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 close 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.
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 2023 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 onset, 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.
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 2023 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 CAD 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 and up 9% sequentially compared to last quarter. Bookings span the 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 converging commerce client, FindMy Group. These bookings also represent a 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.
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 of 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.
Thank you, Peter. We're pleased with our strong performance in our first quarter ended July 31, 2022. Total revenue was CAD 34.2 million. That's 3% higher than CAD 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 CAD 5.7 million in Q1 of 2022 to CAD 8.0 million in Q1 of 2023. SaaS Remaining Performance Obligation, also known as RPO or SaaS backlog, was CAD 102.5 million at the end of Q1 fiscal 2023. As Peter mentioned, that's up 58% from CAD 65 million at the same time last year. Maintenance and support revenue for the 3 months ended July 31, 2022 was CAD 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 CAD 13.6 million. That was up 4% from a strong comp of CAD 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're seeing a continued reduction in custom development work as customers opt for a more out-of-the-box approach to platform implementations. We're also continuing to experience the growing role of our partner ecosystem in 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 CAD 0.5 million, compared to CAD 0.4 million in the same period in fiscal 2022. As we've 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 CAD 3.8 million. That was a decrease of CAD 2 million compared to the same period last year, and a decline of CAD 1.3 million sequentially compared to CAD 5.1 million in Q4 of 2022. By way of reminder, we sell primarily third-party hardware to our customers for warehouse operations and 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 remains strong, driven primarily by hospital network point of view orders. Turning now to bookings. SaaS bookings are reported on an annual recurring revenue basis, and as Peter mentioned, increased by 256% to CAD 3.9 million in Q1 2023, compared to CAD 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 CAD 9.7 million. That was down 33% compared to CAD 14.5 million in the same quarter last year.
This is down sequentially from CAD 14.8 million in Q4 of last year and highlights the lumpiness and impact of timing on reported quarterly bookings. Professional services backlog remains solid at CAD 30.7 million at July 31, 2022. For the first quarter, total gross profit was CAD 14.8 million. That was up 2% compared to CAD 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 three months ended July 31, 2022 was 46%, compared to 47% in the same period of 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 to 26% from 27% in the prior year quarter. Switching now to our expenses for the quarter. Operating expenses increased to CAD 14.7 million. That was higher by CAD 1.3 million, or about 10%, compared to CAD 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 CAD 40,000 or essentially 0 per fully diluted share, compared to CAD 244,000 or CAD 0.02 per share for the same period in fiscal 2022. Adjusted EBITDA was CAD 1.5 million in Q1 2023, compared to CAD 2.5 million in Q1 2022. Net profit and adjusted EBITDA were negatively impacted in three months ended July 31st, 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 CAD 0.2 million compared to the same period last year. We ended Q1 fiscal 2023 with a strong balance sheet position. On July 31st, we had cash and cash equivalents in short-term investments of CAD 37.5 million. That compared to CAD 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 CAD 8.1 million at quarter end, compared to CAD 8.4 million last quarter. I will now turn the call back to Peter to provide some outlook comments.
Thanks, Mark. Tecsys stable growth continues through the first quarter of fiscal 2023 with a strong balance sheet and a robust backlog and 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 a 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 our share of a massive market opportunity driven by fundamental changes to the supply chain industry.
Change is spurred by long tail disruptions, digital adoption, and a realization that heightened consumer expectations are here to stay. After an impressive fiscal 2022, we're pleased that this first quarter of fiscal 2023 continues that trend. We believe that the remainder of fiscal 2023 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 2023. First, we'll 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'll continue to expand and refine our distribution and omni-channel 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'll open the call for questions. As I've explained a few times this week, by the way, sorry, I had COVID a couple weeks ago, so this nagging cough is hanging around. It is getting better, thankfully, but it's still with me to some extent. I apologize for the extra noise you've had to listen to on this call. Thank you, and I'll turn it back over to the operator now.
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a key tone prompt to acknowledge your request. If your question has been answered and you'd like to withdraw your registration, please press the one followed by the three. One moment please for our first question. Our first question comes from the line of Amr Ezzat. Please proceed with your question.
