Thank you for standing by. This is the conference operator. Welcome to the Sylogist Ltd. earnings call for Q2 2022. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll 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, then zero. I would now like to turn the conference over to Bill Wood, President and CEO. Please go ahead, sir.
Hello, and welcome to the earnings call for Q2 of fiscal 2022. I'm Bill Wood, Sylogist President and CEO. On the call with me today is Xavier Shorter, our Chief Financial Officer, and in a moment, we will walk you through our performance for the quarter that ended March 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, and 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 SaaS company that provides mission-critical solutions to nearly 2,000 customers worldwide, primarily in three valuable public sector verticals: education, nonprofit and NGOs, and government. We continue to execute our strategy to grow revenue, both organically and inorganically, to deliver increased shareholder value. After experiencing headwinds in Q1 and the first half of Q2 due to the Omicron variant, our growth trajectory accelerated in the back half of the quarter. Q2 organic growth on an overall basis was slightly positive for the first time since I joined Sylogist and for many quarters prior to that, and as I mentioned, was up meaningfully over Q1. From another angle, adjusting for the strategic one-time customer discounts we discussed on our Q1 earnings call, organic growth this quarter was approximately 4%.
As a reminder, these were one-time discounts for two strategic legacy customer communities, which locked them into three-year contracts, securing CAD 6.4 million in ARR, plus the professional services and subscription fees associated with those customers moving to our modern cloud platform. We also saw material acceleration within the quarter, with organic growth increasing January to March. While revenue in the early part of the quarter looked much like Q1 amid the continuing challenges of Omicron, revenue in March increased by 8% over the average of January and February. Overall, our growth strategy continues to show solid progress. So far in fiscal 2022, we have closed nearly CAD 9 million in new bookings with contribution from across the business, including our three recent acquisitions.
Our post-demo close rate is trending up and now in the 35%-40% range, due to our strategic focus on an ideal customer profile, investments in best-in-class offerings, and high customer satisfaction, which underpins strong references to peers considering our solutions. Our workforce is stable, and we continue to attract high-quality talent, and hiring is on pace and budget. We're seeing strong inbound interest in new positions we post and sourcing great candidates ourselves, which minimizes escalating recruiter fees and, more importantly, gives us confidence in our go-forward outlook to drive growth and scale the business. We are also leveraging strategic contractors to align with our in-house teams to accelerate our platform roadmap, innovation, and our competitive positioning, as well as deliver revenue-generating project services. In support of our growth strategy, we are seeing a number of positive trends across the business.
With that in mind, I want to highlight a few key developments. First, we are seeing the WenGAGE platform, the financial HR student information and lunchroom solution we acquired with Municipal Accounting Systems in late 2021, gain expanded traction. We are also increasing K-12 customer wallet share, first with a newly developed employee document management module, which further rounds out our K-12 HR capabilities. The initial uptake of this module has been double what we expected, a very positive sign that our new account management focus, agile product development methodology, and go-to-market investments are working. I'm also pleased to report that we are already in discussions with several school districts in North Carolina who are excited about the potential of the WenGAGE platform as their modern path forward.
Secondly, we have recently completed a successful pilot of SylogistPay, our new payments platform, within our MAS K-12 customer community, who see the simplicity and value of an integrated online payment solution for the various fees they collect. We are also readying the rollout of SylogistPay within our newly acquired MissionCRM platform and expect both to start contributing to our financial performance in fiscal 2023. We are also earning new logo wins for SylogistPay, with more exciting opportunities on the horizon. Third, we are seeing the results of investments in our channel strategy, having signed up several well-aligned new partners and reestablished the relationship with several key partners that had drifted away prior to me joining the company.
We have already landed several partner-sourced bookings from our NaviPayroll and Serenic Navigator solutions over the last few months through these partners. Fourth, our strengthened partnership with Microsoft is paying dividends in terms of increased alignment of our respective product roadmaps and strategy, collaborative marketing and lead generation campaigns, and new sales opportunities. Fifth, the on-prem to cloud customer upgrade queue is materializing, and customers are thrilled with the experience using the software in a 100% SaaS environment. Not only is it paramount in continued strong retention and wallet share expansion, but the strong references they provide to peers that are looking to move to the cloud is invaluable. Finally, we are on track for a pilot launch of our 100% cloud-based ERP platform for municipalities later this year.
This not only provides a path forward for our current municipal customers, but catapults us into a desirable position to attack the large municipal market opportunity in North America. I'm pleased to report that we completed the simultaneous integration of both MissionCRM and the Pavliks acquisitions into Sylogist in Q2. When I say integration, I mean systems, people, processes, reporting lines, HR, strategy, customer billing, payroll, financial reporting, everything. To the credit of a proven integration playbook, the leadership team, and everyone involved that didn't stop doing their day jobs while they rolled up their sleeves, we were thrilled to do so in record time, bringing both companies completely under our umbrella in less than 120 days versus our 180-day estimate.
