Thank you for standing by. This is the conference operator. Welcome to the Sylogist first quarter 2022 earnings conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Bill Wood, President and CEO. Please go ahead.
Hello, and welcome to our earnings call for Q1 fiscal 2022. I'm Bill Wood, Sylogist President and CEO. On the call with me today is Xavier Shorter, our VP of Finance and Chief Financial Officer. In a moment, we will walk you through our performance for the quarter and also provide our outlook for the remainder of fiscal 2022. To remind you, our fiscal year ends on September thirtieth, and this quarter ended on December thirty-first. Before we get into it, I should note that this call may contain forward-looking statements relating to the future operations and profitability of the company, any of which are subject to risks, uncertainties, and assumptions that actual events or outcomes may differ materially from those we contemplate here. Any such forward-looking statements are made as of today, and except as required by law, we have no obligation to revise them.
Sylogist is a software as a service or a SaaS company that provides mission-critical solutions primarily to three valuable public sector verticals: education, nonprofit and NGOs, and government. Our cloud-based platform is well established and used by almost 2,000 customers worldwide. We are hyper-focused on being the leading, most trusted, profitable, and growing SaaS provider to our public sector markets. We are delighted to report that we achieved record revenues in the first quarter at CAD 12.6 million, up 32% year-over-year. In addition, the company recorded key contract wins in Q1 of CAD 5.9 million, which form a strong basis for ongoing organic growth. Q1 also saw our acquisition strategy achieve significant results as we executed on two year simultaneous highly accretive deals, MissionCRM and Pavliks.com.
Both acquisitions check the boxes on all three of our primary evaluation criteria, adding valuable IP, customer density, and talent. Additionally, both are on growth paths that we are confident we can accelerate. I'm pleased to report that the integration of these two companies is well ahead of schedule as we are tracking to complete our 200+ integration task playbook by the end of this month, 4 months in versus the 6 months our plan affords. I'm proud of how our team has stepped up to bring these two companies quickly and efficiently into the fold while also continuing to ably lead their respective areas of Sylogist. This gives us even more confidence in our ability to execute on inorganic growth opportunities going forward. Furthering our M&A readiness, we have increased our credit facility from CAD 75 million to CAD 125 million.
To date, we have drawn down approximately CAD 25 million, leaving substantial headroom for further inorganic value creation. We have continued to ramp up strategic growth investments. R&D spend is 450% from the same quarter last year, or CAD 1 million more per quarter, and sales and marketing expenses are up 280% or CAD 500,000 more per quarter. Notably, we significantly expanded our sales team in Q1 and again in early January by hiring several quota-carrying account executives and sales engineers with significant experience in the markets we serve. I do want to mention that we encountered some headwinds in Q1 which affected our near-term performance, notably some unexpected delays in deployments of our contracted bookings and upgrades due to COVID-19 Omicron variant surge. However, these deployments have now resumed their anticipated cadence.
The quarter also did not fully reflect the anticipated fiscal 2022 revenue run rate and contribution of MissionCRM and Pavliks. Both were acquired in the first few weeks of Q1, which understandably included myriad distractions that impacted the normal cadence of the businesses. With the conclusion of the integration activities, we are seeing their usual pace and focus resume. Also, very notably, we are pleased to announce that we finalized a strategic retention program with our legacy school and municipal customer communities in North Carolina and Western Canada, respectively, in exchange for commitments to three-year contracts.
Extensive outreach to these customers over several months culminated in a modest 15% discount to face value on a year-over-year basis, which secured CAD 6.4 million in ARR or CAD 19.1 million over the life of these new contracts, not including the service revenue that we will earn as we upgrade these customers to our modern platform. We consider the outcome to be significant and accretive to long-term shareholder value as we have locked up material ARR that was at risk later in this fiscal year. Other than the call-outs I just highlighted, the business performed as or better than we planned in Q1.
We are focused on growth and driving value creation guided by the Rule of 40 and remain on track for our high single-digit organic growth target as we exit fiscal 2022 while maintaining strong EBITDA margins as we scale. I'd like to now turn things over to Xavier Shorter to take us through our Q1 financials in more detail.
