Sylogist TSE: SYZ reported second-quarter fiscal 2026 results that showed continued growth in SaaS revenue and annual recurring revenue, while total revenue declined as project services and hardware revenue fell. Management said it is focusing on execution, customer experience, product development and cost discipline as the company seeks more consistent recurring revenue growth and improved profitability.
Total revenue for the quarter was C$14.7 million, down from C$15.7 million a year earlier. SaaS subscription revenue increased 5% year over year, while SaaS annual recurring revenue, or ARR, rose 6% to C$33.5 million. Total ARR increased 3% to C$45 million.
“Our second quarter results reflect both encouraging progress in areas that require improvement,” Chief Executive Officer Joel Leetzow said. “We need to improve execution, strengthen our product portfolio, invest in the customer experience, and operate with greater discipline.”
Recurring Revenue Mix Increased
Recurring revenue represented 76% of total revenue in the quarter, compared with 70% in the prior-year period. SaaS revenue accounted for 74% of recurring revenue, up from 72% a year earlier.
SaaS revenue growth varied across Sylogist’s operating segments. Revenue increased 17% in the Solution segment, 14% in Gov and 6% in Ed, partially offset by a 3% decline in the Mission segment. Management said SaaS ARR growth was driven primarily by the Ed and Gov segments.
Maintenance and support revenue declined 6% from the prior year, primarily in the Mission and Gov segments. SaaS net revenue retention declined to 99% from 107% at the end of the second quarter of fiscal 2025. Chief Financial Officer Sujeet Kini attributed the decline largely to churn among legacy customers in Gov and Ed, and said it did not reflect weakness in the company’s modern SaaS platforms.
During the question-and-answer session, Leetzow said the company’s challenge in the Mission segment relates principally to legacy customers rather than newer customers. He said Sylogist has addressed issues involving pricing, services, product packaging and renewal strategies, adding that legacy churn has improved and that the Mission pipeline is building.
Project Services Weighed on Revenue and Margins
Project services revenue fell 20% to C$3.3 million, from C$4.2 million in the same quarter last year, with declines primarily in the Mission and Ed segments. Project services gross margin declined to 8%.
Leetzow said the business needs to improve delivery, utilization and accountability in professional services. While partners remain central to the company’s growth and market reach, he said Sylogist will retain project services selectively when they improve customer outcomes, support ARR growth and offer appropriate margins.
The company is pursuing a channel-first model, under which partners handle some service work that Sylogist may have historically performed. Leetzow said the company expects future professional-services engagements to support partners’ work rather than serve as a courtesy during partner transitions.
Sylogist’s overall gross margin was 57%, compared with 58% a year earlier. Recurring-revenue gross margin improved to 72% from 71%. Kini said blended gross-margin pressure continued to stem primarily from project services delivery costs that were not fully offset by revenue.
Adjusted EBITDA Improved Sequentially
Adjusted EBITDA was C$1.6 million, representing a 10.8% margin. That compared with a 7.9% adjusted EBITDA margin in the first quarter and 15.3% a year earlier. Kini noted that, excluding the effect of capitalized research and development, the prior-year quarter’s adjusted EBITDA margin was 10.9%.
General and administrative expense increased to C$2.8 million from C$2.5 million, primarily because of higher professional and legal fees. Sales and marketing expense declined to C$1.3 million from C$2 million, reflecting lower employee-related and programmatic marketing costs. Gross R&D spending remained 18% of revenue, and the company said it has discontinued capitalizing R&D as its platforms approach technical readiness.
The company’s GAAP net loss was affected by approximately C$700,000 in shareholder-engagement costs and C$200,000 in severance-related accruals associated with salary continuance payments to a former executive. Total shareholder-engagement expenses incurred during fiscal 2026 were C$1.9 million.
Cash totaled C$2.5 million at quarter-end, though Kini said the balance had risen to approximately C$9 million at the time of the call as the company entered its typically stronger cash-generation period.
Management also described restructuring actions implemented during the quarter. Kini said the company reduced its workforce and contractor base by about 40 positions, with approximately C$3 million in associated cost savings. He said operating expenses across sales and marketing, G&A and R&D are expected to remain generally in the range reported for the second quarter.
Growth Focus Includes Government ERP, Education and Victim Services
Leetzow, who joined Sylogist less than three months before the call, said he has assumed direct leadership of the sales organization. He identified government ERP, education and the company’s Victim Services Solution as areas with growth potential.
He said the government ERP product has shown growth and has a building partner-channel pipeline. Education remains a historical strength, while the Victim Services business has continued to expand. Leetzow said the company’s customer references and market position support continued growth in Victim Services, although the market includes legal and regulatory considerations that differ from a standard commercial sales process.
On product strategy, Leetzow said Sylogist is assessing its collection of acquired legacy businesses and newer SaaS products, balancing capital investment with the need to establish products in markets where the company can compete effectively. He also said customers expect AI-enabled tools, noting that many products have native Microsoft Copilot capabilities. Internally, management is using AI for functions including quality assurance, documentation and review processes.
Leetzow said Sylogist will focus first on improving its operating foundation before pursuing acquisitions, though he sees potential over time to use M&A to enhance the business.
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.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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