This further demonstrates our ability to transform and move the company forward organically as well as grow the business through acquisitions. We look forward to continuing this positive trajectory through the back half of fiscal 2022 and beyond, and remain confident in our high single-digit organic growth target for fiscal 2022 that we shared previously. We remain committed to operational excellence and a Rule of 40 posture with an EBITDA margin at or above 30%. I'd now like to turn things over to Xavier to take us through the Q2 financials in more detail.
Thanks, Bill. Revenue for the quarter was CAD 13.1 million, up from CAD 8.9 million in Q2 2021, an increase of 48%. This increase was due mainly to the acquisitions of MAS, Pavliks, and MissionCRM, as well as the organic growth that Bill referred to in his opening remarks. Our gross profit margin for the quarter was 64%, compared to 71% in Q2 2021. Margins fell mainly due to the higher proportion of professional services revenue from recent acquisitions and the purposeful customer discounts that secured CAD 6.4 million in ARR. Operating expenses were up due to our continued investment in product development and go-to-market capabilities. Adjusted EBITDA was CAD 3.9 million in the quarter, down from CAD 4.4 million last year due to our strategic investments in growth.
We continue to anticipate that as we focus on growing our business, EBITDA margins should be at or above 30% going forward. Q2 saw a net income of CAD 685 thousand, down from CAD 1.1 million last year. Earnings per share were CAD 0.03 compared to CAD 0.05 last year. Non-cash amortization charges related to our recent acquisition continue to have a material impact on our bottom line. Sylogist also distributed CAD 3 million in shareholders dividend in Q2, with a quarterly dividend holding steady at CAD 0.125 per share. Our balance sheet is strong as we finish the quarter with CAD 16.9 million in cash. With substantial headroom in our credit facility, we have the resources to pursue further M&A growth. With that, I would like to hand off the call to Bill for some final thoughts.
Thanks, Xavier. I'd like to share a few thoughts on our outlook. I see this quarter as further evidence that our growing investments are paying off. January and early February were difficult months as the Omicron variant continued to delay project work. However, we kept our heads down and pushed roadmap initiatives forward and aligned and expanded capacity. By March, we were recognizing 8% growth over January and February results, driven by both new deals and project delivery acceleration. Given the times we're in, I also want to highlight that Sylogist is generally inflation-proof, as we have repapered all customers and introduced an annual auto price increase clause we can trigger. All new bookings and new projects are priced at then-current rates. We are not subject to supply chain disruptions or any material third-party fee increases that could impact us.
In conclusion, Sylogist is hitting its stride, and we are tracking to our plan. We have made material progress in executing our overall growth strategy and initiatives, which our numbers are now starting to reflect. We are excited about the path ahead and determined to drive continued successes and shareholder value creation through the remainder of fiscal 2022 and beyond. Thank you for your continuing support and interest in Sylogist. I'd now like to open the call for questions.
Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, you can press star then two. Our first question is from Amr Ezzat with Echelon Wealth Partners. Please go ahead.
Bill, Xavier. Thanks for taking my questions, and congrats on reverting back to positive organic growth territory.
Thanks, Amr.
My first question is on professional services. You guys seem to be running record numbers even if I exclude the contribution from acquisitions. Am I to assume you guys are at full utilization, and is it hampering your growth at all?
Amr, this is Bill. Yeah, great question. I think the key for us, it had been hampering the idea of the projects actually kicking into gear. To that end, the Omicron variant really extended that into Q2, in the early part of it, a little bit more than we anticipated. In terms of the ability going forward, though, our workforce is now in place. We've expanded our capability to deliver resources both in-house as well as through retained contract external resources. We have the backlog in place.
What we look at in terms of our anticipation going forward is our ability to deliver on projects that have been somewhat impeded, as well as our workforce in place to be able to go get that revenue at an increased clip than we had before.
Great. Maybe related to that, Bill, can you speak to how labor inflation and I guess shortage in the tech space is impacting you guys? I know you're trying to go, like, externally as well. Would we expect, like, any sort of margin erosion? Or do the escalators that you spoke to at the back end of your prepared remarks fully cover any cost increases?
Yeah. I wanted to call those two components out. Both our ability to attract talent, our ability to have long-standing relationships, really to the credit of our CTIO that came on board. She had relationships with offshore resources that were super well aligned with the delivery and product development efforts that we conduct within Sylogist, and we've been able to leverage those. We don't have a real angst about the idea of the ebb and flow. We have a good sight line to the dependability of those. On the wage standpoint, while certainly wages are going up, the positions we're posting are getting great interest.