Thanks, Bill. Revenue for the quarter was CAD 12.6 million, up from CAD 9.5 million in Q1 2021. This increase was due mainly to the acquisitions of Pavliks and MissionCRM, which contributed 17% of the total revenue. Our gross margin for the quarter was 65%, compared to 73% in Q1 2021. Margins declined as anticipated, mainly due to the Omicron-related project delays, the recent acquisition, and the strategic customer discounts that Bill mentioned. R&D expenses were CAD 1.2 million, up from CAD 219,000 in Q1 last year. This was all according to plan. G&A costs rose to CAD 2.2 million, up from CAD 1.1 million in the same period last year. Sales and marketing costs increased from CAD 175,000 to CAD 667,000.
These increases are due to our strategic investments in product advancement and innovation, growth capacity, and scalability. As a result of these investments, and as planned, adjusted EBITDA was CAD 3.7 million in the quarter, down from CAD 4.9 million last year. Q1 saw a net loss of CAD 99,000, down from a net income of CAD 381,000 last year. As revenue growth typically lags the investments we're making, compounded by some latency in our project revenue we expected in Q1 due to the Omicron variant surge. Earnings per share were down from CAD 0.08 last year, due largely to CAD 2.5 million in non-cash amortization expense related to the intangible assets we acquired in our recent acquisition. Sylogist distributed CAD 3 million to shareholders in dividends in Q1, with quarterly dividends holding steady at CAD 0.125 per share.
Our balance sheet is strong as we finish Q1 with CAD 18.2 million in cash with approximately CAD 100 million of headroom in our credit facility. We have the resources to pursue material M&A growth. With that, I would like to hand the call back over to Bill with some final thoughts.
Thanks, Xavier. Before we take a few questions, I just want to conclude with a few thoughts about our outlook for the remainder of the fiscal year. We made solid progress on both our organic and inorganic growth goals in Q1, securing material levels of ARR and service bookings in the quarter that we hadn't seen in several years, as well as closing two very strategic and accretive acquisitions. Additionally, we secured strategic legacy customer communities with long-term ARR contracts that locked in a material component of our recurring revenue base for years to come and adds to our SaaS upgrade backlog. I consider these achievements to be clear indication that we are executing on our plan and gaining traction. As we continue to execute and focus relentlessly on selling to our ideal customer profile, we remain confident that we can deliver on our growth objectives.
With our increased line of credit, we have ample access to dry powder to continue to acquire and integrate meaningful strategic assets. With the acquisition of MissionCRM and Pavliks this quarter, and Municipal Accounting Systems 7 months prior, we are proving that we are proficient at identifying, closing, and integrating high-quality strategic companies. Notwithstanding our growth objectives, we remain committed to maintaining healthy but sustainable adjusted EBITDA margins going forward. We are committed to maintaining a Rule of 40 posture on our combined EBITDA earnings margins and revenue growth run rate. I'll share another important data point. Since joining and prioritizing a customer-first mindset in all we do in investing in our products and people, we have improved our customer Net Promoter Score, or NPS, almost twofold to 41, widely considered a high score.
The November NPS survey of our entire customer community had a greater than 25% response rate. That is a huge accomplishment and sea change because as I've shared previously, happy customers and their referrals are our best source of quality leads in creating positive buzz in our markets. Our overall high customer wellness, a motivated, talented team, and expanding pipelines gives us confidence that our strategic investments and efforts are paying off. We are excited by what we've been able to get done in a short period of time, and I look forward to sharing more evidence of successes throughout fiscal 2022 as we continue to execute on our strategy and accelerate value creation. I'd like to conclude that Sylogist is at a completely different place from where it was just 12 months ago.
We have the strongest management team in the industry, and while there's always room for continuing improvement, we are executing well against our strategic plan. We'll now move into the Q&A sessions. If there's questions in the queue, let's move ahead.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Amr Ezzat with Echelon Partners. Please go ahead.