Good morning, Peter and Mark. Thanks for taking my questions. Peter, good to hear you're on the mend. My first one is on EBITDA margin profile and what we should be expecting for fiscal 2023. Obviously not looking for a hard number, but maybe conceptually. Last call, you guys, like, spoke to most of the hiring being reflected in your first quarter P&L. So would it be fair for us to assume that this is maybe the trough quarter and going forward we see some fixed cost leverage driving margin expansion? Or are there, you know, like, other factors such as inflation or maybe increased travel that we should be thinking about?
Yeah, I'll 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 gonna be happening there in the prepared remarks. I think, you know, we indicated that sales and marketing costs are gonna continue to rise a little bit. You know, R&D is gonna go up but only slightly. I think that what you're gonna find is it's gonna sort of moderate. I think we talked about that maybe at the last call as well.
You're gonna see sort of a moderation in EBITDA margin that's gonna likely hang around these kinds of levels as we continue to, you know, invest for growth and expansion.
Okay. Pretty much the cost increases are gonna match what you guys expect in terms of sales growth is the message?
Yeah, in the near-term quarter.
Okay. 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.
Mm-hmm.
Can you help quantify this, specifically in terms of when we should be expecting you guys to recoup it?
Yeah. I mean, I think there's some of it's. I mean, a lot of it's just, you know, completely a little bit beyond our control. I mean, we do think if we're looking into crystal ball a little bit, you know, you can look through our hardware numbers from last year and see where they were. They were quite robust. You know, like our low point last year was over CAD 5 million. In this last quarter, we were, you know, at CAD 3.8 million. So I think that's probably a low point, that CAD 3.8 million. You know, I think the bigger turn there will happen in probably our Q4 of this year.
I expect, at least we expect currently based upon what we're seeing, supply availability, et cetera, that CAD 3.8 million is probably a low point.
Okay, great. On professional services, I mean, like through the past quarters, you guys have been speaking about your implementation partners helping out. You guys spoke to moderating professional services with that trend of your partners helping out. I sort of contrast that to be very healthy SaaS bookings. Like going forward, when I'm thinking about professional services, are they sort of flat at CAD 13 million like the last few quarters, or can we expect that to decline, or does it increase because you guys hired more people to help with the delivery?
Yeah, I mean, we would sure expect the latter. I think it's gonna moderate a bit. I mean, if you look at the profile of what happened last year and Q1 was actually our biggest, slightly fairly flat quarter-over-quarter, but it was our biggest PS revenue quarter last year.
Mm-hmm.
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 in our partner ecosystem and how quickly that's gonna sort of take PS revenue is sort of yet to be determined. You know, just a little bit of color on that. There was a deal that we signed in the quarter, you know, with a partner who's gonna play a pretty significant role in the implementation.
It looks like right now that, you know, I won't use the correct numbers, but just in terms of order of magnitude, let's just say it's a million-dollar implementation, we end up with like CAD 300,000, and the partner ends up with like CAD 600,000. You know, 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 wanna do. But we do think it'll moderate or ultimately moderate our PS growth.
Would you mind giving us like a very high level. Oh, sorry, go ahead, Peter.
I was just gonna say, just to add to that, Amr, like your point is valid though about strong SaaS revenue growth. Like, if you look at, you know, Mark made the point on the call that our SaaS revenue or SaaS bookings, I should say, in the last 12 months were up 70%, 78% over the prior 12 months. You know, you can't grow the SaaS bookings at 70, 88% on a trailing twelve basis and not grow professional services, even if you've got a growing partner ecosystem, right? We're just trying to balance those. You know, we do actually. I mean, if you talk to our leadership in PS, they are preparing for continued reasonably significant growth in PS.
It will, you know, it will certainly and thankfully, grow, you know, substantially slower than those kind of SaaS bookings.
I totally understand. That's very clear. What does utilization look like this year versus like last year for the PS team?
Yeah, 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. That is because utilization was lower in the current quarter.
