Sylogist Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 7 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Cilogis Limited Earnings Call for Q3 2023. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask I would now like to turn the conference over to Jennifer Smith with Lodewoc Advisors.

Operator

Please go ahead.

Speaker 1

Thank you, Gailen, and good morning. Joining me to discuss Cilagis' Q3 fiscal 'twenty three results are Bill Wood, Silgia's President and Chief Executive Officer and Sujit Kuneet, Chief Financial Officer. This call is being recorded live at 8:30 am Eastern Time on November 9, 2023. 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 statements made on the call may be forward looking.

Speaker 1

Actual events or results may differ materially from those expressed or implied and Siligis 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 silageous.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. And before, we will also discuss non GAAP performance measures, which should be viewed 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 Canadian unless otherwise noted. I'll turn it over to Bill first for opening remarks, Then Sujeet will review our Q3 financial performance, after which Bill will conclude the scripted remarks with an outlook on our outlook, at which time we will open it up for questions. So with that, Bill?

Speaker 2

Thank you, Jen, and good morning, everyone, and good afternoon to those listening overseas. If you've been following the steady progress of our transformation over the last 6 quarters, then you've undoubtedly heard me say that Celagist is just getting started and that the value creation opportunity we see ahead is large, very large. 3 years ago today, I joined Cillegis because I believed that the public sector landscape was changing and that there was an opportunity for a new major provider to emerge. Since then, I've had the privilege of working alongside incredibly experienced, determined and talented colleagues, not just on the management team, but across the entire company, individuals who share the same vision and collectively moved mountains to recognize We cut no corners in our commitment to developing unmatched fast platforms for the public sector and re earning the trust of our customers. We were willing to endure the short term discomfort and questions we knew would come our way.

Speaker 2

And I'm incredibly proud that the results are now showing up consistently in our customer satisfaction, our financial performance and the leverage opportunity we see ahead. Our 3rd quarter's performance is again the result of our team's effective execution in chasing our goals and shaping the company's foundational attributes. We've moved the needle from momentum on the horizon to now consistently evidenced in our results. And our Q3 results speak for themselves and better than any long explanations Sujeet and I can give. We had record revenue of $16,800,000 representing year over year organic growth of 18%, 26% year over year SaaS ARR growth to $27,700,000 108% year over year SaaS net revenue retention, 5x partner driven bookings growth year to date, A repeat of last year's strong Net Promoter Score of 51 on our 2023 all customer survey that was just completed in September and revenue per employee growth of 21 year over year.

Speaker 2

And the transformation that's taken place and subsequent ignition of organic growth has been achieved profitably with a 26% Q3 EBITDA margin, again, underpinning our rule of 40 plus posture. Our bookings pipeline is growing and upgrades, Cross sells and new logo wins in Q3 matriculated at a strong rate as evidenced by the 26% quarter over quarter increase in Q3 bookings to $7,700,000 And at the end of September, our backlog of committed future revenue stood at $32,200,000 an increase of 12% from the end of Q2. We're also pleased to report That 74% of our project service revenue in Q3 was tied to our IP, a further strengthening of an important leading indicator of more high margin SaaS ARR ahead. Before handing it over to Sujeet to review our Q3 financial performance in more detail, I'd like to share a few highlights relating to our 3 strategic growth platforms. The Silogis Mission platform for nonprofits and NGOs, which includes Mission ERP and Mission CRM remained our primary growth driver so far.

Speaker 2

Essentially, the overall revenue and SaaS ARR growth you're seeing today doesn't yet reflect the growth we see ahead in our government sectors. And our Synlogis mission thesis is proving out with more new logo and customer opportunities desiring a seamlessly integrated 100 percent SaaS fundraising and finance solution, which we uniquely offer. On the Celgis Gov front, cities and towns in Canada and the U. S. Are queuing up to transition to our completely new fast platform, Villageysco VRP.

Speaker 2

And I'm pleased to report that our first customer went live yesterday. Feedback from users has been exceptionally positive and we expect their advocacy combined with expanding go to market activities will act as a catalyst for a way for both new and existing customers to move forward with Celgis Gov ERP in 2024. Also on the syllogisgov front, our unique fully SaaS victim services suite or siljasgovbss contributed in Q3 with another state, Oregon, going live Last week, we see an expanding pipeline for that solution that includes a significant number of statewide opportunities we're tracking, expected to make a purchase decision over the next 3 years. On the Celgis Ed side, where all systems go with our 2024 expansion strategy with the successful validation of our lift and shift from Oklahoma to North Carolina. We're seeing new logos and wallet share growth in Oklahoma.

