Sylogist TSE: SYZ reported lower first-quarter fiscal 2026 revenue as a decline in project services offset growth in SaaS subscriptions, while management said the company is continuing its transition toward a recurring-revenue, partner-led software model.
On the company’s earnings call, Interim Chief Executive Officer Craig O’Neill said his first three months in the role had reinforced his confidence in the business, despite the challenges of shifting away from older perpetual license-style products toward cloud-based SaaS offerings delivered through partners.
“That journey is a challenging one, and it's not yet complete, but it is showing early signs of improving revenue quality and operational efficiency,” O’Neill said. He added that adjusted EBITDA, recurring revenue and gross margins “stabilized sequentially,” while SaaS subscription revenue improved compared with the first quarter of 2025.
Revenue declines as services work shifts to partners
Chief Financial Officer Sujeet Kini said total revenue for the quarter was CAD 14.7 million, down from CAD 16.3 million in the same period last year. The decline was primarily due to reduced project services revenue, which fell to CAD 3.5 million from CAD 4.9 million.
Kini said the project services decline was consistent with Sylogist’s “purposeful shift to partner-led delivery” and was primarily within the company’s Mission segment.
SaaS subscription revenue grew 5% year-over-year. Within that category, SaaS subscription revenue increased 34% in the Gov segment and 48% in the Solutions segment, partly offset by a 9% decline in the Mission segment.
Maintenance and support revenue fell 8% from the prior year, largely in Mission, which Kini attributed to the impact of DOGE-related losses that occurred in fiscal 2025.
Recurring revenue represented 75% of total revenue in the quarter, up from 67% a year earlier. SaaS revenue accounted for 74% of recurring revenue, compared with 71% in the prior-year period.
ARR grows, but net revenue retention declines
Sylogist reported annual recurring revenue, or ARR, of CAD 45.6 million and SaaS ARR of CAD 33.6 million for the first quarter, up 3% and 7% year-over-year, respectively. Kini said the growth was primarily driven by the Gov segment and supplemented by the Solutions segment.
Foreign exchange movements weighed on reported growth. On a constant currency basis, Kini said total ARR grew 6% year-over-year, while SaaS ARR grew 10%.
SaaS net revenue retention declined to 98% in the quarter from 108% at the end of the first quarter of fiscal 2025. Kini said the decline was largely tied to churn in the legacy customer base and was “not reflective of any issues within our core SaaS customers.”
In response to an analyst question, O’Neill said most of the legacy-related pressure is behind the company, though not completely over. He said Sylogist had extended end-of-life deadlines for certain legacy products because its replacement products were “very close, but not quite” fully ready.
Margins and EBITDA pressured by transition costs
Gross profit margin was 57% in the quarter, compared with 59% in the same period last year. Recurring revenue gross margin improved to about 71% from 69% a year earlier. Kini said blended margin compression continued to be primarily attributable to project services, where the company is still carrying delivery and partner enablement costs.
General and administrative expenses were stable at CAD 3 million. Sales and marketing expenses were CAD 1.6 million, down CAD 0.5 million, mainly due to lower employee-related expenses as sales and marketing headcount declined to 22 from 25 a year earlier.
Gross research and development spending declined slightly to CAD 2.6 million from CAD 2.8 million. Kini said Sylogist has discontinued capitalizing R&D, consistent with comments made on the company’s year-end call in March, and expects that practice to continue as its platforms near technical readiness.
Adjusted EBITDA was CAD 1.2 million, representing a 7.9% margin, compared with 16.1% in the prior-year quarter. Kini said the year-over-year decline reflected lower project services revenue, costs associated with maintaining some internal project services capacity and the absence of capitalized R&D costs in the current period. Excluding the impact of capitalized R&D, adjusted EBITDA margin in the prior-year quarter would have been 10.3%, he said.
GAAP net income was adversely affected by approximately CAD 1.2 million in shareholder engagement costs and CAD 1.4 million in severance-related accruals connected to salary continuance payments for a former executive. Kini said cumulative shareholder engagement expenses incurred to date totaled CAD 1.8 million.
Dividend suspended as buybacks continue
Sylogist ended the quarter with CAD 4 million in cash, reflecting share repurchases and shareholder engagement costs incurred during the period.
Kini said the board suspended the company’s quarterly dividend to focus capital return activity through its normal course issuer bid, or NCIB. He said the company believes that is the “right call at current share price levels.”
The NCIB was renewed by the Toronto Stock Exchange in February. During the first quarter, Sylogist repurchased 95,000 common shares at an average price of CAD 3.84, and Kini said the company intends to continue using the program.
Management emphasizes Gov, Education and VSS opportunities
O’Neill said Sylogist’s priorities over the next 12 to 18 months include completing the transition to a SaaS ARR-driven business model, strengthening its partner channel strategy, improving customer service and pursuing a focused R&D mandate that includes integrations, data conversion tools and new AI capabilities.
During the question-and-answer session, O’Neill said the company is not planning a near-term ramp in sales and marketing spending, and will instead match spending to product readiness. He identified Gov and Education as areas of opportunity, citing the company’s VSS, GovERP and SylogistEd products.
O’Neill said VSS, the company’s Victim Services Solution, has already achieved product-market fit and has market recognition. For GovERP and SylogistEd outside Oklahoma, he said Sylogist is “really close” to product-market fit but still needs to build customer references and prove project success in the market.
On partner-led services delivery, O’Neill said partners are now doing more than half of the delivery work, though he did not provide an exact percentage. He said Sylogist expects to run a smaller but profitable professional services group focused on high-value work that complements partners rather than replacing them.
Asked about the Mission segment, O’Neill said the company has seen “a couple of soft quarters” but does not see alarm bells. He said the segment is more mature and has had legacy technology issues tied to Microsoft’s modernization of the Business Central platform, along with DOGE-related pressure. He said management believes most of that pressure is behind the company and expects Mission to stabilize.
O’Neill also said the pipeline for VSS is stronger than management expected at the start of the year, with some states showing signs of moving earlier than anticipated. He cautioned that VSS deals are large government contracts with long, complex procurement processes.
Kini said the Texas VSS rollout was 92% complete as of March 31, up from about 70% at the time of the company’s March call. He said Sylogist remains on track to complete the rollout by the end of the first half of fiscal 2026. The Texas contract comes up for renewal on Sept. 1, and Kini said the company does not see anything causing concern regarding renewal. He added that the ARR pickup would be immediate at that milestone, while revenue impact would begin in one month of the third quarter and move into “full gear” in the fourth quarter.
In closing remarks, O’Neill said the company’s transformation “has taken longer than expected” but that Sylogist is reaching the end of the process and expects to see progress in coming quarters.
About Sylogist TSE: SYZ
Sylogist provides mission-critical SaaS solutions to over 2,000 public sector customers across the government, nonprofit, and education market segments. The Company's stock is traded on the Toronto Stock Exchange under the symbol SYZ. Information about Sylogist, inclusive of full financial statements together with Management's Discussion and Analysis, can be found at sedarplus.ca or at sylogist.com.
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