Tecsys Reports Financial Results for Third Quarter Fiscal 2020

Record Q3 Revenue of $26.8M with continued strength in SaaS Bookings; year to date Adjusted EBITDA increases 4X to $8.3 million

MONTREAL, Feb. 27, 2020 /CNW/ -- Tecsys Inc. TCS, an industry-leading supply chain management software company, today announced its results for the third quarter of fiscal year 2020, ended January 31, 2020. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards (IFRS).

TECSYS (PRNewsfoto/TECSYS)

Third Quarter Highlights:

Recurring cloud, maintenance and subscription revenue increased 31% year-over-year to $10.6 million during Q3 2020, including 14% organic SaaS growth.
Annual Recurring Revenueⁱ reached $42.5 million in Q3 2020 compared to $32.7 million in Q3 2019. This increase reflects the Company's ongoing focus on the transition to a SaaS revenue and business model which should result in ongoing value creation for shareholders.
Total revenue was a record $26.8 million, higher by 43% or $8.1 million over $18.8 million reported for Q3 2019.
Adjusted EBITDAⁱ was $2.6 million, or 10% of revenue, in Q3 2020 compared to ($0.1) million, or (1%) of revenue in Q3 2019.
SaaS subscription bookingsⁱ of $2.0 million were added in Q3 2020 compared to $0.5 million in Q3 2019.
Professional services revenue was $9.9 million, 35% higher than $7.3 million in Q3 2019.
Proprietary products revenue, comprised primarily of perpetual license revenue, remained flat at $1.5 million compared to Q3 2019 in spite of strong SaaS bookings and continued transition to SaaS licensing.
Higher service margins increased total gross profit to $12.8 million for Q3 2020, up 36% from $9.4 million in Q3 2019.
Gross margin was 48% compared to 50% in the prior year, with the decline due to a higher mix of lower margin hardware due primarily to the PCSYS acquisition.
Operating expenses increased by $0.3 million to $11.4 million, a 3% increase compared to $11.1 million reported in Q3 fiscal 2019.
Profit from operations was $1.4 million, compared to a loss of ($1.7) million in Q3 2019.
Net Profit in Q3 2020 was $0.8 million or $0.06 per share compared to a loss of ($1.4) million or ($0.11) per share for the same period in fiscal 2019.
Total backlogⁱ at January 31, 2020 was $98.2 million, up sequentially from $87.0 million at October 31, 2019.
Total contract value bookingsⁱ increased by 75% to $29.9 million in Q3 2020, up from $17.1 million in Q3 2019. During Q3 2020, the Company signed 8 new accounts with a total contract value of $8.3 million compared to 7 new accounts with a total contract value of $5.6 million signed in Q3 2019.

ⁱSee Key Performance Indicators and Non-IFRS Performance Measures in Management's Discussion and Analysis of the 2020 Financial Statements

"We are actively transforming Tecsys into a global SaaS software company. Our acquisitions are successfully integrating and we are winning in Europe, in North America and across all of our verticals. We are pleased to continue this excellent momentum of delivering another strong quarter of financial results. We are experiencing strong SaaS bookings for new customers and we are starting to see SaaS bookings from our existing customers that have made the decision to migrate to SaaS. This not only creates added recurring revenue but also increases our ability to provide world-class value to those customers. All verticals contributed nicely to the results, with new hospital networks joining us, an existing network expanding very significantly and some great wins in complex distribution" said Peter Brereton, President and CEO of Tecsys Inc. "We continue to successfully drive operational efficiencies, focus on long-term profitable growth, and deliver superior returns to our shareholders."

Mark Bentler, Chief Financial Officer of Tecsys Inc., added, "We are pleased with another record setting bookings and revenue quarter and continued strength in SaaS results. Our year to date operating results are ahead of our plan. We continue to transition our revenue base away from a perpetual license model and towards a higher-quality, stable, recurring SaaS licensing model. This will have an impact on operating results in the intermediate term. We believe that this accelerated transition to SaaS will provide an excellent outcome for both customers and shareholders."