Speaker 2

Several other North Carolina school districts now leaning in and we expect to accelerate in scale in both, along with strategic other states and provinces in 2024 2025. Building out a high performance partner channel has been one of our top priorities as a means to expand both sales and delivery capacity in a leveraged manner. As I mentioned earlier in my remarks, we've seen a 5x growth in our partner driven bookings year to date. Even so, We're only scratching the surface of our partner channel potential and are confident its impact will contribute materially to the future growth and profitability. We remain committed to our capital allocation strategy, refining our focus on accretion and recognizing the high ROIC associated with the material organic growth opportunities we've created.

Speaker 2

Exercising and now renewing Our stock buyback or NCIB also reflects the confidence we have in the business, while also creating shareholder value. Like buying back our stock, the $4,000,000 pay down of our revolver credit facility in Q3 continues to offer us another value creation lever to Hold on, Sujeet will detail. And make no mistake, we remain ready to move on strategic acquisitions that make dollars Our tracker is expanding and discussions with strategic targets are ongoing, and we see valuations getting more interesting. And now I'll hand things over to Sujeet to take you through our financial performance in a little more detail.

Speaker 3

Thank you. Yes, thank you, Bill, and good morning, everybody. Q3 continues to demonstrate the successful execution of our profitable growth plan. Revenue for the current quarter continues to be strong at $16,800,000 up $2,500,000 or 18% relative to Q3 2022 16% on a constant currency basis. Recurring revenue grew 12% year over year with balanced growth across all our verticals.

Speaker 3

This increase was attributable to growth in SaaS revenue, which grew by 17%, driven primarily by growth in Synergis Mission supplemented by strategic growth in Synergis Ed and CELIGEST GOV. Project services revenue grew by 20% year over year, primarily due to customer upgrades and new implementations in Celgist Mission. Project services revenue attributable to our software continues to be strong coming in at 73% this quarter, up from 64% at the end of Q2 2023. We expect that Project Services will slow down in Q4, 2023 on account of the seasonality impact of the U. S.

Speaker 3

Thanksgiving and December holiday periods. Over the past two quarters, our revenue from hardware was higher than our run rate. This increase was due to a periodic hardware order that has occurred every 3 to 4 years. Our backlog, as Bill mentioned, continues to be strong at 32,200,000 compared to $28,900,000 in Q2 2023. Our gross profit margin remained stable at 61%.

Speaker 3

Total OpEx was stable at 35% of revenue compared with 34% during the same period last year. As we have indicated, we are continuing to make investments in our sales and marketing function with a focus on go to market initiatives, including partner related expansion, and we have enhanced our spending on sales and marketing conferences and events. These initiatives are beginning to pay off and we now see an increase as we now see an increase in our partner attached bookings as well as continuing strength in the growth of our bookings overall. Product and development spend was lower this compared to the prior quarter and the same period last year on account of additional R and D projects eligible for capitalization. Adjusted EBITDA was $4,400,000 resulting in an adjusted EBITDA margin of 26.0 percent, up from 25.7 percent in Q2 2023.

Speaker 3

We believe these results demonstrate our ability to continue to strategically invest in our business whilst at the same time grow profitably. As we continue to maintain a strong and disciplined balance sheet, we utilized $4,000,000 of the cash generated from our operations to pay down a portion of our revolving credit facility. At the end of Q3, we had $13,800,000 in cash, which would have been $178,800,000 absent the pay down of the revolver. This level of cash is in line with the seasonality of our business and our customer renewal cycles. Our revolving credit facility balance was $17,200,000 at the end of the quarter.

Speaker 3

To continue to allow us to allocate our capital in a measured and thoughtful way, Our Board of Directors has approved the renewal of our current NCIB, which is set to expire on November 16, 2023. This renewal remains subject to TSX approval. And with that, I will hand the call back to Bill for some final thoughts. Back to you, Bill.

Speaker 2

Thanks, Sujit. Let me end with some thoughts on the exciting big picture we see ahead. Stellantis is largely derisked at this point. The significant Technology investments we've made have resulted in now ready for market modern 100 percent SaaS offerings, we're confident, will disrupt our target markets. Our customers are happy and are advocating on our behalf And maybe most demonstrative of how far we've come in a short period of time, there is incredible excitement and energy across the company With all three of our strategic platforms now live, that's a huge milestone for us and a testament to the strong execution and determination of the entire Cillegis team that's made it happen.

