Tecsys Inc. (OTCPK:TCYSF) Q1 2023 Earnings Conference Call September 9, 2022 8:30 AM ET
Company Participants
Peter Brereton – Chief Executive Officer
Mark Bentler – Chief Financial Officer
Conference Call Participants
Amr Ezzat – Echelon Partners
Gavin Fairweather – Cormark Securities
Nick Agostino – Laurentian Bank
John Shao – National Bank Financial
Operator
Good morning, everyone. Welcome to the Tecsys First Quarter Fiscal 2023 Results Conference Call. Please note that the complete first quarter report, including MD&A and financial statements were filed on SEDAR after market closed yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. 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 9, 2022 at 8:30 a.m. Eastern Time.
I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir.
Peter Brereton
Thank you. Good morning, everyone. Joining me today is Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today’s call.
Our company began fiscal year ‘23 with continued strong growth underscored by very strong quarterly SaaS bookings. This was the result of a healthy blend of new accounts, base account expansions and existing customers converting to our SaaS offering. From the outset, we knew this would be a transformative year for us as our shift to a SaaS organization intersected with a distressed supply chain industry that demanded a higher caliber of solution than the legacy systems implemented back at the turn of the millennium.
Across healthcare, pharmacy, converging retail, complex distribution and third-party logistics, a tighter labor market, digital adoption, an appetite for automation and a need for nimble fulfillment are fueling investment in modern supply chain software. And after 10 years as a visionary in Gartner’s Magic Quadrant for Warehouse Management Systems, last month, we were promoted to the Challengers Quadrant, signaling to us that we are perfectly positioned to capitalize on the market conditions. We continue to see that never in the history of this company, has the world been so ready to invest in supply chain.
Getting back to business, I’d like to take a moment to summarize the key events of the first quarter of fiscal ‘23 and the results of operations. Mark will then walk us through the financial results in more detail. And finally, I will comment on our outlook followed by a Q&A session. There are two key indicators that I’d like to highlight which are contributing to our continued track record of stable growth as a SaaS organization. First, our revenue model continues to move in a positive direction. Our SaaS revenue model provides greater revenue visibility and makes it easier for new and existing companies to buy our software solutions.
Our total revenue, excluding hardware, is up 11% year-over-year bolstered by a 42% year-over-year growth in SaaS revenue. We are at the precipice of an important milestone in that SaaS revenue, representing 49% of total recurring revenue. We see this as a strong endorsement of our SaaS offering and more holistically of our sustained value to our customers.
I also want to take the opportunity to highlight our strong bookings performance this quarter. We added 3.9 million in SaaS ARR bookings, representing a 256% increase compared to the same period last year. This translates into a positive impact on SaaS RPO or remaining performance obligation up 58% year-over-year year and up 9% sequentially compared to last quarter. Bookings spend a deepening of engagement with base accounts as well as new SaaS account acquisitions. We added 3 new healthcare clients and we added new Australia-based convergent commerce client, Brandbank Group. These bookings also represent continued strong contribution from our partner ecosystem with 35% of new deals being partner influenced.
As our customer base continues to expand across verticals, our foothold in both complex distribution and healthcare helps leverage the continued investment in our SaaS platform. This quarter has seen positive momentum across verticals with a 100% win rate in healthcare for the quarter and key deals closed in converging distribution markets. So as we close out another successful quarter, we are pleased that we continue to capitalize on the opportunities in front of us. We continue to add new hospital networks and global brands to our repertoire clients. We enjoy a robust pipeline of new SaaS opportunities, expansions and conversions and we see a solid path for shareholder value creation. Tecsys is proving to be among the best cloud-based solutions available in the market we serve and we have the people, the products and the plan to provide what the market demands.
Mark will now provide further details on our first quarter financial results.
Mark Bentler
Thank you, Peter. We are pleased with our strong performance in our first quarter ended July 31, 2022. Total revenue was $34.2 million, that’s 3% higher than $33.2 million reported for the same period last year. Total revenue, excluding hardware revenue increased 11% compared to the same period last year or 9% on a constant currency basis. As many of you know, a significant portion of our revenue, about 65% is denominated in U.S. dollars.
As a result, movement in currency exchange rates has an impact on our reported revenue and growth. We continue to experience strong and diverse revenue streams underpinned by a 42% increase in SaaS revenue, up from $5.7 million in Q1 of 2022 to $8.0 million in Q1 of 2023. SaaS remaining performance obligation, also known as RPO or SaaS backlog was $102.5 million at the end of Q1 fiscal 2023. As Peter mentioned, that’s up 58% from $65 million at the same time last year.
Maintenance and support revenue for the 3 months ended July 31, 2022 was $8.3 million that was down 1% compared to the same quarter last year. The general decline in the quarter compared to the same period last year is consistent with our shift to SaaS. We expect as current customers migrate to our SaaS offering, maintenance and support revenue will continue to decline over time. Professional services revenue for the first quarter was $13.6 million that was up 4% from a strong comp of $13.1 million reported for the same quarter last year.