We had invested for delivery capacity, and we, you know, we think the capacity that we have right now, and I think I quoted this number last quarter as well, you know, in the kind of the 14-15 million range of quarterly revenue is supportable, at least in the short term, with our existing capacity. You know, as we think longer term, you know, going beyond those numbers is additional hiring.
Okay. Maybe one last one on your capital deployment strategy. Can you guys maybe give us an update on the latest and greatest from Brady's team?
Yeah, I mean, you know, we continue to shop. You know, it feels like that, Mark, I basically think I'm gonna say the same thing I said last quarter, Amr. You know, 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. We think there's rising opportunity. You know, Brady has his pipeline. You know, some of these situations, until you have a deal, you don't know if you have a deal. 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. You know, we think there's opportunity there.
We're excited about some of the growing opportunities in automation. We think, you know, automation is a great opportunity, and there's some potentials around that for acquisitions related to software for automation. We don't wanna get into the hardware automation business, but the software side could be interesting. You know, in healthcare too, we continue to see deals from time to time. The last couple we saw ended up, we think, priced at quite insane levels, so we stayed on the sidelines. Other than that, I would say no real update.
Thanks. That's great. I'll pass the line.
Thanks.
Thanks.
Our next question comes from the line of Gavin Fairweather. Please proceed with your question.
Oh, hey, good morning. I thought I'd start out just on the sales production. Obviously a 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? Then maybe we can get a bit more specific in terms of your plans to add headcount to the team there.
Sure. I mean, we're pretty pleased, frankly, with how the new team, you know, the growing team is working out. I mean, you know, 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% fail rate on, you know, new additions to a sales organization. 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, you know, Q1 quarter, we had some of those deals were brought in by some of our new reps who've been with us sort of less than a year. So we're pleased with that.
That said, we think the overall headcount is more or less right for the short term. We're seeing a fairly rapidly rising level of activity in complex distribution. In the healthcare side, frankly, is on fire. I mean, it's going very, very well. A lot of opportunity, you know, 3 deals signed in the first quarter, which is amazing for a summer quarter. Healthcare is just go, go. But even complex distribution, I know I mentioned last quarter, you know, 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 gonna be watching to see sort of if that new level of sort of pipeline activity in the sort of the top of funnel moving to the bottom of the funnel, if that turns out to be 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. We're watching that pretty closely. We're gonna be watching the signals over the next couple of months. Often it's a question of balancing. We budgeted for a pretty substantial increase in sales and marketing spend again this year, but the intention was to focus more on our marketing than sales.
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. We're watching that pretty closely.
You just kinda touched on my next question. I mean, I was thinking that your commentary around the distribution was more bullish than what we've heard recently. Has there been some kinda shift that you would call out that's leading to that market moving a little bit faster? Maybe you can just touch on the win rates that you've been seeing on that expanded side there.
Sure. Like, it's too early to get a solid read, but certainly, you know. I mean, we literally put out a little phone campaign a couple months ago at the beginning of the summer, phoned a lot of the companies who were up there in the top of the funnel to say, you know, "Hey, what's going on? You're hitting our website, you're downloading white papers, you're clearly researching, but you're not really doing anything." What we heard from a lot of them was that they knew they needed a new platform. They were starting the research around getting a new platform, but they were just still in too much crisis mode. You know, goods held up in ports, you know, containers that they couldn't get a hold of, crazy pricing on containers.
They were just managing sort of crises 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. You know, and I know in the press there's talk of, you know, 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 grip, and you're seeing sort of shipping return to a more normal process. The distributors and importers are less sort of panicked about getting their goods through the ports and so on.
That is allowing them to shift their focus back to sort of, okay, now where are we going next? 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. We'll see. It's early. We're literally probably four weeks into this shift in the market. It's a bit strange, of course. I mean, normally these things change slowly over time. I think COVID has caused sort of some very rapid shifts in the market. You know, the market suddenly heating up and now the market suddenly beginning to let go again. 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. Based on that, we'll be deciding sort of how rapidly to add headcount to the sales organization.