Speaker 2

As you've heard me say before, speed of execution is what keeps me up at night, meaning are we hitting our marks fast enough to seize the opportunity. I'm proud to say we are and our time is now. We intend to step on the gas in 2024, go to market wise to further recognize our 3 pronged strategy. And while things may fluctuate somewhat quarter to quarter due to the seasonal nature of our markets, we see mid double digit Increasingly profitable year over year organic growth exiting 2024 and in the years ahead. And with that, let's take some questions.

Operator

Thank you. We'll now begin the question and answer session. Our first question is from Emrah Azat with Echelon Partners. Please go ahead.

Speaker 4

Good morning. Congrats on the quarter. Can you update us on the North Carolina opportunity on the Edsides? Firstly, how has been the feedback so far from clients there? Then the strategy was for you to start slow to ensure success before growing in that market more aggressively.

Speaker 4

Where do we sort of

Speaker 2

Thanks, Amar. Great question and a good opportunity for me to kind of bring everyone up to date a little bit more fulsomely. The North Carolina School District that we targeted as the first implementation, which is Durham, is now fully live on the platform Because of the problems that some other vendors have created and had in the space over the last year and a half Relative to some payroll issues, the state has asked us with our customer excuse me, our customer with us to run parallel with its payroll for the next few months, actually through the end of the year. But effectively, The system is entirely live. Our first tie out of the payroll was 100% spot on.

Speaker 2

So we feel very good and the onlookers are very Excited relative to what's going on there. So you're absolutely right. We've walked the walk. We have slow rolled that to the degree that we wanted to gain the trust of the state districts that were kind of trying to get their feet underneath them about the go forward, And we feel we're very well positioned now, as I mentioned in my remarks, with many other school districts that are meeting in and queuing up both existing customers and new logos To go live here in 2024.

Speaker 4

Okay. So to be clear, you are currently working with other districts in North Carolina for 2024 go lives?

Speaker 2

We are in discussions with them, both existing and new relative to timing as we do that, but yes, we're in those discussions now.

Speaker 4

Fantastic. Then you guys had rewritten the code to allow like for flexibility to deploy in other In any state. So just wondering outside of Oklahoma and North Carolina, where are you guys or is the focus just Let's make sure North Carolina is a success story like Oklahoma before tackling the other states.

Speaker 2

We felt we needed to get out ahead of that confirmation to ensure that The hardwiring of Oklahoma specific not only was Adapted and changed for North Carolina but elsewhere. And so we used our customer, existing customer pods of legacy customers To have those conversations outside of North Carolina in 2 other strategic states, those are ongoing right now, Going very positively relative to the work that we've done, not only we'll meet those other state requirements as we choose to move in and

Speaker 3

upgrade those customers and

Speaker 2

seek new ones, but also the Immersion seek new ones, but also the state requirements in a couple of more states. So those conversations are ongoing and going well.

Speaker 4

Fantastic. On cilgastgov, you mentioned the go live yesterday. Was that one of the old customers that was transitioning to the new platform?

Speaker 2

That we weren't venturing into new logo. We started with one that we felt that we had a good understanding of to make The functionality cost of it well. So yes, it was an existing customer that has now upgraded. An amazing lift by our team to introduce a a new platform and make sure that the users feel empowered to be able to go forward and not only go about their work the way that they knew it, but ultimately Have the opportunity to have new innovation in the platform as well. So a huge kudos to the team for That success just yesterday was a big deal.

Speaker 4

Fantastic. Then in your prepared remarks, I Thank you. You spoke to your partner's channel. You mentioned like it's 5x year to date. Did I hear that correctly?

Speaker 4

And when you're saying like 5x year to date, what are we talking about?

Speaker 2

I don't know if we've quantified it, but it again, we're starting from a low number, but it's now On its way to being a 7 figure number here As we clocked in for Q3 and we feel that, as I mentioned in the remarks, it's just scratching the surface relative to the interest we're getting from partners. And Not just the interest, but are we effectively screening them and onboarding them to make sure they're empowered to deliver the same level of Quality and commitment to the customer that we do directly. So that is going well as well. So again, we feel that the upside there is Significant for us both in terms of expanded opportunity for bookings, but also leverage in the delivery of service.