As we noted last quarter, we believe we are starting to see the impact that our transition to SaaS will ultimately have on our professional services revenue line. That is we are seeing a continued reduction in custom development work as customers opt for a more out-of-the-box approach to platform implementations. We are also continuing to experience the growing role of our partner ecosystem and helping to implement our systems. We expect that over time these factors will continue to moderate our professional services revenue growth in the future.
License revenue in the quarter was $0.5 million compared to $0.4 million in the same period in fiscal 2022. As we have stated before, with most of our software bookings now SaaS, we expect license revenue to decline in general over time. Hardware revenue in Q1 of fiscal 2023 was $3.8 million. That was a decrease of $2 million compared to the same period last year and a decline of $1.3 million sequentially compared to $5.1 million in Q4 of 2022. By way of reminder, we sell primarily third-party hardware to our customers for warehouse operations and an in-hospital point-of-use storage and tracking. This part of our business tends to be lumpy and revenue recognition here is tied to delivery timing. That said, like last quarter, our hardware backlog remained strong, driven primarily by hospital network point-of-use orders.
Turning now to bookings, the SaaS bookings are reported on an annual recurring revenue basis, and as Peter mentioned, increased by 256% to $3.9 million in Q1 2023 and compared to $1.1 million in Q1 2022, which was frankly a pretty easy comp. I would point out though that we have been seeing some sustained momentum with SaaS bookings in the last 12 months, up 78% compared to the prior 12-month period. Professional services bookings were $9.7 million that was down 33% compared to $14.5 million in the same quarter last year. This is down sequentially from $14.8 million in Q4 of last year and highlights the lumpiness and impact of timing on reported quarterly bookings. Professional services backlog remained solid at $30.7 million at July 31, 2022.
For the first quarter, total gross profit was $14.8 million. That was up 2% compared to $14.4 million in Q1 of 2022 and that was led by higher gross profit contribution from SaaS, maintenance, support and professional services, which was partially offset by the impact of lower gross profit contribution from hardware. As a percentage of revenue, gross margin held steady year-over-year at 43%. Combined, SaaS, maintenance, support and professional services gross profit margin for the 3 months ended July 31, 2022 was 46% compared to 47% in the same period in fiscal 2022. This slight decline was primarily from lower professional services margins driven by the impact of our investment to expand delivery capacity. SaaS, maintenance and support gross profit margin was actually slightly up from the prior year quarter. Finally, license and hardware gross profit margin decreased slightly from – to 26% from 27% in the prior year quarter.
Switching now to our expenses for the quarter. Operating expenses increased to $14.7 million, that was higher by $1.3 million or about 10% compared to $13.3 million in Q1 of fiscal 2022. Operating expenses increased compared to the same quarter last year, primarily as a result of our expanded investment in research and development and sales and marketing. Looking ahead to next quarter, we expect only a slight sequential increase in research and development costs.
On the sales and marketing side, we expect increased costs resulting from timing-related marketing program spend seasonal sales and marketing events and travel. Net profit for the quarter was $40,000 or essentially zero per fully diluted share compared to $244,000 or $0.02 per share for the same period in fiscal 2022.
Adjusted EBITDA was $1.5 million in Q1 ‘23 compared to $2.5 million in Q1 ‘22. Net profit and adjusted EBITDA were negatively impacted in the 3 months ended July 31, 2022 as a result of investments in delivery capacity, sales and marketing and research and development as well as from lower hardware contribution compared to the same period last year. Net profit and adjusted EBITDA were both positively impacted by a favorable foreign exchange impact of a relatively nominal $0.2 million compared to the same period last year.
We ended Q1 fiscal 2023 with a strong balance sheet position. On July 31, we had cash and cash equivalents and short-term investments of $37.5 million. That compared to $43.2 million last quarter. For us, working capital tends to normally consume cash in our fiscal Q1 period and we saw that in Q1 fiscal 2023. Finally, we had debt of $8.1 million at quarter end compared to $8.4 million last quarter.
I will now turn the call back to Peter to provide some outlook comments.
Peter Brereton
Thanks Mark. Tecsys stable growth continues through the first quarter of fiscal ‘23 with a strong balance sheet and a robust backlog in sales pipeline. We are seeing widespread buyer intent across target markets, solid opportunity cycles and an expanded sales team with the tools and talent to capitalize on the market ready to invest in new technology. Our increasing market share in healthcare, supported by an increasingly strong partner network and growing acceptance of the clinically integrated supply chain and consolidated service center model gives us confidence that the healthcare sector will continue to serve as an important and growing revenue stream for us.
Turning to converging distribution, we continue to hone our sweet spot and carve out our share of a massive market opportunity, driven by fundamental changes to the supply chain industry. Changes spurred by long-tail disruptions, digital adoption and a realization that heightened consumer expectations are here to stay. And so after impressive fiscal ‘22, we are pleased that this first quarter of fiscal ‘23 continues that trend. We believe that the remainder of fiscal ‘23 is tracking well against our internal KPIs and we are well positioned to expand our footprint in this growing market.