Got it. That's very helpful. Maybe just on, you know, the SaaS migration from, you know, the base, you know, you've been talking more and more about this. How should we think about the bell curve, you know, 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, you know, your efforts to reach out or whether clients are coming to you and looking to make the shift.
Yeah. There's a bit of both. I mean, Mark could give you probably the more precise numbers. You know, off the top of my head, I would say our conversion rate is probably, you know, 3x what it was a year ago. On the other hand, a year ago, it was pretty low, so you know, you don't need that much to make it 3x. You know, we saw our net retention rate number rose, you know, nicely in the first quarter. That was partly as a result of, you know, existing on-prem customers that were shifting to SaaS and in some cases expanding their footprint as part of that shift. Certainly the move is, you know, the migration to SaaS is starting to become very real.
I wouldn't be at all surprised if this year, you know, our total SaaS bookings this year, I wouldn't be at all surprised if, you know, CAD 3 million-CAD 4 million of it is migration from on-prem. We'll, you know, we'll see how that works out. 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'd agree with that, Mark.
Yeah. I mean, it's sort of hard to tell. You know, we're still at kind of small numbers, Gavin, in terms of how many customers have migrated, you know? I mean, literally it's like a dozen, you know? You know, when it happens in the cycle, it typically tends to be, you know, when a customer's ready to upgrade to new software, that's when we typically engage with them to do it. Of course, you know, a lot of times these customers are with us for a long time and, you know, they don't move. They don't upgrade platforms every year. You know, they tend to do that over a cycle that's over years, you know?
Let's say there's a 5-year upgrade cycle, you know, that's kind of your window where you know, you're gonna be engaging with existing customers to move them into SaaS. I agree with what Peter said. It does feel like 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 about SaaS with is definitely on the move.
Awesome. Thanks so much. I'll pass along.
Our next question comes from the line of Nick Agostino. Please proceed with your question.
Yes, sir. Good morning, everybody. Just wondering.
Good morning.
On the hardware runway, is the, I guess, the lower shortage or receipt of goods right now having an impact on your ability to finalize implementations and therefore recognize any revenues? Is it having impact to the point where you're having to delay revenue recognition?
It's not. It's not yet. I mean, the only impact it's having on revenue recognition is on the hardware, you know, is on the hardware line. So far it hasn't had an impact on project speed, on project rollouts, et cetera. We'll see how that plays out. We think we're okay. We've got it kinda laid out. We've got it.
You know, 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, you know, quite openly with our customers that are in project and kinda making sure that we're lining up the end of the project implementation period with the delivery of some of that hardware that helps solve the point of use tracking in the end. There's also some things that you can do as an interim solution. Instead of using a lot of this is around our PropT ech hardware that's causing the where we're having the part delays.
You can also do, you know, some scanning. You can use like a scanner, as an interim solution and we've talked to some customers about, you know, about doing that as a step to just get live and start going. Then, you know, if we're not ready with the PropT ech stuff, at least it doesn't slow down the project.
Okay. No, that's good to hear. Just on the three IDN wins or hospital wins in the quarter, can you guys just talk about deal size relative to historical? Are you still starting to see or continuing to see bigger and bigger deals relative to the historical average? Or any potential budget constraints just because of economic fears, maybe we're seeing smaller deals? Just any color there would be appreciated.
Yeah. I would say these were average-sized deals. You know, none of these networks we signed were sort of, you know, huge networks. I would say these were close to probably the lower side of average-sized deals. We did also sign some pretty substantial base business in healthcare in the quarter. 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. You know, we do have some significantly larger opportunities in the pipeline right now actually that we're pretty excited about. This quarter, I would say they were lower side of average. I mean, they were still mid-size deals. We don't disclose actual deal size, but they were probably lower side of average.
Okay, good to hear. My final question, just on the system integrators, I think, you know, obviously last quarter we saw you guys were calling out a higher level of implementation on their part. We're seeing that again, quarter sounds like it's gonna be sticky. You know, certainly from where I sit, I think that's a good trend overall for the long term nature of the company. I just wondered what has in the last couple of quarters from your partners, maybe what is starting to click in for them that is starting to increase their level of involvement relative to the past?
