment, I know you're planning on putting in a few more marketing dollars to generate top of funnel. I'm curious if that's really begun, is that ramping up and are you seeing response in the pipeline?

Speaker 1

Yes. We're happy with what we're seeing there so far. I mean, even to add a new account in that market in the summer quarter, summer quarter is usually pretty slow. But we already added a new account in that market in the summer quarter. And we've the last several quarters, we've added a new account in that market every quarter.

Speaker 1

The competitive win back we mentioned too was pretty interesting. So that was one where it was a client that had been on an old acquired platform that we had the company that we had acquired back in, I think, 2,003. They've been running that platform for years. And a couple of years ago, they decided it was time to modernize. So they went to market, looked at our newer offerings, looked at some of our competitors' newer offerings and decided to make a change.

Speaker 1

They've as they got to know our competitors' offering in more detail, they end up deciding to shoot the project and come back and sign with us. So we love those kinds of stories. And so far, I would say in the last 3, 4 years, we've had probably 5 or 6 of those people that it's it tends to happen, especially if companies have grown substantially. They first signed with us when they were a $50,000,000 business and now they're a $700,000,000 business. And I think it's time to go with one of the bigger vendors.

Speaker 1

And after investing a lot of effort and in some cases, a lot of money, they end up realizing that these bigger vendors are not really optimized for a high volume efficient supply chain. And so we end up winning them back. So we've won back. I think at this point, we're running close to 90% of the ones that have sort of tried to move away from us and have now come back.

Speaker 4

That's great to hear. And then maybe just to follow-up on pharmacy, I think you said half a dozen customers live. I'm curious how many of your audience you'd be speaking to on this or how many being qualified and put into the pipeline? Any color on how broad the conversations are would be helpful.

Speaker 1

Yes. I mean, it's across the board, right? I mean, there's so much money here that almost everyone is talking about it in some way, shape or form. What's harder to predict is when they'll actually move. But we've got a we've actually got a pharmacy event happening in California in I think it's towards the end of this month, I think it is.

Speaker 1

But that brings together some pharmacy and supply chain leaders to sort of look at what all we're doing in pharmacy. And we're pretty happy with the turnout. We've got quite a number of networks from across the country that are heading out to Newport Beach in California for to hear the story, hear what we're doing, hear the dollars and cents that will be saved and the gain. I mean, it's I mean, we emphasize dollars and cents because we're supply chain guys, but what the hospital networks are saying is, it also impacts patient safety. So it really is a win win and we're seeing very, very broad interest.

Speaker 1

As I say, the question is how fast will they actually sign. So far, we're seeing pretty much every quarter we're adding another pharmacy project. So we're pretty excited about where we're at.

Speaker 4

Appreciate that. Maybe a couple for Mark. First, can we touch on SaaS revenue recognition? If I take your ARR exiting fiscal 'twenty four, I guess it would have implied a bit higher SaaS revenue than you posted in Q1. So are there some larger deals with maybe some longer go lives in the mix there?

Speaker 2

Yes, I think I mean, the thing that moves the timing there is like in Q4, some of that business would have actually started revenue recognition in Q4. So you don't pick up net the whole increase in the subsequent quarter. So that's one dynamic in there, if you follow me. And the other dynamic is we do from time to time sign a deal and agree to start the SaaS period a little bit down the road. So it might not start in our typical as you sign it, you put it up on the public cloud infrastructure and you start recognizing revenue.

Speaker 2

We have some deals that we do that we agree to delay that start for 3 months or even a little bit longer than that. So that would have had an impact that would have a negative impact of that $8,000,000 turning into 1 to 1 quarterly revenue recognition in Q1.

Speaker 4

Okay, that's helpful. And then lastly for me on the guidance, you reiterated that for the year for high single digit growth and EBITDA margins as well, which is a tick above where you're operating in the Q1. So is the read through that you have pretty good visibility towards top line acceleration and margin expansion throughout the course of the year?

Speaker 2

Yes. I mean, I think what we have there is we have this SaaS engine that's cooking and we that gives a lot of confidence and that's recurring mostly recurring revenue. So what's going to happen this year is fairly well baked. Sure, we got to sign we got to don't get me wrong, we got to sign business in Q2 that turns into Q3 and Q4 revenue and we have to sign business in Q3 that turns into Q4 revenue, but a lot of that stuff is pretty locked down. And that's what we're laser focused on.