In summary, I want to remind analysts and investors of our key themes for fiscal ‘23. First, we will continue to maintain a laser focus on expanding our SaaS revenue model. Secondly, we will continue to deepen our partnership ecosystem. This is key for us to scale rapidly in North America and international markets. Third, we will continue to expand and refine our distribution and omnichannel business platforms to service evolving needs in both our healthcare supply chain and converging distribution market segments. Across our markets, we will place emphasis on customer success. We have long stood by the philosophy of customers for life and a big part of that formula is to deliver value fast, stay connected and iterate on the value delivered.
With that, we will open the call for questions. As I have explained a few times this week, by the way, sorry, I had COVID a couple of weeks ago, so this nagging cough is hanging around. It is getting better thankfully, but it’s still with me to some extent. So I apologize for the extra noise you’ve had to listen to on this call. So thank you. And I will turn it back over to the operator now.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Amr Ezzat. Please proceed with your question.
Amr Ezzat
[Technical Difficulty] So would it be fair for us to assume that this is maybe the tough quarter? And going forward, do we see some fixed cost leverage driving margin expansion or are there like other factors such as inflation or maybe increased travel that we should be thinking about?
Mark Bentler
Yes, I will take that one. Hi, Amr. Welcome to the call. Thanks for the question. I guess in terms of our cost profile, I tried to give a little bit of indication of what was going to be happening there in the prepared remarks. I think we indicated that sales and marketing costs are going to continue to rise a little bit, R&D is going to go up, but only slightly. And I think what you are going to find is it’s going to sort of moderate and I think we talked about that maybe at the last call as well. You are going to see sort of a moderation in EBITDA margin that’s going to likely hang around these kinds of levels as we continue to invest for growth and expansion.
Amr Ezzat
Okay. So pretty much the cost increases are going to match what you guys expect in terms of sales growth message.
Mark Bentler
Yes, in the near-term quarter.
Amr Ezzat
Okay. Then if we go back to your remarks on hardware sales, I think in the MD&A, you guys mentioned it’s due to timing of backlog delivery. Can you help quantify this specifically in terms of when we should be expecting the guys to recoup it?
Mark Bentler
Yes. I mean I think there is some of it’s – I mean, a lot of it is just completely a little bit beyond our control. I mean we do think if looking at the crystal ball a little bit, you can look through our hardware numbers from last year and see where they were and they were quite robust. Like our low point last year was over $5 million. In this last quarter, we were at $3.8 million. So I think that, that’s probably a low point, that $3.8 million. And I think that the bigger turn there will happen in probably our Q4 of this year. But I expect at least we expect currently based upon what we are seeing supply availability, etcetera, that, that $3.8 million is probably a low point.
Amr Ezzat
Okay, great. Then on professional services, I mean, like through the past quarters, you guys have been speaking about to your implementation partners helping out and you guys spoke to moderating professional services with that trend of your partners helping out. Then I sort of contrast that to be very healthy SaaS bookings so like going forward, when I am thinking about professional services, are they sort of flat at $13 million like the last few quarters or can we expect that to decline or does it increase as you guys hired more people to help with delivery?
Mark Bentler
Yes. I mean we would sure expect the latter I think this is going to – I think it’s going to moderate a bit. But I mean, if you look at the profile of what happened last year, Q1 was actually our biggest slightly. It’s fairly flat quarter-on-quarter, but it was our biggest PS revenue quarter last year. I don’t expect that to be the case. I don’t expect that to be the case this year. That said, it’s kind of hard. It’s sort of new for us, the uptake on – in our partner ecosystem and how quickly that’s going to sort of take PS revenue is sort of yet to be determined. Just a little bit of color on that, there was a deal that we signed in the quarter with a partner who is going to play a pretty significant role in the implementation. And it looks like right now that I won’t use the correct numbers, but just in terms of order of magnitude, say it’s $1 million implementation, we end up with like $300,000 and the partner ends up with like $600,000 which is great, but it also helps us to use our existing capacity and not constrain our growth of doing implementations, which is exactly what we want to do, but we do think it will moderate or ultimately moderate RPS growth.
Amr Ezzat
Would you mind giving us a very high level, sorry, go ahead, Peter.
Peter Brereton
I’m just going to say, just to add to that, Amr, like your point is valid to about strong SaaS revenue growth. But if you look at Mark made the point on the call that our SaaS revenue in the first half bookings, I should say, in the last 12 months, we’re up 70% – 78% over the prior 12 months. You can’t grow SaaS bookings at 78% on a trailing 12 basis and not grow professional services even if you’ve got a growing ecosystem, right? So we’re just trying to balance those. We do actually I mean, if you talk to our leadership in PS, they are preparing for continued reasonably significant growth in PS but it will certainly and thankfully, grow substantially slower than those kind of sat pools.
Amr Ezzat
Totally understand. That’s very clear. Then what does utilization look like this year versus like last year for the PS team?