Good morning. It's Michael Vaccarino here on behalf of Amr. You spoke a bit about this in your prepared remarks, but can you provide a bit more color on how your two recent acquisitions are performing relative to your expectations?
Yeah. The MissionCRM ideal customer profile really overlaps meaningfully with our Serenic Navigator ERP, and we already have a few customers adding one or the other depending on their respective starting point, which I think is great sign relative to not only the appetite within the base as we anticipated, but the team's collaboration to make it happen, and there are other crossing opportunity in the pipeline that we see. Relative to the Pavliks, on the cross-sell opportunity, we are already seeing Pavliks' Portal Connector and introducing it within our government customer community, and are looking at opportunities to do the same, for our K-12 and nonprofit customers.
We are also well along with fully integrating the Pavliks Dynamics 365 practice with our InfoStrat business unit and are beginning to see some cross-selling opportunities materializing and adding bench strength to accelerate our implementations in North America.
Great. On gross margins, should we expect mid-60% going forward in light of the recent acquisitions, or are there other moving parts that we should be thinking about?
Xavier, would you like to respond to that?
Yeah, I say, you know, mid-60s% to low 70s% is probably where we track. We did have the delays, and as Bill pointed out, you know, we had some milestone billings that we were deferred or delayed until this quarter. I see that picking up anywhere, high 60s% to low 70s%. Yeah.
Great. Thank you. Can you remind us of what revenues are from the legacy platforms that you're sunsetting? I'm trying to get a sense of how this compares to the new, three-year contract you secured.
I don't think we've carved that out, specifically in what we've shared previously, but I think you can unpack it, generally from the comments that we shared today, which is CAD 1.2 million per year, approximately 15% licensing of that portfolio in return for what we secured over a three-year timeframe, plus the services revenue on top of it.
Okay. Last one from me. Can you give us a sense of how we should expect operating expenses to evolve going forward? There are a couple of moving parts with investments in the business and widespread wage inflation. Maybe you can give us a sense of what stage you're at in terms of reinvesting in the business. Can you also speak to how pronounced the wage inflation you're experiencing is?
Xavier, please.
Our continued investment, as Bill pointed out, like, we just brought on some quota-carrying sales reps and sales engineers in Q1 and a couple more or a few more in January. As far as other investments, we were really purposeful in some of the R&D spend over the last year to shore up and add innovation, using offshore resources to get through some of our sprints. As far as pressures, as far as wages, I think we're doing well in that regard, in that we're able to attract high talent, good talent with our, you know, competitive salary offering, as well as an opportunity for the employee bonus plan that was rolled out last year.
I think we are able to secure really good talent. As for our continued spend, I see that we've made a lot of investment thus far, and I think they'll start to bear fruit in securing, landing, and bringing on more deals as the year progresses.
Great. Thanks for taking my question.
Yeah, just a reminder there on the employee bonus plan that was introduced. It was, I think, something that we wanted to get out ahead of relative to the overall pressures that are going on in the industry. The benefit there is it is hyper-aligned with the success KPIs that we've articulated relative to the company's performance. Good alignment there in terms of overall value creation aligned with shareholder interests.
Great. Thanks for providing more color on that. Thanks for taking my questions. I'll pass the line.
The next question comes from Nick Agostino with Laurentian Bank Securities. Please go ahead.
Yes, good morning. I guess a few questions on my part. First, Bill, with regards to that three-year contract that you renegotiated, are there any other contracts or any other relationships that maybe are at a similar jeopardy? Because you said that these contracts were at risk late this year. Are there any other contracts that are in a similar situation, either for fiscal 2022 or even fiscal 2023, where you might need to offer similar pricing discounts?
Hi, Nick. Good morning. Great question. No, this was a one-time event based on our portfolio as we see it now. We were aware of this. I was aware of it when I joined. We wanted to get out ahead of it. The pricing discounts really locked in those customer communities and there are ARR in a way that is very beneficial for myriad reasons. No, we're really not seeing anything else as we sit now relative to anything that we need to do. We see that as a one-time event and one that we wanted to get out ahead of with those two customer communities.