First Nine Months of fiscal 2020 Highlights:

First nine months recurring cloud, maintenance and subscription revenue increased by 39% to $30.4 million from $21.9 million reported for first nine months of fiscal 2019.
Total revenue in the first nine months of fiscal 2020 increased by 45% to $77.1 million from $53.3 million in the prior year period.
Adjusted EBITDAⁱ for the first nine months of fiscal 2020 increased by 298% to $8.3 million from $2.1 million in the prior year period.
SaaS subscription bookingsⁱ increased almost 8x to $4.7 million in the first nine months of fiscal 2020 from $0.6 million in the first nine months of fiscal 2019.
Net profit in the first nine months of fiscal 2020 increased to $2.0 million compared to a net loss of ($0.8) million in the same period last year.
Total contract value bookingsⁱ in the first nine months of fiscal 2020 increased by 63% to $71.8 million, up from $44.0 million in the prior year period. During the first nine months of fiscal 2020, the Company signed 26 new accounts with a total contract value of $27.3 million, up 214% on a dollar basis compared to 15 new accounts with a total contract value of $8.7 million in the same period last year.

Results from operations										Trailing 12		Trailing 12
		3 months ended		3 months ended		9 months ended		9 months ended		months ended		months ended
		January 31, 2020		January 31, 2019		January 31, 2020		January 31, 2019		January 31, 2020		January 31, 2019

Total Revenue	$	26,847	$	18,792	$	77,105	$	53,258	$	100,296	$	72,166
Cloud, Maintenance and Subscription Revenue		10,575		8,095		30,420		21,922		39,780		28,817
Gross Profit		12,834		9,438		37,422		26,532		48,331		36,097
Gross Margin %		48%		50%		49%		50%		48%		50%
Operating Expenses		11,439		11,125		33,308		27,493		45,054		35,309
Op. Ex. As % of Revenue		43%		59%		43%		52%		45%		49%
Profit from Operations		1,395		(1,687)		4,114		(961)		3,277		788
Adjusted EBITDA 1		2,648		(98)		8,320		2,092		9,004		4,399
EPS		0.06		(0.11)		0.15		(0.06)		0.16		0.07

Bookings		29,941		17,098		71,798		43,963		91,046		58,694
License Booking		1,524		1,587		3,330		4,689		4,575		7,915
SAAS ARR Bookings		1,952		503		4,683		613		5,698		659

Backlog		98,166		69,323		98,166		69,323		98,166		69,323
Annual Recurring Revenue		42,471		32,665		42,471		32,665		42,471		32,665
Professional Services Backlog		24,262		23,855		24,262		23,855		24,262		23,855

Today the Company declared a quarterly dividend of $0.06 per share payable on April 9, 2020 to shareholders of record at the close of business on March 19, 2020.

Pursuant to the Canadian Income Tax Act, dividends paid by the Company to Canadian residents are considered to be "eligible" dividends.

Third Quarter 2020 Results Conference Call

Date: February 28, 2020
Time: 8:30 am EST
Phone number: (416) 981 0147 or (888) 223 5127
The call can be replayed until March 6, 2020 by calling (416) 626 4100 or (800) 558 5253 (access code: 21952932).

About Tecsys

Tecsys is a global provider of transformative supply chain solutions that equip growing organizations with industry-leading services and tools to achieve operational greatness. Tecsys' solutions are designed to create clarity out of the complex supply chain challenges that organizations with increases in scale, customer expectations and inventory. Built on an enterprise platform, Tecsys solutions include warehouse management, distribution and transportation management, supply management at point-of-use, retail order management, as well as complete financial management and analytics solutions. Through the co-creation of a more responsive supply chain, Tecsys ensures that growth-minded organizations have the chance to thrive and reach their aspirations. For more information on Tecsys' supply chain solutions, visit www.tecsys.com.