As I've said in previous calls, Sylogist is a bit of a unique blend of a do-good company that also is in the technology space. To that end, for a person that has made a personal choice to say, "Listen, I wanna change something about my trajectory," we are a unique opportunity for them to blend their skill set, as well as deliver on the idea of impacting the world in some way, be it locally or on a global basis because of the work that our customers do. I feel good about our ability to attract talent, the wages we're paying and not getting into some of the need of placement agencies and so on.
We've had a relatively small dependency on them in terms of our hiring pace that we've escalated because of the inbound interest that we're getting. I feel quite comfortable in our overhead and our ability to manage our costs associated with a dependable workforce.
Great. That's great to hear. If I could switch gears to MissionCRM. I mean, it was always dubbed as a good acquisition that could become even a greater one, if they hit their earn-out targets. I know we're still very early on, but can you give us an update on how things are tracking for them? Do you feel the fiscal 2023 earn-out targets are possible at all at this stage?
I think they too had some of the impact of Omicron in terms of their ability to have customer deals matriculate and deliver on services. In the back half of Q2, much like the rest of the company overall, they have very strong backlog. Bookings matriculated in terms of what was anticipated maybe earlier in the year. Their workforce now is deployed at a pace that we anticipated a little bit earlier in the year, as did they. The appetite for their product is extraordinarily strong.
There was no blind spots for us relative to that acquisition in terms of the opportunity in the market as we saw it, as well as the extension of us from a product company to a platform play in terms of what we see the market having a strong appetite for. To that end, we think they're tracking quite well in terms of their overall trajectory of the growth that we anticipated for them.
Great. We'll stay tuned, I guess. With the integration of Pavliks's now completed in record time, can you give us a sense of the current M&A environment for you guys and whether you guys are still seeing interesting opportunities, how, like, pricing for potential targets has evolved over the past couple of quarters?
Yeah. Our pipeline is as strong and I think more refined than at any point. For us, we feel good about the number of targets and discussions that are ongoing. I think the overall price realities are still continue to be high. That's never really been a deterrent for us, both in terms of if we wanted to lean in and do a transaction, but also with what we proved out to be our ability to find companies that weren't or didn't see themselves as being for sale and maybe not in a process and some of the dizzying prices that are associated with the feeding frenzy around that.
Now, do we see maybe some of the pricing realities coming down as there's more pressure on tech companies in the market? Possibly. I think to the extent as we look at it, we are still looking at how it adds value to us in terms of IP, customer density, as well as a workforce talent, and those are the criteria that will remain the same for us going forward. Our pipeline is as strong or stronger than ever, and our conversations are going on in earnest on an ongoing basis. We just expanded that team also by another individual that'll be coming on board to be able to continue to prospect.
It has grown now since I joined twofold, and I think it'll be a continued area where we continue to invest and look for opportunities on the inorganic side.
Fantastic. That's great color. Congrats again. I'll pass the line.
Thank you, Amr.
The next question is from Nick Agostino with Laurentian Bank. Please go ahead.
Yes, thank you. This is Salman Rana on behalf of Nick Agostino. First of all, congratulations on the result, guys. My first question is about the individual markets. It seems like the K-12 market, that's the vertical that pretty much drove growth in the last two weeks. First of all, does that hold true? Secondly, which vertical do you believe, Bill, is expected to drive growth in the coming quarter, fiscal quarter three?
Yeah. I wouldn't put a particular emphasis on K-12 as any disproportionate growth lever for us. We're seeing strong growth, especially in the back half of the quarter across the business. Specifically, we see the NPO, NGO customer community strengthening relative to their appetite for project work, as well as new IP and expansion of subscriptions as they think about their usage within their footprint. We're certainly seeing on the municipal side, as dollars, I think, are getting closer to their budgets and being able to spend in the federal programs that are coming down to the local level. We are seeing more government activity. Those deals have been slowed, but we see them still strong in the pipeline.
We think in the back half of the year and into 2023, we see that as an area that will continue to strengthen for us. Back to the education side, I do feel that there is opportunity, and I believe that our competitive position on that landscape is very good. I think the MAS acquisition and the assets that they brought to us has allowed us to really refine our strategy about what that go-forward footprint looks like. I think to that end, we believe that there is opportunity not only within that North Carolina community of customers that I think many had written off because of some of the realities that came to be a few years ago. That's very much back in play.
Lastly, as I mentioned in my prepared remarks, the municipal market, which we see is going through a material transformation, that's why strategically we made that decision to invest in a true SaaS solution and a brand-new solution based on the Navigator platform for that community. We see that having strong growth potential and having that product effort, product development effort, come to fruition in the latter part of this fiscal year will set us up to be able to start piloting with new logos as well as existing logos in the back half of this calendar year, which we're very excited about from a North American perspective, not just a regional perspective in terms of our go-to-market. We're gonna be leaning in on that space.