Okay. I appreciate that color. Then looking at. Because you spoke about Rule of 40, obviously this quarter when you look at your EBITDA margin and your overall revenue growth, I think you're north of 60%. But at the same time, when I look at your EBITDA margin, it has been coming down from the 50% level, like this quarter, you're down to 30%. Just maybe give us an idea as to how when you guys are looking at the business and how you're modeling the business, where do you guys see the floor when it comes to the EBITDA margin side of the whole equation?
Yeah, I think, Nick, I think the best way is really twofold. Obviously, investments lag the results. The results lag the investment, excuse me, in terms of what we're doing. I think that the Rule of 40 posture that we've articulated as we think about the overall year in fiscal 2022, we see balancing and being, you know, at or above that overall posture. I think that you can back out, even though we're very conscious in the strategic spending that we're making, the effect of that we see accelerating in the latter part of this year and in through and further through 2023.
To that end, I think that hopefully answers your question with a little more specificity about how we're thinking about that. We are very conscientious about the spend but we knew, and as I've shared since I started, this was a company that really needed to be jump-started in terms of its ability to move into a growth profile. To that end, the investments are made. We had certainly the realities of COVID affecting us through 2021. Again, the surge of COVID, Omicron variant, impacted us through the first quarter of this year as well.
Okay. Just to confirm, you did say that those impacts you saw through the first quarter, that those are, I guess, pretty much behind you right now?
That's correct.
Okay. My follow-up question with regards to professional services. Yeah, certainly a very strong number in the quarter, CAD 2.9 million. You've obviously got that, those contracts you guys called out back in November of last year, and then you've got these, the professional services component tied to these new three-year contracts. Maybe any color you guys can provide as far as the run rate that we should be thinking about when it comes to professional services as we move through fiscal 2022. Should we be thinking of a CAD 3 million-plus run rate over the next few quarters?
Yeah. I appreciate the insight you're hoping to gain there, but it really depends on the solutions, the project size, the customer footprint as well, if it's a new customer or customer cross-sell in terms of our revenue recognition and the cadence for that. We're in all of those scenarios right now. I will say that it's unlikely that a typical deployment spans much more than 3-12 months. With the exception of a few very large projects that may take anywhere from 12-18, and maybe even as long as 24 months. On the flip side of that, some of our solutions only take a few weeks to implement it.
I think the overall balance, you know, anything that we've talked about in terms of materiality of the revenue that we brought in bookings, we're confident that we can see a majority of that in fiscal 2022.
Okay. My last question, obviously just within the U.S. market, the infrastructure bill or bills have made their way through the House. Have you guys started to see any of those funds flow down to some of your customers and therefore start to see the benefits of that? Or is that something we should anticipate through the rest of this year? I'll leave it there.
We are starting to see that in the realities that I've shared before of the pressures that COVID placed on our customer community in appreciating that a digital transformation was not something that they could delay any longer. I think to that end, the infrastructure bill and the dollars we're seeing and available dollars that are put in without a lot of specificity into the markets we serve is showing up. I think it's moving people not only into a posture to accept that the transformation they need to make is real, but they have the budgets to be able to execute against that and get out and purchase what they need, and we're very well positioned to be able to capture that increased momentum that we're seeing.
Okay, great. Thank you.
Once again, if you have a question, please press star then one. The next question comes from Gavin Fairweather with Cormark Securities. Please go ahead.
Oh, hey, good morning. I thought we'd start out on organic growth. You outlined some of the headwinds that the business saw in Q1 that led it to be, you know, negative in the quarter. Obviously, you remain confident in your high single-digit target for fiscal 2022 overall. I was hoping you could just provide a bit more color on what you're seeing in the pipeline in terms of, you know, new revenue from the base and, you know, new logos as well, just to help us bridge that gap between Q1 and your fiscal 2022 expectations.
The sales pipeline overall continues to benefit from the pause that we saw in 2021, as well as the build of what I just described in an organization leaning in on what it is they need to do from a transformation standpoint. The bookings pipeline is strong, adding in the sales account executives quota carrying to be able to go out and get that. These aren't green ads. These are folks that are familiar and experienced in the space and being able to be effective hunters.