Mark Bentler
Yes. I mean, in that quarter, last year’s utilization was quite a bit higher. I mean I mentioned in the call that our margin on PS, I mean, we don’t disclose those separated margins. But our margin on PS was lower this quarter than it was in the same quarter last year, which sort of brought down that combined SaaS maintenance support and PS margin number. And that is because utilization was lower in the current quarter. We had invested for delivery capacity. And we think the capacity that we have right now and I think I quoted this number last quarter as well. In the kind of the $14 million to $15 million range of quarterly revenue is supportable at least in the short-term, with our existing capacity. And as we think longer-term, going beyond those numbers is additional hiring?
Amr Ezzat
Okay. Maybe one last on your capital deployment strategy, can you guys maybe give us an update on the latest and greatest from [indiscernible]?
Peter Brereton
Yes. I mean we continue to shop. It feels like that market, basically, I think I’m going to say the same thing I said last quarter ever. It feels like the expectations in the private market are starting to moderate and come more into line with what’s happened in the public market. So we think there is rising opportunity. Already has this pipeline. But some of these situations until you have a deal, you don’t know if you have a deal. So we continue to shop. We continue to talk. We continue to look at opportunities we would like to get a more substantial footprint in Western Europe. We think there’s opportunity there. We’re excited about some of the growing opportunities in automation. And we think automation is a great opportunity and there is some potentials around that for acquisitions related to software for automation. We don’t want to get into the hardware automation business, but the software side could be interesting. And in healthcare, too, we continue to see deals from time to time. The last couple we saw ended up, we think, priced at quite the same level. So we stayed on the sidelines. But – there’s – other than that, I would say no real update.
Amr Ezzat
Thanks. That’s great. I’ll pass the line.
Peter Brereton
Thanks.
Mark Bentler
Thanks.
Operator
Our next question comes from the line of Gavin Fairweather. Please proceed with your question.
Gavin Fairweather
Hey, good morning. I thought I’d start out just on the sales production, obviously, very strong quarter in terms of bookings and IDNs added. I’m curious with the existing team after the additions that you’ve made, how far up the productivity curve would you say that they are and then maybe we can get a bit more specific in terms of your plans to add headcount to the team there?
Peter Brereton
Sure. I mean we’re pretty pleased, frankly how the new team – the growing team is working on it. I mean our – you go through this kind of an addition. It’s not that uncommon, at least in the software sector to have sort of a 50% fill rate on new additions to a sales orientation. And so far, we’re just not seeing that. We think we’ve managed to attract a really good crew of salespeople. We’re seeing deals closed. If I look at this past quarter, Q1 quarter, we had – some of those deals were brought in by some of our new reps that have been with us sort of less than a year. So we’re pleased with that. That said, the – we think the overall headcount is more or less right for the short-term. We’re seeing rising a fairly rapidly rising level of activity in complex distribution and the healthcare. The healthcare side, frankly, is on fire. I mean it’s going very, very well, a lot of opportunity, pre-deal signed in the first quarter, which is amazing for a summer quarter. So healthcare is just go go go. But even complex distribution, I had mentioned last quarter, there were a lot of leads that were sort of hung up at the top of the funnel, those seem to now be moving. So that sales team is quite busy. We’re going to be watching to see sort of that new level of sort of pipeline activity in the sort of the top of funnel moving the Baroudel funnel. If that turns out to be real and starts turning to real and starts turning into real deals and closes and so on, then it may well be time to begin to further expand that sales organization. So we’re watching that pretty closely. We’re going to be watching the signals over the next couple of months. Often, it’s a question of balancing. We’ve budgeted for a pretty substantial increase in sales and marketing spend again this year. But the intention is to focus more on it on marketing and sales. But if that lead flow continues to run at current pace, then we may end up recalibrating that and growing the sales organization a little more. So we’re watching that pretty closely.
Gavin Fairweather
You just kind of touched on my next question I mean I was thinking that your commentary on the distribution was more bullish than what we’ve heard recently. Has there been some kind of shift that you would call out that’s leading to that market moving a little bit faster? Maybe you could just touch on the win rates that you’ve been seeing on that expanded types there?
Peter Brereton
Sure. Like it’s too early to get a solid read. But certainly, I mean we literally put on a little phone campaign a couple of months ago, beginning of the summer to a lot of the companies that were up there in the top of the funnel and say, hey, what’s going on your you’re hitting our website, you’re downloading white papers you’re clearly researching, but you’re not really doing anything. And what we heard from a lot of them was that they knew they needed a new platform, they were starting a research around getting a new platform. But the – they were just still in too much prices move. Goods held up in ports, containers that they couldn’t get a hold of crazy pricing on containers. They were just managing sort of crisis day by day. Whereas now, it seems what’s happened is as we got into late August. Some of that sort of constant crisis began to let go. Goods are beginning to flow. I know in the press, there is talk of high inflation and shortages and so on. But if you look sort of further up the pipeline, it seems like that the crisis is sort of starting to lose its script. And you are seeing sort of shipping return to more a more normal process. The distributors and importers are less sort of panicked about getting their goods through the ports and so on. So that is allowing them to shift their focus back to sort of, okay, now where are we going next? And so we seem to be starting to see some real activity of them beginning to engage with our sales organization and actually look at product and look at potential and get into solution design and all those kinds of things. So we will see. It’s early. We’re literally probably 4 weeks into this shift in the market. But it’s a bit strange, of course. We normally these things change slowly over time. But I think COVID has caused sort of some very rapid shifts in the market. The market is suddenly seizing up, and now the market suddenly beginning to let go again. So we’ll watch and see. I think we’ll know a lot more by the end of the second quarter in terms of how that’s shaping up. And based on that, we will be deciding sort of how rapidly that headcount sales organization.