Customers around the world trust their supply chains to Tecsys in the healthcare, service parts, third-party logistics, and general wholesale high-volume distribution industries. Tecsys' shares are listed on the Toronto Stock Exchange under the ticker symbol TCS.

Forward Looking Statements

The statements in this news release relating to matters that are not historical fact are forward looking statements that are based on management's beliefs and assumptions. Such statements are not guarantees of future performance and are subject to a number of uncertainties, including but not limited to future economic conditions, the markets that Tecsys Inc. serves, the actions of competitors, major new technological trends, and other factors beyond the control of Tecsys Inc., which could cause actual results to differ materially from such statements. More information about the risks and uncertainties associated with Tecsys Inc.'s business can be found in the MD&A section of the Company's annual report and annual information form for the fiscal year ended April 30th, 2019. These documents have been filed with the Canadian securities commissions and are available on our website (www.tecsys.com) and on SEDAR (www.sedar.com).

Non-IFRS Measures

Reconciliation of EBITDA and adjusted EBITDA

EBITDA is calculated as earnings before interest expense, interest income, income taxes, depreciation and amortization. Adjusted EBITDA is calculated as EBITDA before acquisition related costs, fair value adjustment on contingent consideration, stock-based compensation and restructuring costs. The Company believes that these measures are commonly used by investors and analysts to measure a company's performance, its ability to service debt and to meet other payment obligations, or as a common valuation measurement.

The EBITDA and Adjusted EBITDA calculations, for the three and nine-month periods ending January 31 of fiscal 2020 and 2019, derived from IFRS measures in the Company's condensed interim consolidated financial statements, is as follows:

	Three-months ended January 31, 2020	Three-months ended January 31, 2019	Nine-months ended January 31, 2020	Nine-months ended January 31, 2019
Profit for the period	$ 834	$ (1,429)	$ 1,971	$ (820)
Adjustments for:
Depreciation of property and equipment and right-of-use assets	506	214	1,463	649
Amortization of deferred development costs	104	219	417	777
Amortization of other intangible assets	394	259	1,132	502
Interest expense	267	9	838	9
Interest income	(16)	(26)	(62)	(171)
Income taxes	282	(258)	1,160	-

EBITDA	$ 2,371	$ (1,012)	$ 6,919	$ 946
Adjustments for:
Stock-based compensation	277	142	810	259
Restructuring costs	-	-	420	-
Fair value adjustment on contingent consideration earnout - PCSYS	-	-	171	-
Acquisition-related costs	-	772	-	887

Adjusted EBITDA	$ 2,648	$ (98)	$ 8,320	$ 2,092

Tecsys Inc.
Condensed Interim Consolidated Statements of Financial Position
(Unaudited)
As at January 31, 2020 and April 30, 2019
(in thousands of Canadian dollars)

			January 31,		April 30,
	Note		2020		2019

Assets

Current assets
Cash and cash equivalents		$	11,948	$	14,913
Accounts receivable			16,460		14,986
Work in progress			670		811
Other receivables			626		392
Tax credits			5,775		3,493
Inventory			809		673
Prepaid expenses			5,031		3,223
Total current assets			41,319		38,491

Non-current assets
Other long-term receivables			376		278
Tax credits			5,716		5,260
Property and equipment			2,713		2,714
Right-of-use assets			7,635		-
Deferred development costs			1,152		1,064
Other intangible assets			13,532		14,706
Goodwill			17,343		17,456
Deferred tax assets			5,862		5,476
Total non-current assets			54,329		46,954

Total assets		$	95,648	$	85,445

Liabilities

Current liabilities
Accounts payable and accrued liabilities		$	14,321	$	11,633
Deferred revenue			15,023		14,252
Current portion of long-term debt			1,239		1,022
Lease obligations			850		-
Other current liabilities			4,569		4,111
Total current liabilities			36,002		31,018

Non-current liabilities
Long-term debt			9,900		10,827
Other non-current liabilities			628		2,333
Lease obligations			8,618		-
Deferred tax liabilities			1,753		1,769
Total non-current liabilities			20,899		14,929
Total liabilities			56,901		45,947