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. You know, if you really wanna be involved in a, let's say, a big healthcare implementation, you know, you need to understand, you know, our demand planning and forecasting and how we manage the item master and, you know, the interface capability and the changes that are gonna be required for the clinical staff in terms of how they manage it, so on. So it goes on and on. 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 ERP and so on.
When you get into the depths of sort of how a supply chain operates in a hospital network, there's a big learning curve for everybody. Partly because, of course, many of these hospital networks have never really run their own supply chain, it's a big learning curve. They're beginning to build that sort of critical mass of knowledge to be able to deliver, you know, excellence in their consulting practice around our platform. That takes a while. RiseNow is in excellent shape on that. Deloitte's in pretty decent shape. Avalon is certainly very deep, not in healthcare, but in other sectors, electrical, for instance, and some other ones. That knowledge base is a key part of it.
The second area is just, you know, 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 twelve months. You know, they start to see that, hey, this is they can build a big business around this. So that takes time for them to gain that confidence. They, you know, somehow the first couple of wins they see is lucky. You know, as they start to see some repeatability and so on, like some of these partners have, you know, 8-12 deals in their own pipeline that they're working on, to bring to our platform, so that they can, you know, deliver the services business around it and so on.
It takes time to build that level of confidence to begin to make that kind of investment. We seem to be there in those areas. We're still looking to invest further in building out specifically the complex distribution partnership system. We continue to see some growth there, but we think there's a lot more opportunity there for some good partners. We're continuing to try to build that out.
Okay. I appreciate that color, and Peter, good to hear that you're on the mend.
Thanks.
Our next question comes from the line of John Shao. Please proceed with your question.
Hey, good morning. Thanks for taking my questions. Could you give us an update on your initiative 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?
Yeah. Well, first of all, let me talk about coverage. I mean, you know, the expanded healthcare sales team that we've, you know, we've almost doubled the size of. Well, we have approximately doubled the size of it over the last two years is providing us with much better coverage of our customer base in healthcare. I mean, we're now, you know, 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, multi-billion dollar organizations with, you know, huge opportunities for us in there. So we've, by, you know, doubling the size of that team, we've 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, 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'll see. We are expecting to win more pharmacy business this fiscal year, but you know, we'll see how that one works out. We did just release our new receiving module, and it's now sort of out there for you know, deployment. We're now showing it on the sales side and so on. And we're pretty excited about that one. That's a 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 basically an app.
It's a cloud-based product line, but it runs, you know, on pretty much any cell phone, and allows you to scan a package in, label a package if it's not labeled, but it'll literally track drugs, flowers, you know, specific gifts being delivered to certain patients, you know, shipments from medical and surgical suppliers to give a certain product to a certain doctor that they need for a certain procedure. 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. There's a lot of interest been kicked up in the hospital space around that. It'll be interesting to see the impact.
That's something we've been working on for the last sort of year and a half, and we're just launching it. We think that's gonna also kick up a lot of interest in our customer base. We'll see and we'll let you know over the next couple of quarters how that one works out.
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. I'm just curious about whether FX has been a headwind or tailwind for revenue this quarter.
Yeah, John, it's gotten pretty slight. You know, I mean, the difference between the total revenue growth rate reported and the constant currency rate is only 1%, one percentage point. You're 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, et cetera, 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.
Thanks. That's all for now.
Thank you. Our next question comes from the line of Rini Sharma. Please proceed with your question.
Hi, good morning. Can you hear me?
Yep.
Yes.
This is Rini on behalf of Deepak Kaushal from BMO. My first question, I guess, is going back to, you know, 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, you know, in terms of which is the largest and which starts to normalize first?
I can take that. I mean, in terms of the investment in cloud and cloud infrastructure, I mean, most of that is around you know, building out the team. We've sort of commented in the past about the fact that, you know, whether you have you know, 10 SaaS customers or 110 SaaS customers, you need a 24/7 team that can handle all the stuff that needs to be handled in operating a cloud environment. That includes security, the security aspects. But once you have that team built up, you can kind of scale up on, you know, from that point.