Gavin Fairweather
Got it. That’s very helpful. And then maybe just on the SaaS migration from the base. You’ve been talking more and more about this. How should we think about the bell curve of customers and the pace of migrations and how that should play out? Like I’m curious whether some of the migrations you’re seeing are as a result of kind of your efforts to reach out or whether clients are coming to you and looking to make the shift.
Peter Brereton
Yes, there’s a bit of both. I mean, Mark can give you probably more precise numbers. I – off the top of my head, I would say our conversion rate probably 3x what it was a year ago. On the other hand, a year ago, it was pretty low. So you don’t need that much to make it 3x. We saw our net retention rate number rose nicely in the first quarter. That was partly as a result of existing on-prem customers that were shifting to SaaS and in some cases, expanding their footprint as part of that shift. So certainly, the move is – the migration to SaaS is starting to become very real. I wouldn’t be at all surprised if this year of our total SaaS buckles this year, I wouldn’t be at all surprised if $3 million to $4 million of it is migration from on-prem. So we’ll see how that works out. But I think we’re starting to get into the sort of the early part of the rise in the bell curve, I would say. I don’t know if you would agree with that, Mark.
Mark Bentler
Yes. I mean, it’s sort of hard to tell we’re still at kind of small numbers, Gavin, on – in terms of how many customers have migrated. I mean literally, it’s like a dozen. And so when it happens in the cycle is typically it tends to be when a customer is ready to upgrade to new software, that’s when we typically engage with them to do it. And of course, a lot of times these customers are with us for a long time, and they don’t move they don’t upgrade platforms every year. So they tend to do that over a cycle that’s over years. So let’s say there’s a 5-year upgrade cycle that’s kind of your window where you’re going to be engaging with existing customers to move them into SaaS. But I agree with what Peter said, it does feel like – and if you look at our pipeline and sort of the level of stuff, the level of engagement in the pipeline on existing customers that we’re talking to SaaS with about SaaS with it is definitely on the move.
Gavin Fairweather
Awesome. Thanks so much. I will pass the line.
Operator
Our next question comes from the line of Nick Agostino. Please proceed with your question.
Nick Agostino
Hi, yes. Good morning, everybody. Just wondering on the hardware run rate, is the – I guess, the lower receipt of goods right now, is that having an impact on your ability to finalized implementations and therefore, recognize any revenues. Is that – is it having an impact to the point where you’re having to delay revenue recognition?
Mark Bentler
It’s not yet. I mean the only impact it’s having on revenue recognition is on the hardware line. So far, it hasn’t had an impact on project speed on project rollouts, etcetera. But we’ll see how that plays out. We think we’re okay. We’ve got it kind of laid out. We’ve got – some of this came as a result of the chip shortages. And we’ve got sort of line of sight on delivery timing for that stuff now. And so we’re working that through quite openly with our customers that are in project and kind of making sure that we’re lining up the end of the project implementation period with the delivery of some of that hardware that help solve the point of use tracking in the end. There’s also some things that you can do as interim solution. And so instead of using a lot of this is around our proptech hardware that’s causing the – where we’re having the part delays, you can also do some scanning, you can use like a scanner as an interim solution, and we’ve talked to some customers about doing that as a step to just get live and start going and then if we’re not ready with proptech stuff, at least it doesn’t slow down the project.
Nick Agostino
Okay. No, that’s good to hear. And then just on the three IDN wins or hospital wins in the quarter, can you guys just talk about deal size relative to historicals? Are you still starting to see or continue to see bigger and bigger deals relative to the historical average or are budget – any potential budget constraints just because of economic fears maybe we are smaller deals? Just any color there would be appreciated?
Peter Brereton
Yes, these were – I would say these were average-sized deals. None of these networks we signed were sort of huge networks. So I would say these were close to probably the lower side of average-size deals. We did also sign some pretty substantial base business in healthcare in the quarter. So the combination of the fact that there was three of them plus the base business added up to some pretty substantial healthcare business in the quarter. But we do have some significantly larger opportunities in the pipeline right now, actually, that we’re pretty excited about. But the – this quarter, I would say they were lower side of average. I mean they are still life-sized deal, and we don’t disclose actual deal size, but they were on a lower side of average.