Speaker 4

Would you guys like to disclose what the your partner bookings in like Q3 would be as a percentage of your total bookings?

Speaker 2

It's small now, but I see it as something that we'll be comfortable to be able To share as we go forward. I think just a little more data is going to be more informative. And so to that end, I think Here in the next quarter or 2, that's something we will be comfortable sharing.

Speaker 4

Fantastic. Then maybe just one last one for Sajid. I missed your comments on capitalized R and D. We still see Healthiest sort of amounts in the quarter, did you guys did you give like guidance or anything on how we should expect that to

Speaker 2

Sujit, I think you're on mute if you're sharing.

Speaker 3

I apologize. Good morning, Amr. Thank you for your question. So two parts to your question and I'll break it up into how we saw the capitalization of R and D Shake out, if you will, for this quarter and maybe quickly touch on the guidance side of things. In terms of the Increase the incremental impact of capitalized R and D in the current quarter, it was primarily on account of the tail end of the investments Being made in the education space, tying back to the comments that Bill made.

Speaker 3

So we did see a larger number of eligible projects in the education space and also a level of projects around our the rollout of our victim Services Suite. So that was kind of the impact if you will in the current quarter. We're not really guiding in terms of where cap R and D will be for future periods, but what I'm not uncomfortable saying is we will see Probably an elevated level of capitalized R and D going into the end of this year. And going into next year, we believe it will settle back to more of our standard run rate levels because by and large from a incremental Investment in the platform and so on, most of the investments have happened and we're currently obviously working through our Budgeting cycle for 2024, so going into next quarter and beyond, we'll have further we'll definitely have Further information in terms of capitalized R and D, but the umbrella comment is one would expect a continued elevated level of GAAP R and D in Q4 and it will settle down to normalized levels in 2024.

Speaker 4

Fantastic. Then if I look at your total R and D spend that is like both your capitalized R and D and the expense to R and D, You guys have been running at $2,000,000 a quarter for the past like 4 or 5 quarters. Is that still a good Sort of number to use going forward?

Speaker 3

Yes, I would approach it more from the point of view of a overall CAP R and D sorry, and overall R and D spend sounds the impact of CAP R and D in that 12 ish to 13 percent of revenue range for yes, that would be I would be not uncomfortable saying that.

Speaker 4

Great. Thank you. I'll pass the line and grab.

Operator

The next question is from Doug Taylor with Canaccord Genuity. Please go ahead.

Speaker 5

Yes. Thank you. Good morning. I see you're providing ARR And net retention rate numbers here with more consistency, which is very welcomed. Can I get you to speak about you've got 26% SaaS ARR growth?

Speaker 5

What's standing in the way of your reported subscription revenue growth migrating higher towards That kind of growth as well. And perhaps as part of that, you can walk us through kind of how and when you translate your bookings into ARR growth so that we can understand the timing impacts.

Speaker 3

Do you want me to Yes. Yes, I can take that, Bill. So Doug, in terms of The transition, if you will, of the bookings into ARR from a SaaS perspective, Not to kind of get into the accounting side of things, but essentially that happens as the customers go live. And depending on the size of The customer, the complexity of the implementation and so on that go live if you will From a bookings perspective into revenue can happen anywhere between 3 to 9 months. So that I believe is the first part of your question.

Speaker 3

I'll stop there and then get to the second part. Does that answer your question?

Speaker 5

Yes, it does. And so just an understanding When your overall subscription revenue growth should approximate your ARR growth?

Speaker 3

Okay. So I believe, I don't know that we'd ever get to a point where All of our revenues would move to sort of 100% So currently, the data points I will point to is in June of 2023 at our IR Day, subscriptions as a percentage of overall revenues was 63%. Today it is at 66%. So we do look at that onward or if you will upward trajectory as a good data point and we do expect that that will continue to go upwards. That being said, as you are aware, we do have a cohort, if you will, of legacy customers where there is valuable ARR And we are in the process of transitioning them to the SaaS offering.

Speaker 3

But at the same time, It's good business, it's good recurring revenues and that will continue till we eventually get them to transition. So really the goal is to get Yes, an 85 ish kind of range, which is a very healthy metric from a SaaS company perspective. But I don't know that the North Star is to eventually get to 100% because one does not want to, if you will, lose the existing recurring revenue in terms of the legacy customers.