Understood. That's great color. Thank you. Could you provide us any color into how fiscal quarter three till date is going? It seems like, you know, the momentum is carrying on from the last two weeks of March. Any additional color there would be really appreciated.
Yeah. I think you picked up on the right parts that we hoped others would in relation to the comments. We see our cadence at this point more similar to what we saw in the March timeframe than we did some of the pressures that we were seeing in the early part of Q2 that were, as I said, much more like Q1. The outlook as we would think about it and our confidence in that is really coming from that strength and idea that projects are now at a cadence that we anticipated them to be. Our workforce is in place, and our ability to churn through the opportunity that we already have in hand is increasing.
Now barring any resurgence, if you will, of Omicron that I think partly affects our market a little bit more than others only because of the orientation they have to the public space that they serve. To that end, that's out of our control. The things that we can control, we're feeling very good about in terms of our workforce alignment, our product readiness, as well as the competitive landscape and our ability to continue to win new bookings to continue to refill that backlog that we're now churning through at an increased pace from any time I've joined the company.
Understood. My last question is about the EBITDA margin. You know, with this quarter down 29.8% margin seems like Sylogist has pretty much set a floor, you know, especially with the outlook that you've provided and, you know, the growth opportunities going forward. What kind of margins are you targeting or expecting in the near term? Is that going to be in the high 30s, mid-30s? Any color there would be appreciated. Thank you.
Yeah. I think in a general sense, we continue to commit to that Rule of 40 posture. I think the blend that we see is high single-digit complemented then by the EBITDA contribution to that Rule of 40 posture. We feel comfortable with that going forward. Not in terms of the idea that we are going to get too locked into a number. If there's opportunities that we want to invest behind. Once we see real cadence and increased strength and have confidence in those, we will do so.
We don't want to impede shareholder value creation by the idea of a posture that we've adopted, that we're not willing to put our money where our mouth is to be able to drive growth that we're turning, you know, green shoots into really interesting opportunities or more interesting opportunities to create value. Overall, in general, our Rule of 40 posture or greater is something that we're committed to with those two levers that they include.
Okay. That's great, clear. Thank you very much, Bill. I'll pass the line.
Once again, if you have a question, please press star then one. The next question is from Maxim Barron with Cormark Securities. Please go ahead.
Hi there. Thanks for taking my question. I was hoping to follow up on one of the questions that was asked previously and about the different patterns from the different customer groups that you have. I was just wondering if that improves the different churn rates that you are seeing in the market and maybe how you see that progressing in the future.
Xavier, do you wanna speak to that?
The question is around churn rate or migration of deals in the verticals?
Changes in churn rates primarily.
In churn rates. For us, over the last year, we've invested in a dedicated group for customer success. That has paid huge dividend in communicating with all our customers. This culminated in those three-year deals for the legacy groups, wherein we locked them in at ARR of CAD 6.4 million over the next three years. These were customers, in some instances, ready to look elsewhere. To that end, we see our retention rate quite high. Our customer NPS that we measure kind of their attitude towards us and how well that group is doing has improved drastically. It's a sea change from where it was a year ago. I see the risk of churn kind of really low.
Kudos to the team for doing the great work that they're doing.
That's good to hear the risk of churn is kinda low at this point. Just a second question that I had was on your investment in intangibles. I know it's picked up a fair bit from the prior quarter, and I was just wondering, is that related primarily to the Sylogist Pay solution that you guys are working on? Should we expect this pace of investment to continue in the future?
Yeah. Good question. The pace will continue, so it's not squarely in any one of our offerings. We have transitioned entirely to an agile product deployment methodology. Within each one of our verticals, we have sprints. You know, within those sprints, we look to see what they're working on that is more of a maintenance and support standpoint, and then also what is an enhancement or adding additional functionality for which there is a future market. For us, at the end of Q2, that's really indicative of where we see it progressing for the remainder of the year.
Again, it's an agile approach wherein we look at sprints enhancements to get them out the door to our customers more real time than, say, the waterfall, where we would pick a few big projects and work on them over 18 months. Now we're delivering at a much quicker cadence. Yes, I see that investment as you see it through the end of Q2 to continue.
Gotcha. That makes sense. Thanks for taking my questions. That's all I had.
This concludes the question and answer session. I'd like to turn the conference back over to Bill Wood for any closing remarks.
I just wanna thank you again for your continued support of Sylogist, and reemphasize that we are tracking to our plan, and I think the idea that good things are ahead for Sylogist. I continue to feel like the investments we're making are now turning into those things that we can clearly see relative to our customer opportunity in terms of cross-selling IP that we have acquired, as well as that we're building internally, as well as the market appetite for the solutions we have and the workforce to be able to deliver those in a dependable manner and scale the business going forward. We feel very good about our posture as we exit Q2, and then we're into Q3 in the back half of the year.
To that end, again, I appreciate your continuing support of the company and wish you all a good day and be well.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.