Nick Agostino
Okay. Good to hear. And then my final question, just on the system integrators, I think, obviously, last quarter, we saw you guys were calling out a higher level of implementation on their part. We’re seeing that again quarter, it sounds like it’s going to be sticky. And certainly, where I say, I think that’s a good trend overall for the long-term nature of the company. I’m just wondering what has – we’ve seen in the last couple of quarters from your partners, maybe what is it starting to click in for them that is starting to increase their level of involvement relative to the past?
Peter Brereton
I think there’s really two things that I think are clicking in there. One is they’re developing a much more thorough understanding of our platform, right? Like our platform is a big platform. So you’re – if you really want to be involved in, let’s say, a big healthcare implementation, you need to understand our demand planning and forecasting and how we manage the item master and all the interface capability and the changes that are going to be required for the clinical staff in terms of how they manage it. So it’s good on and on. And it takes a while to build that expertise. So if you take an organization like Deloitte, for instance, I mean they’re very strong on the accounting side of the ERP. And so on. But when you get into the depths of sort of how a supply chain operates at a hospital network, there’s a big learning curve for everybody and partly because, of course, many of these hospital networks have never really run their own supply chain. So it’s a big learning curve. So they’re beginning to build that sort of critical mass of knowledge to be able to deliver excellence in the consulting practice around our platform. So that takes a while. RideNow is in excellent shape on that. Deloitte is in pretty decent shape. Avalon is certainly very deep, not in healthcare, but in other sectors, electrical, for instance, and some other ones. So that knowledge space is a key part of it.
And then the second area is just as our volume continues to rise, and they continue to see – I mean, we mentioned earlier in the call that, that 78% increase in SaaS bookings over the prior 12 months. They start to see that, hey, this is – they can build a big business around us. So that takes time for them to gain that confidence. They somehow the first couple of wins, they see as lucky. As they start to see some repeatability and so on, like some of these partners have 8 to 12 deals in their own pipeline that they’re working on to bring to our platform so that they can deliver the services business around it and so on. So – but it takes time to build that level of confidence to begin to make that kind of investment. But we seem to be there in those areas. We are still looking to invest further in building out specifically the complex distribution partner ecosystem. We continue to see some growth there, but we think there’s a lot more opportunity there for some good partners. So we’re continuing to try to build that out.
Nick Agostino
Okay. I appreciate that color. And Peter, good to hear that you are on the…
Operator
Our next question comes from the line of John Shao. Please proceed with your question.
John Shao
Hey, good morning. Thanks for taking my questions. Could you give us an update on your initiatives to drive a higher customer wallet share, I mean especially in the healthcare sector. So, any update on the uptake for the pharmacy or the lab modules?
Peter Brereton
Yes. Well, first of all, let me talk about coverage. I mean the expanded healthcare sales team that we have almost doubled the size it of well, we have approximately doubled size it over the last 2 years is providing us with much better coverage of our customer base in healthcare. I mean we are now – as we go past that 50 network number, it’s quite a substantial customer base in that market. These are – a lot of these are very large organizations, multibillion dollar organizations with huge opportunities for us in there. So, we – by doubling the size of our team, we have got much better coverage and are seeing – as a result of that, we are seeing solid growth coming out of that customer base. As I mentioned in Q1 for instance had some pretty substantial wallet expansion coming from that market, specifically pharmacy. We have not yet seen further uptake. We continue to see a lot of interest. We will see. We are expecting to win more pharmacy business this fiscal year, but we will see how that works out. We did just release our new receivable module, and it’s now sort of out there for deployment. We are now showing it on the sales side and so on. and we are pretty excited with that. But that’s the module that is designed to, in effect, allow a hospital to receive and track anything from anywhere to anywhere regardless of where it is in the system. So, it’s a – it’s basically an app. It’s a cloud-based product line, but it runs on pretty much any cell phone. It allows you to scan a package in label package if it’s not labeled, but it will literally track drugs, flowers, specific gifts being delivered to certain patients. Shipments from medical and surgical suppliers to give a certain product to a certain doctor that they need for a certain procedure. So, it’s a very flexible receiving app that is designed to be deployed with virtually zero training. I mean you pull it up on your phone, and it is absolutely intuitive in terms of how to use that thing. So, there is a lot of interest being kicked up in the hospital space around that. It will be interesting to see the impact. That’s something we have been working on for the last sort of 1.5 years, and we are just launching it. But we think that’s going to also kick up a lot of interest in our customer base. We will see. We will let you know over the next couple of quarters how that one works out.
John Shao
Okay. That’s great color. Thanks Peter. My other question is on the FX situation for the quarter. I remember the company used to give the constant currency growth. So, I am just curious about whether FX has been a headwind or a tailwind for revenue this quarter?
Mark Bentler
Yes, John, it’s been – it’s gotten pretty slight – I mean the difference between the growth rate and reported the total revenue growth rate reported and the currency – constant currency rate is only one percentage point. So, you are right, we did sort of take a little bit of the gas off the explanations there on all the lines in the discussion in the prepared remarks, etcetera, and it’s because it’s become a much smaller deal. There was a little bit of a tailwind. So, that 1% delta was actually some FX tailwind in the quarter compared to last year.