Equity

Share capital			19,158		19,144
Contributed surplus			10,750		9,943
Retained earnings			9,248		10,618
Accumulated other comprehensive income loss			(409)		(207)
Total equity attributable to the owners of the Company			38,747		39,498

Total liabilities and equity		$	95,648	$	85,445

Tecsys Inc.
Condensed Interim Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three and nine-month periods ended January 31, 2020 and 2019
(in thousand of Canadian dollars, except per share data)

			Three months		Three months		Nine months		Nine months
			Ended		Ended		Ended		Ended
			January 31,		January 31,		January 31,		January 31,
	Note		2020		2019		2020		2019

Revenue:

Proprietary products		$	1,520	$	1,556	$	3,690	$	5,342
Third-party products			4,397		1,316		11,641		4,128
Cloud, maintenance and subscription			10,575		8,095		30,420		21,922
Professional services			9,882		7,338		29,793		20,336
Reimbursable expenses			473		487		1,561		1,530
Total revenue			26,847		18,792		77,105		53,258

Cost of revenue:
Products			3,530		1,015		9,287		3,659
Services			10,010		7,852		28,835		21,537
Reimbursable expenses			473		487		1,561		1,530
Total cost of revenue			14,013		9,354		39,683		26,726

Gross profit			12,834		9,438		37,422		26,532

Operating expenses:
Sales and marketing			5,451		4,612		14,766		12,146
General and administration			2,363		3,007		7,184		6,518
Research and development, net of tax credit			3,625		3,506		10,938		8,829
Restructuring costs			-		-		420		-
Total operating expenses			11,439		11,125		33,308		27,493

Profit (loss) from operations			1,395		(1,687)		4,114		(961)

Net finance costs (income)			279		-		983		(141)

Profit (loss) before income taxes			1,116		(1,687)		3,131		(820)

Income tax expense (benefit)			282		(258)		1,160		-


Profit (loss) attributable to the owners of the Company		$	834	$	(1,429)	$	1,971	$	(820)

Other comprehensive (loss) income:
Effective portion of changes in fair value on designated revenue hedges			(49)		122		69		128
Exchange differences on translation of foreign operations			33		-		(271)		-

Comprehensive income (loss) attributable to the owners of the Company		$	818	$	(1,307)	$	1,769	$	(692)

Basic and diluted earnings (loss) per common share		$	0.06	$	(0.11)	$	0.15	$	(0.06)

Tecsys Inc.
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
Three and nine-month periods ended January 31, 2020 and 2019
(in thousand of Canadian dollars)

			Three months		Three months		Nine months		Nine months
			Ended		Ended		Ended		Ended
			January 31,		January 31,		January 31,		January 31,
	Note		2020		2019		2020		2019

Cash flow from (used in) operating activities:
Profit for the period		$	834	$	(1,429)	$	1,971	$	(820)
Adjustments for:
Depreciation of property and equipment and right-of-use assets			506		214		1,463		649
Amortization of deferred development costs			104		219		417		777
Amortization of other intangible assets			394		259		1,132		502
Net finance costs (income)			279		-		983		(141)
Unrealized foreign exchange and other			(12)		(261)		(597)		(232)
Non-refundable tax credits			(297)		(201)		(1,043)		(676)
Stock-based compensation			277		142		810		259
Income taxes			249		(265)		805		-
Net cash from (used in) operating activities excluding changes in non-cash working capital items related to operations			2,334		(1,322)		5,941		318

Accounts receivable			(214)		(379)		(1,524)		75
Work in progress			(196)		(392)		134		(675)
Other receivables			157		77		(304)		155
Tax credits			(656)		(755)		(1,694)		(2,172)
Inventory			26		111		(137)		378
Prepaid expenses			(606)		45		(1,460)		(384)
Accounts payable and accrued liabilities			1,683		2,047		2,116		1,229
Deferred revenue			404		1,076		788		1,215
Changes in non-cash working capital items related to operations			598		1,830		(2,081)		(179)