That's where we feel like we're getting to on the cloud investment side. We've also talked about, Rini, investment in professional services capacity. I think, you know, we're at kind of a good place there. I mentioned before that, you know, our utilization was a bit lower this quarter than it was the same quarter last year, and that's because we've invested in that team. We think that team, you know, 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've done in the past is kind of flowing through, you know, the P&L from a comp perspective right now. Actually as we look ahead, we currently don't have, you know, plans to grow that investment, you know, super materially. It'll grow slightly, like I indicated, quarter-over-quarter. Sales and marketing is really the one where, you know, and Peter alluded to that a little bit earlier in the call.
We're monitoring that one to figure out which we always do to determine you know how much gas you know to put on the fire there which depends you know on demand and what's going on in the pipeline and what's going on top of funnel and in terms of lead generation. You know right now our budget for sales and marketing is to spend you know is to increase the spending there this year. We're managing you know as we go whether or not you know we think that's in lead gen.
As these leads start to come through, you know, 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 into more on the sales side.
Mm-hmm. Okay. In terms of the normalization, which one would you think is expected to normalize first, between the R&D.
It's a good question. I mean, our overall philosophy here, Rini, is to kind of keep investing as long as we're growing the business. I think that rings most truly in terms of sales and marketing. You know, that one, as long as there's opportunity, I think we just keep going because, you know, every dollar that we spend on sales and marketing, if it's bringing in, you know, some X factor of dollars on SaaS bookings, you know, we're building our RPO and growing future revenue. We're gonna keep investing there. I think R&D and our plans are to continue to invest, but it'll be more moderate there.
It's really around sales and marketing and, you know, how much fuel we put on the fire, and then that sort of depends, you know, if there's sparks. Right now there are sparks, so.
Okay, that makes sense. That's very helpful. And then my next question is just about, you know, the environment in your core's North America, especially with regards to PC FYF. What is the customer activity looking like there, and what should we be expecting?
I mean, I think first of all.
Yeah, go ahead, Peter.
I'll say the vast majority of our sales and marketing activity is, you know, focused in North America. We are seeing on the retail side, we're seeing some pretty good activity overseas. I mean, 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're seeing more activity in that space. If we look overall at the bulk of our pipeline, the bulk of our pipeline is North American-based.
Mm-hmm.
That's where we're seeing, I would say healthcare. Healthcare moved out of being sort of too distracted by COVID probably six or eight months ago. We're seeing sort of concrete, rapid activity. I mean, healthcare is always a bit slow, frankly. They're not a fast-moving sector. As fast as that sector can move, they're moving at that speed now. We are seeing. We just had a sales meeting a couple weeks ago in August, and the healthcare sales team is very, very busy. We're pleased with that. We're seeing a ton of activity there. I mean, if you think of it from the standpoint of what's happening in healthcare, I mean, you know, nurse salaries are rising.
There are shortages of nurses, there are shortages of doctors, there are shortages of all kinds of things. Meanwhile, there's rising demands coming from an aging population. The insurance companies don't want to pay a lot more money. You've got the Affordable Care Act that's keeping a lid on revenues for these hospitals. They're looking for efficiency gains, and they've kind of used up all their other places to look. I mean, you know, what they need to focus on now is supply chain, where there's literally millions of dollars being wasted in how supply chains are being managed. Supply chains are becoming front and center for these organizations. We're seeing a lot of activity there.
In the general distribution marketplace, as I mentioned earlier, it feels like the logjam is starting to break now. I think we'll really only see for sure this fall. You know, we are signing deals in complex distribution, but relative to the size of the pipeline, relative to the, you know, how many opportunities are in the, you know, have been in the top of the funnel for the last number of months, you know, the actual deal signing pace is still relatively slow. We think it's now breaking. The logjam seems to be moving. You know, as I will probably know by November, I would think.
Mm-hmm. Okay. Thank you so much.
Great. Thank you.
As a reminder, to register for a question, please press the one four. Our next question comes from the line of Suthan Sukumar. Please proceed with your question.