The idea of our customer wellness continuing to increase and at a very, I think a very helpful level in terms of that main ingredient of driving quality leads to us that aren't just top-of-funnel general leads, but probably a colleague that is saying what it is and how is your experience with Sylogist going, and a customer saying, you know, we're very pleased, and they're a partner that helped us through very difficult times. To that end, Gavin, I feel very good about our pipeline, and our now bulked up headcount to be able to go and deliver on the available revenue recognition associated with that.
I think all things are very positive on both fronts in terms of the pipeline as well as our ability to go get the revenue.
That's great. Then just within the Bellamy and Sunpac customer communities, can you give us a sense of, you know, what level of interest there is in those communities in upgrading or migrating to cloud? Then maybe you could just, you know, provide us with some color on kind of the revenue lift for you on the recurring and from a services perspective as you execute on those migrations.
Yeah. I think it would be fair to say that it would have been a difficult conversation with any of them if they simply felt they were kicking the can down the road for the reasons I said. They, too, are pressured with the digital transformation that they have an appetite for knowing that they're on legacy systems. The appetite across the communities is high. We have made a compelling case with really roadshow and purposeful webinars to acclimate them to our new technology and our roadmap as to where we're going. I think there's quite a bit of excitement. This was a purposeful program and a decision, a conscious decision on behalf of these two customer communities about us as a partner long term.
I also feel that the pricing opportunity beyond the services revenue is real to be able to create some lift, not only because of the, I think some of the, a more modern, more exciting, more innovation on the platforms that they'll be moving to, but also more IP that we can cross-sell into it as we talk about the overall capabilities and added IP into the platform, including payments and so on. I think these are all contributors to how the overall current position of the and wallet share of these customer communities can be increased over time with their upgrades.
That's great. Maybe from a product R&D perspective, I know one of your priorities is, you know, getting to market with, you know, Navigator for municipalities. Can you just provide us an update on that initiative, you know, when you expect to be in market and how you're thinking about the ability to win new logos with that product?
Very excited about the opportunity. I think it is a market that we can lean in on and offer something that I believe that there's an appetite for within not just Canada or the US, but both in the mid-market, where a lot of legacy players are now running into the wall of meeting this digital transformation appetite. I think both from an organic and inorganic side, we have opportunities that we're excited about. The overall go-to-market, it's a project that is already staffed. The base of the evolution is on technology and IP that we already have, and it's simply adapting that to be able to meet the needs within the municipal community.
To that end, we expect to be in a position to be able to have demonstrable interaction with these customers in terms of queuing them up for some early adopters in 2023, and then accelerate in the back half of 2023 and 2024 as we then, you know, cadence them into their upgrades and it suits their where they are in their planning process.
That's great. Just lastly for me, obviously the, you know, the credit facility moving up to CAD 125 million from CAD 75 million previously. You know, obviously the, you know, the thought process I'd imagine is tied to M&A. Perhaps you can just give us an update on, you know, the deal flow that you're seeing and the deal environment that you're encountering out there.
Our overall M&A pipe is strong and actually stronger in terms of quality and visibility than any time that I've been with the company over the last 15 months. I really give credit to the team to be able to have the discipline to not just be dialing out there and trying to find, but really identifying, once we identify, getting into meaningful conversation about why Sylogist could be the partner that they should think about. Because as I said before, if we can catch them before they're in a sales process, that usually leads to a positive result on a lot of fronts.
I think the idea for us is to in the markets that I've talked about and that we're focused on, we continue to see quality targets. We are also now, because of the three acquisitions that we made in a pretty tight timeframe and the results of those, what the kind of buzz are around those from those leaders and so on that were acquired, you know, the positive experience that we had, it wasn't a buy and bury that, you know, the staffs weren't, you know, just dismissed and, you know, just trying to do it in a draconian way. I think that has brought quality leads to us, both through brokers as well as directly, direct outreach.
I feel very good about kind of what we've demonstrated to ourselves and to the markets, not just quantity, but quality of targets that we're tracking.
Great. That's it for me. Thanks so much.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.