Speaker 2

We think the professional services world, we've talked about that a little bit, kind of hard to call, but we do think that the future looks pretty good there for us on that front, given the state of the backlog and current view on project timing. I mean, hardware is always, you know this one Gavin, it's always tricky to call. We had a $4,000,000 quarter here in Q1. And last year we were at close to $7,000,000 or over $7,000,000 each quarter. We're not going to be back at those levels.

Speaker 2

So what happens with hardware is sort of we have still some booking and delivery to manage in the back half of the year for sure. But those are the key dynamics that we thought through in reiterating that guidance.

Operator

Your next question comes from John Cho with National Bank.

Speaker 5

Hey, good morning. Thanks for taking my question. So could you give us an update on the hospital spending environment because at the beginning of the year, it's kind of expected that hospitals in the U. S. Will see stronger cash flow generation to support their capital expenditure project.

Speaker 5

Is that still the case?

Speaker 1

Yes, it seems to be very much the case. Like one of the deals we closed in Q1, for instance, was a deal that we had expected to close in December. And then at the last minute, the hospital board put all of that type of spending on hold. They'd come through calendar 'twenty three, running cash flow negative, and they just decided to put it on hold. But they went ahead and signed in Q1.

Speaker 1

They're back to cash flow positive. Everything's sort of rolling along more positively. So we're seeing that pretty much across the board in the U. S. Healthcare space.

Speaker 5

Okay, thanks. The hardware revenue represents a recent low. So just a modeling question, how much hardware revenue should we model going forward? Do you think the Q1 level is going to be a good benchmark?

Speaker 2

Yes. I mean, John, we don't as you know, we don't provide specific revenue guidance on hardware. But like I said, last year we were at close to $7,000,000 and over $7,000,000 a quarter. We're not going to be at those levels for this year. That was the result of pent up demand at the beginning of last year, pretty large backlog that sort of was a hangover from COVID era chip shortages that kind of flow through our hardware revenue across last year.

Speaker 2

So I think if we read the tea leaves a little bit, and I'll give you a real broad one here, John, it's somewhere between where we are in Q1 and where we were at the low point last year in a quarter, that's where the hardware revenue range is likely to be.

Speaker 5

Okay, got it. Last question is, Peter, could you give us an update on your FedRAMP project?

Speaker 1

Yes, the FedRAMP project has kicked off. We have a we actually have a pretty large government agency that has agreed to be our sponsor. That project also seems to be moving ahead nicely. Realistically, I think it will take us to sort of December of 'twenty five to complete the full process. It's one of those things where before you get into it, everyone tells you, yes, it's about a year.

Speaker 1

Once you get into it, they all admit, well, actually, it's more like 18 months. And so that project is underway. Many of the agencies, by the way, have been granted additional grace period because so many of the vendors are, it is taking all of us longer to get to true FedRAMP certification. So, and in the meantime, these government agencies still need solutions. So many of the agencies have been granted additional grace periods to run non FedRAMP solutions as long as the vendor is en route to FedRAMP.

Speaker 1

So overall, we think it looks pretty good. I mean, it touches not only federal government agencies that we have as existing clients and that we have as prospects, but it also and you probably know this, but it also touches a lot of the big state owned hospital networks that have decided to adopt either what's called TechRamp, which is really a version of FedRamp put out by the state of Texas or FedRAMP. And a lot of them are taking the position that you can be either as long as you're either FedRAMP or TechRamp, they can deploy your platform. So we're tracking pretty well and we'll be ramping up investment in it over the next, I mean starting now, but it'll really ramp up through the year and probably reach sort of full investment level by Q4, Q1 and Q1 of next year.

Speaker 5

Thanks for the color. It's a pop along.

Speaker 2

Thanks, John.

Operator

Your next question comes from Sutan Sukumar with Stifel. Your line is now open.

Speaker 6

Good morning, gents. For my first question, I wanted to touch on the booking strength this quarter. Can you speak a little bit about where you see strength today? What was the mix between the different end markets? And how much of that is starting to be driven through the partner channel?

Speaker 1

I think that's a Mark question.

Speaker 2

Yes, sure. So Suthan, I think we had a good we had actually a good mix across healthcare and complex distribution here. Healthcare slightly led the way, but a really solid performance from complex distribution in that mix. I think Peter mentioned in his comments, we had we did have a new logo in distribution, so pretty excited about that. And in healthcare, it was really a mix of some good expansion stuff and a pretty significant migration from an existing customer.