Good morning. Thanks for taking my question. It's Daniel on for Sukumar today. 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've encountered as well?
I mean, as I mentioned, that market has just been massively distracted, right? Like I mean, we've been in complex distribution for 25 years, and we've never been through a time like this where you have virtually every single subsector within complex distribution that has been massively distracted. You know, from, I mean, literally, it doesn't matter if it's wine and spirits or chips or, you know, you name it. They're all, they've all been struggling with managing the supply chain. You know, as I've said to people, is they sort of have three problems. They can't source the product because so many factories are shut down. They can't move the product because there's a shortage of containers and ships.
When stuff finally arrives, they can't handle the product because there's not enough warehouse workers to go around, and warehouse labor has been in terribly short supply. They're all 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 world. But at the same time, they've been sort of right in the middle of the swamp dealing with the alligator that's already taking a bite out of them rather than focusing on the one that's ten feet away. That's the mode they've been in. We've done some good business in complex distribution.
If I look at overall bookings, healthcare has been, you know, roughly 55%, I think, of our bookings over the last year. Complex distribution has been more in the sort of mid-40s. You know, I think that'll probably continue. I wouldn't be surprised if healthcare even gets up as high as 2/3 for the next little while because healthcare is, you know, moving so quickly. The sheer size of the complex distribution market, we think will eventually bring it back to more of a balanced picture.
That's helpful. My second question here is, given the current economic backdrop that we're in, how are you viewing your overall investments, and how are you looking to balance the investments versus perhaps margin expansion?
Well, I mean, Mark can comment on this as well. I mean, you know, it's, you know, we wanna run a relatively balanced ship. I mean, you know, we wanna generate enough cash to fund our own growth. We don't wanna be dependent on raising capital in markets that are not friendly to raising capital. You know, we've been in this game long enough to know that the markets rise and fall, and sometimes tech is in vogue in Canada, and sometimes it's not. You never wanna be in a position where you've gotta dilute your shareholders at a bad time.
We wanna run a, you know, a business of cash flows. At the same time, if I look at the last twelve months, for instance, you know, our EBITDA has run maybe I don't know the exact last four quarters, it's probably, you know, let's say CAD 8 million. During that same time period, we've grown our remaining performance obligation from, you know, roughly CAD 65 million to CAD 102 million. We've grown our sold and booked SaaS by, you know, CAD 37 million over that 12-month period, which if you figure, you know, even pick a relatively conservative sort of 60% gross margin on SaaS, it means we've, in many ways, we've made CAD 22 million more in the last twelve months above and beyond that CAD 8 million of EBITDA.
It's just, it's future earnings that are already booked, sitting on books, committed contracts that have, you know, CAD 22 million of margin sitting in them that all the work to sell them and begin the deployment was done in this past year. We sort of look at this past year and say, well, you know, in terms of our investors, in some ways we generated CAD 30 million of profit in this last year, not just the CAD 8 million that shows on the books. 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're making enough money to cash flow the business.
Thanks. I'll pass the line.
Okay.
There are no further questions at this time. I will turn the call back over to you.
Great. Thank you. Just one closing comment, by the way. You may have seen hints to it in what we covered today, and you know, some of the financials we published. We are going to begin to disclose sort of more numbers ex-hardware. 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. We're gonna start to try to make that clearer. Hardware is going to always bounce around. It's got, you know, sometimes there's supply chain hold-ups, sometimes there's specific project hold-ups at customer site, 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.
If I look at this last quarter, for instance, you know ex-hardware, our recurring revenue hit almost 54% of revenue. Those are the kinds of trends we wanna continue to track and sort of just let hardware bounce around wherever it needs to bounce around. We're gonna try to clarify that in our reporting. We'll probably get better and better at it as we go through this year. That's just a new breakout you're gonna start to see a little more. Okay. That's it for now. Thank you very much for joining us. As always, if you have additional questions, please don't hesitate to reach out to Mark or myself. We will talk to you again at the end of November. Thanks again. Have a good day.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.