Net cash from operating activities			2,932		508		3,860		139

Cash flow (used in) financing activities:
Repayment of long-term debt			(238)		(12)		(710)		(35)
Payment of dividends			(785)		(720)		(2,224)		(2,028)
Proceeds from long-term debt			-		12,000		-		12,000
Payment of lease obligations			(246)		-		(731)		-
Interest paid			(226)		-		(715)		-
Net cash (used in) from financing activities			(1,495)		11,268		(4,380)		9,937

Cash flows (used in) investing activities:
Interest received			17		27		63		172
Long-term investments			-		10,000		-		10,000
Business acquisition			(1,146)		(9,880)		(1,146)		(9,880)
Increase in restricted cash			-		(12,000)		-		(12,000)
Acquisition of property and equipment			(344)		(166)		(703)		(269)
Acquisition of other intangible assets			(19)		(27)		(154)		(92)
Deferred development costs			(150)		(22)		(505)		(87)
Net cash used in investing activities			(1,642)		(12,068)		(2,445)		(12,156)

Net decrease in cash and cash equivalents during the period			(205)		(292)		(2,965)		(2,080)

Cash and cash equivalents – beginning of period			12,153		11,708		14,913		13,496

Cash and cash equivalents – end of period		$	11,948	$	11,416	$	11,948	$	11,416

Tecsys Inc.
Condensed Interim Consolidated Statements of Changes in Equity
(Unaudited)
Nine-month periods ended January 31, 2020 and 2019
(in thousand of Canadian dollars, except per share data)
		Share capital				Contributed surplus		Accumulated other comprehensive income (loss)		Retained earnings		Total
		Number		Amount
	Note
Balance, April 30, 2019		13,082,376	$	19,144	$	9,943	$	(207)	$	10,618	$	39,498
Adjustment on initial application of IFRS 16		-		-		-		-		(1,117)		(1,117)
Adjusted balance, May 1, 2019		13,082,376		19,144		9,943		(207)		9,501		38,381
Profit for the period		-		-		-		-		1,971		1,971
Other comprehensive income for the period:
Effective portion of changes in fair value on designated revenue hedges		-		-		-		69		-		69
Exchange difference on translation of foreign operations		-		-		-		(271)		-		(271)
Stock-based compensation		-		-		810		-		-		810
Total comprehensive income (loss) for the period		-		-		810		(202)		1,971		2,579
Dividends to equity owners		-		-		-		-		(2,224)		(2,224)
Share options exercised		834		14		(3)		-		-		11
Total transaction with owners of the Company		834		14		(3)		-		(2,224)		(2,213)

Balance, January 31, 2020		13,083,210	$	19,158	$	10,750	$	(409)	$	9,248	$	38,747

Balance, April 30, 2018 ¹		13,082,376	$	19,144	$	9,577	$	(113)	$	14,527	$	43,135
Adjustment on initial application of IFRS 15		-		-		-		-		(421)		(421)
Adjusted balance, May 1, 2018		13,082,376		19,144		9,577		(113)		14,106		42,714
Profit for the period		-		-		-		-		(820)		(820)
Other comprehensive income for the period:
Effective portion of changes in fair value on designated revenue hedges		-		-		-		128		-		128
Stock-based compensation						259		-		-		259
Total comprehensive income (loss) for the period		-		-		259		128		(820)		(433)
Dividends to equity owners		-		-		-		-		(2,028)		(2,028)
Total transaction with owners of the Company		-		-		-		-		(2,028)		(2,028)
Balance, January 31, 2019 ¹		13,082,376	$	19,144	$	9,836	$	15	$	11,258	$	40,253

ⁱSee Key Performance Indicators and Non-IFRS Performance Measures in Management's Discussion and Analysis of the 2020 Financial Statements

SOURCE Tecsys Inc.

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