Speaker 5

I understand that. So just to maybe put a finer Point or as an example, you just go live yesterday in your government sector with one of your legacy government customers, that would increase Your SaaS ARR, but you wouldn't necessarily see the same growth in your subscription revenue because You'll be converting some of the existing recurring revenue. Is that a fair characterization?

Speaker 3

That is a fair characterization. What I would add to that is what on an overall basis, the Growth in SaaS revenues is significantly higher than the growth in maintenance and support. The second comment I would make is the overall growth in SaaS is also Significantly higher than the overall growth in total recurring revenue. So there are, if you will, puts and takes in terms of the conversions when they happen, but on a net basis, Two things are growing. One is overall recurring revenue is growing and overall SaaS revenue is growing faster than overall recurring revenue, if all that makes sense.

Speaker 5

It does. And then maybe a question for Bill. You've maintained your outlook overall Of lowtomidteensorganictoplinegrowth, you put up some numbers in excess of that over the last number of quarters now. I guess what I'm asking here is to gauge whether this is just a balance of conservatism on your Part or whether there are other factors that may be slowing purchase decisions down as we've seen in some Certainly in the more enterprise focused software names. I'm just trying to reconcile that against what is clearly an expanding TAM as you roll out your More modern solutions for the government and education verticals?

Speaker 2

Overall, Doug, my thoughts would be the some of the seasonality that always can come into play in our space. As Sujit in his prepared remarks, we do see and have seen some slowdown in our Q4 because of the holidays, the ability For our customers to work at the pace that they do in the other quarters is Sometimes limited as well as our team resources in terms of availability. So we do feel and I do feel comfortable with To that mid to low teens organic growth, it's again on a higher number, but as we continue to move forward. But We feel that is a good range for people to be thinking about as we think about our overall year over year as we exit 2024.

Speaker 4

Okay. Thank you. I'll pass the line.

Operator

Our next question is from Gavin Fairweather with Cormark Securities. Please go ahead.

Speaker 6

Hi. This is Graeme Matt on for Gavin Fairweather. Thank you for taking my question. So my first one is just on So how is the partner channel kind of building for municipal in the K-twelve verticals?

Speaker 2

Hi, Graham. Good morning. It's building well and it's building thoughtfully to that same Just consistency of what I shared in the remarks. It's not just about numbers, but it's about the right partners. But Undoubtedly, on the gov side, it is our thesis that a majority of that will be 100% here in the future where a good portion of that is accomplished By our partner channel.

Speaker 2

On the end side, there's more regionality in some of that in terms of How and what we think about the partners. So I think that will be a slower process for us to get to the kind of density of partner Activities taking the majority of that off of our plate, but undoubtedly in those two markets, we see The large portion of booking attachment as well as the idea of service delivery growing in 2024 and 2025.

Speaker 6

That's great. Thanks. And then just like more generally, I just was curious Sort of like how RFP activity and like win rates are kind of trending, especially across, I guess, admission And your other products?

Speaker 2

The RFP activity is gaining. And I think it's reflective in our overall pipeline. It's up quarter over quarter and has been on a pretty consistent basis now. So I think that bodes very well. If we're winning at a rate, are these coming into our pipeline and not matriculating?

Speaker 2

2 things are really helping us along that. We're very focused on that ideal customer profile thesis that I've shared since I joined, which is everything about who is a customer, who do we sell to, where are we going to be successful And where are we going to ensure that they're going to be successful once they bring our plan. So to that end, I think our lens is continuing to refine relative to the ICP, what our thought leadership, what our messaging, what our content is oriented to is Who's right for us? And we don't want them knocking on our door if we can help themselves select that they are or aren't. So to that end, I feel very good about our overall sales pipeline continuing to build and our win rate is Continuing to strengthen, and I think that's a very good telltale for not only the strength of our platforms, but the efficacy of Our process to get them to through the RFP and into a decision in our favor.

Speaker 6

That's great. Thanks. And I'll pass the line.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to Bill Wood for closing remarks.

Speaker 2

Yes. I just want to thank you all for joining today's call and for your continuing support. It's been an incredible 3 years since I joined, and I couldn't be more excited about the next 3 years that I see ahead for Silviast. Again, thanks for joining today's call and have a great day. Bye for now.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

Powered by Quartr
Earnings Conference Call
Sylogist Q3 2023
00:00 / 00:00