John Shao
Thanks. That’s helpful.
Operator
Thank you. Our next question comes from the line of Rene Sharma [ph]. Please proceed with your question.
Unidentified Analyst
Good morning. Can you hear me?
Peter Brereton
Yes.
Unidentified Analyst
This is Rene on behalf of Deepak Kaushal from BMO. So, my first question, I guess is going back to the investments to drive growth. Could you talk about the split of this incremental spend between sales and marketing, R&D and cloud infrastructure, which is in terms of which is the largest and which starts to normalize first.
Mark Bentler
Yes, I can take that. I mean the – in terms of the investment in cloud and cloud infrastructure, I mean most of that is around building out the team. We have sort of commented in the past about the fact that whether you have 10 SaaS customers or 110 SaaS customers, you need a 24×7 team that can handle all the stuff that needs to be handled and operating in a cloud environment, and that includes the security aspects. But once you have that team build up, you can kind of scale up from that point. And that’s kind of feel – that’s where we feel like we are getting to on the cloud investment side. We have also talked about investment in professional services capacity. And I think we are at kind of a good places that I mentioned before that our utilization was a bit lower this quarter than it was in the same quarter last year, and that’s as we have invested in that team. And we think that, that team and in its current size can drive some additional professional services revenue. In terms of R&D and sales and marketing, again, the color there is that the investment that we have done in the past is kind of flowing through the P&L from a comp perspective right now. But actually, as we look ahead, we currently don’t have plans to grow that investment super materially. It will grow slightly, like I indicated quarter-on-quarter. Sales and marketing is really the one where – and Peter alluded to that a little bit earlier in the call, we are kind of – we are monitoring that one to figure out, which we always do, to determine how much gas to put on the fire there, which depends on demand and what’s going on in the pipeline and what’s going on top of funnel and in terms of lead generation. Right now, our budget for sales and marketing is to increase the spending there this year, and we are managing as we go, whether or not we think that was – that’s in re-gen. But as these leads start to come through the funnel and turn into opportunities and as success happens there, our investment in that – between sales and marketing may tend to shift over time more on the sales side.
Unidentified Analyst
Okay. And then in terms of the normalization, which one would you think is expected to normalize between…
Mark Bentler
Yes. I mean it’s a good question. I mean our overall philosophy here, Rene, is to kind of keep investing as long as we are growing the business. And I think that rings most truly in terms of sales and marketing. So, we will – that one, as long as there is opportunity, I think we just keep going because every dollar that we spend on sales and marketing if it’s bringing in some x factor of dollars on SaaS bookings we are building RPO and growing future revenue. And so we are going to keep investing there. I think R&D and our plans are to continue to invest, but it will be more moderate there. It’s really around sales and marketing and how much we put on, how much fuel we put on the fire. And that sort of depends if there are sparks. And right now, there are sparks.
Unidentified Analyst
Okay. That makes sense. That’s very helpful. And then my next question is just about the environment in Europe versus North America, especially with regards to TCSYS [ph]. So, what is the customer activity looking like, what should we be expecting?
Mark Bentler
I mean that business – go ahead, Peter.
Peter Brereton
I would say the vast majority of our sales and marketing activity is focused in North America. We are seeing – on the retail side, we are seeing some pretty good activity overseas. In this past quarter, we signed some nice business in Australia, both actually an expansion with a base account as well as adding a new account. We are seeing more activity in that space. But if we look overall at the bulk of our pipeline, the bulk of our pipeline is North American-based. And that’s where we are seeing, I would say, healthcare moved out of being sort of too distracted by COVID, probably six months or eight months ago. So, we are seeing sort of concrete rapid activity. I mean healthcare is always a bit slow, frankly. They are not a fast-moving sector. But as fast as that sector can move, they are moving at that speed now. So, we are seeing – we just had a sales meeting a couple of weeks ago in August. And the healthcare sales team is very, very busy. So, we are pleased with that. We are seeing a ton of activity there. And I mean if you think of it from the standpoint of what’s happening in healthcare, I mean nurse salaries are rising. There are shortages of nurses, there are shortages of doctors, there are shortages of all kinds of things. Meanwhile, there are rising demands coming from an aging population. The insurance companies don’t want to pay a lot more money. So, there is – you have got the Affordable Care Act that’s keeping a lid on revenues for these hospitals. So, they are looking for efficiency gains. And they have kind of used up all their other places to look. I mean what they need to focus on now is supply chain where there is literally millions of dollars being wasted and how supply chains are being managed. So, the supply chains are becoming front and center for these organizations. So, we are seeing a lot of activity there. In the general distribution marketplace, as I mentioned earlier, that it feels like the log dam is starting to break down. But I think we will really only see for sure, this fall. We are signing deals in public distribution. But relative to the size of the pipeline, relative to how many opportunities have been in the top of the funnel for the last number of months the actual deal signing pace is still relatively slow. We think it’s now breaking. The log dam seems to be moving and say we will probably know by November, I would think.