Speaker 2

So it was kind of a pretty good mix across the board.

Speaker 6

Good. And then from a partner perspective, where are partners playing a more important role in terms of driving growth? Is it really in the healthcare space or really across the board?

Speaker 2

Yes, it's a mix, but definitely it's more important for us in the healthcare space. If you look at where the pipeline influence is from a dollar perspective, it's certainly tipped. It's certainly tipped towards healthcare. We have more SIs and larger SIs that have been involved with us and projects on that side. We have we do have some smaller SIs that are really very active with us on the complex distribution side.

Speaker 2

And actually there's some of those particular one in particular that actually in terms of an end project delivery capacity is very far along the line. So that's kind of the mix of what we see from the partners and the level of influence there is, I think Peter mentioned in his call, it was about a third of the pipeline over the last 12 months has been influenced by partners. And when you look at win rates, you look at the deals that we actually win, the level of partner involvement in 1 deals is even higher. It's around 50%.

Speaker 6

Okay. Great. Good color. On the data strategy, I think there's some encouraging commentary just given some of the opportunities and some of the early traction that you're seeing there. Is this a net new area of investment for the company and or is it just sort of kind of a reallocation of existing spend?

Speaker 6

And how should we think about really the opportunity here? Is this really designed to be a product upsell opportunity? Or is there an opportunity for kind of a more broader product and services consulting type offerings that you can take to your clients?

Speaker 1

Sorry, you're referring to the data initiative?

Speaker 6

Yes.

Speaker 1

Yes. Yes. I mean, we're seeing it as impacting several areas of the business. One is, we think it will impact new account win rate in general distribution. There's a lot of hype these days about AI and AI capability and how you're taking advantage of the data in the system to help decision makers sort of make key decisions.

Speaker 1

And we think this will be a very competitive new account offering. From the standpoint of the how we roll it out, we're seeing it as a combination of an additional SaaS offering that would span right across our various verticals from general distribution and even some of the healthcare distribution right over into the hospital space, including pharmacy, general supplies, etcetera. So it will be a very broad based approach. It will drive additional consulting. We expect though that our partners will pick up a lot of that consulting.

Speaker 1

It's a classic sort of kind of consulting that partners love to engage in and are well equipped to engage in. So we expect to provide the platform, do some of the consulting, but have a good percentage of the consulting handled by partners.

Speaker 6

Okay. Great. Thanks. And the maybe one last question for me guys. On the healthcare side, can you give us an update on what you're seeing from a competitive standpoint?

Speaker 6

It looks like you guys are still competitively positioned here well. And just kind of curious on what you see in the backdrop. And with respect to extensions, really good commentary here on the pharmacy opportunity, but what does a typical expansion looks like for one of your healthcare networks? And how is that pace of expansion been playing out with some of the key market accounts that you've landed over the years?

Speaker 1

Yes, I mean, it's a great question and it's there is no one simple answer to it. I mean, we look for champions of change throughout the market. And we can't you can't just sort of sell these various add ons and upsells and cross sells. You can't sell them to a network that doesn't want to change. So we tend to look for champions of change.

Speaker 1

There is a wave running through pharmacy right now as a lot of younger pharmacists are now sort of taking over as chief pharmacy officers and they are not content with the way pharmacy has run for the last number of years. And so they are looking for platforms that can support change. So we're obviously all over that. In the general supplies area, we continue to have competition. I mean Cardinal competes in the OR, GHX competes to some extent in general supplies.

Speaker 1

So we have competition in those areas, but we continue to be in a position where a network really wants an end to end platform and says, well, you know what, maybe I'm starting in general supplies, but my long term vision is to have a single platform that covers every type of supply chain within my network, then we're still the only game in town and we continue to, in fact, deepen that moat. I mean, just rolling out pharmacy is another significant expansion of the moat protecting that space.

Speaker 6

Okay, great. Thanks for the color gents and I'll pass

Speaker 1

the line.

Speaker 6

Thank you.

Speaker 2

Thanks, Sitan.

Operator

There are no further questions at this time. I will now turn the call over to Peter for closing remarks.

Speaker 1

Great. Thank you everyone for joining us today and taking the time to get this update on Q1. We will look forward to talking to you with our Q2 results later in the fall. And in the meantime, if you have additional questions, as always, don't hesitate to reach out. Thanks and have a great day.

Speaker 2

Thanks.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Earnings Conference Call
Tecsys Q1 2025
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