Unidentified Analyst
Okay. Thank you so much.
Peter Brereton
Great. Thank you.
Operator
[Operator Instructions] Our next question comes from the line of Susan [indiscernible]. Please proceed with your question.
Unidentified Analyst
Good morning. Thanks for taking my question. It’s Daniel on for Susan today. So, my first question is actually a follow-up on the complex distribution front. Can you provide us some color on the last 12 months in addition to some of the opportunities and challenges that you have encountered as well.
Peter Brereton
Yes. I mean as I mentioned, that market has just been massively distracted, right. So, like I don’t – I mean we have been in complex distribution for 25 years. And we have never been through a time like this, where you have virtually every single subsector within complex distribution that has been massively distracted. I mean literally, it doesn’t matter if it’s a wine and spirits or chips or you name it. They are all – they have all been struggling with managing the supply chain. As I have said to people they sort of have three problems. They can’t source the product because so many factories are shutdown. They can’t move the products, because they are assured of containers and ships. And when the stuff buying they arrive, they can’t handle the product because there is not enough warehouse workers to go around and warehouse labor has been terribly short staffed. So, they are all dealing with – we have all been dealing with this issue. I mean it has highlighted for them the challenges around their platform. Their platforms are old and can’t cope with the nimbleness needed in today’s supply chain road, but at the same time, they have been sort of right in the middle of the swamp dealing with the alligator that’s already taking a bit of them rather than focusing on one that’s 10 feet away. So, it’s a – so that’s the mode they have been. We have done some good business in complex distribution. If I look at overall bookings, healthcare has been roughly 55%, I think of our bookings over the last year. Complex distribution has been more in the sort of mid-40s. I think that will probably continue. I wouldn’t be surprised if healthcare even gets up as high as two-thirds for the next little while because healthcare is moving so quickly. But the sheer size of the complex distribution market, we think we will eventually bring it back to more of a balanced picture.
Unidentified Analyst
That’s helpful. My second question here is given the current economic backdrop that we are in, how are you viewing the overall investments? And how are you looking to balance these investments versus perhaps margin expansion?
Peter Brereton
Well, I mean Mark can comment on this as well. I mean it’s we want to run a relatively balanced ship. I mean we want to generate enough cash to fund our own growth. We don’t want to be dependent on raising capital in markets that are not friendly to raising capital. We have been in the state long enough to know that the markets rise and fall and sometimes tech is involved in Canada and sometimes it’s not. So, you never want to be in a position where you have got to dilute your shareholders at a bad time. So, we want to run a business at cash flows. At the same time, if I look at the last 12 months, for instance, our EBITDA has run maybe, I don’t know the exact last four quarters. It’s probably, let’s say, $8 million. But during that same time period, we have grown our remaining performance obligation from roughly $65 million to $102 million. So, we have grown our sold and booked SaaS by $37 million over that 12-month period, which if you figure even pick a relatively conservative sort of 60% gross margin on SaaS. It means we have – in many ways, we have made $22 million more in the last 12 months above and beyond that $8 million of EBITDA. It’s just – it’s future earnings that are already booked sitting on the books, committed contracts that have $22 million of margin sitting in them that were – all the work to sell them and begin the deployment was done in this past year. So, we sort of look at this past year and say, well, in terms of our investors, in some ways, we generated $30 million of profit in this last year, not just the eight that shows on book. So, as long as we can continue to grow that RPO number, at anywhere near that kind of speed, then it makes sense to just continue to invest for growth. Grow our market share, grow our customer base, grow our top line revenue, grow that remaining performance obligation and just make sure we are making enough money to cash flow the business.
Unidentified Analyst
Thanks. I will pass the line.
Operator
And there are no further questions at this time. I will turn the call back over to you.
End of Q&A
Peter Brereton
Great. Thank you. And just want to put this comment. By the way, you may have seen hints of it in what we covered today and our – some of the financials we published we are going to begin to disclose sort of more numbers ex-hardware. And it’s partly just to sort of make it easier for everyone. We know that some of the analyst community already sort of separated the hardware and published the numbers ex-hardware. So, we are going to start to try to make that clear. Hardware is going to always bounce around. It’s got – sometimes there are supply chain holdups, sometimes there are specific projects rolled out to the customer side. So, it’s always going to be lumpy. It’s not really core to our business. Our core business is the SaaS platform we sell and the services around it. So, if I look at this last quarter, for instance, ex-hardware, our recurring revenue hit almost 54% of revenue. So, those are the kinds of trends we want to continue to track and sort of just let hardware bounce around wherever it needs to bounce around. So, we are going to try to clarify that in our reporting. We will probably get better and better at it as we go through this year. But that’s just a new breakout you are going to start to see a little more. Okay. That’s it for now. Thank you very much for joining us. And as always, if you have additional questions, please don’t hesitate to reach out to Mark or myself. And we will talk to you again at the end of November. Thanks again. Have a good day.
Operator
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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