TECSYS Inc.

Good morning, everyone. Welcome to Texas Fiscal Year 2026 Third Quarter Results Conference Call. Please note that the complete third quarter report, including MD&A and financial statements, was filed on SADAR Plus after market closed yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with international financial reporting standards. Some of the statements in this conference, 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 Thursday, March 5th, 2026 at 830 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Texas. Please go ahead, sir.

Thank you. Good morning, everyone. I'm joined today by Mark Butler, our Chief Financial Officer. We appreciate you joining us for today's call. I'm pleased to share our third quarter fiscal 26 results with SAS revenue up 17% and adjusted EBITDA up 43% compared to the same quarter last year. This is the highest adjusted EBITDA quarter in our company's history. We also achieved the largest Q3 SaaS bookings quarter in our history, achieved without any migration bookings, which we believe underscores the demand for our core offerings and the strength of our pipeline. We saw strong SaaS bookings across both our healthcare and distribution verticals, with new logo wins leading the way, including Memorial Sloan Kettering, one of the world's most renowned cancer centers, UT Southwestern, one of the top academic medical centers in the U.S., and one of the world's largest paper packaging companies as well. In Q3, our pipeline growth remains strong, with our ending Q3 pipeline up 30% from the same time last year. These results highlight the strength of our elite platform and our healthcare solutions, which represent the core of our business and a primary driver of SAS ARR. They also strongly reinforce our value as customers navigate the convergence of three powerful forces, an evolving regulatory landscape, persistent macroeconomic pressure, and an AI ecosystem characterized by rapid innovation and uneven maturity. The shifting regulatory landscape in the U.S. healthcare system continues to reshape requirements across the supply chain. For example, the Drug Supply Chain Security Act requires every product to be electronically traceable at the package level and the 340B program demands rigorous tracking, auditing, and documentation to show that discounted drugs are being used appropriately. As these regulations move into a period of stricter enforcement throughout 2026, compliance is shifting from a best effort initiative to an imperative operating discipline with real consequences for organizations that aren't ready. At the same time, The broader macroeconomic climate is prompting healthcare leaders to accelerate technology investment, not slow it down. Despite cost pressures, organizations are allocating more budget to digital infrastructure, automation, and data readiness. Analysts project continued year-over-year growth in technology spending among U.S. healthcare providers, reflecting the urgency around modernization and resilience. Finally, the era of unrestrained AI evangelism is giving way to more mindful evaluation, and we're seeing buyers gravitate toward partners with advanced AI capabilities combined with deep vertical expertise and industry-specific solutions like unit-level traceability, federal compliance, audit capability, and secure chain of custody requirements in healthcare, the kind of domain-informed approach exemplified by Texas. As mentioned in our earnings press release, our AI intelligence layer, Texas IQ, became commercially available in Q3. Texas IQ unifies data from multiple sources, including healthcare-specific ones like ASHIP, which is the American Society of Health System Pharmacies, GoodID, which is the global unique device identification database, and the U.S. Food and Drug Administration. It can bring together critical information like drug shortage data, device identifier data, and recalls and safety alerts, transforming it into clear and actionable insights. This capability significantly amplifies the value of our core enterprise systems, empowering customers to unlock the full potential of AI and improve operational performance. We're encouraged by the early momentum and the expanding role Texas IQ will play in delivering measurable supply chain value. The same appetite for operational improvement is fueling exceptional interest in our pharmacy solutions while accelerating our brand awareness in the market. Pipeline for our pharmacy inventory management system grew more than 200% year over year, supported by strong brand momentum, new industry research, and record engagement at our pharmacy summit in Houston, Texas this week, where total registrations increased 77% year over year, and participation from health system leaders was up 67%. Our research survey findings are driving increased media coverage, while recent recognitions from Modern Healthcare and RxInsider reinforce our position as a leading and trusted partner in the pharmacy space. Our distribution business also delivered solid progress in the quarter, reflecting ongoing demand, strong execution, and significant market traction. As I mentioned at the top of the call, we signed a significant deal with one of the world's largest paper packaging companies, reinforcing our position as a partner of choice for complex high volume distribution environments. In November, we went live with Carolina Cat, who are already seeing strong ROI for their operating efficiency. And in December, we successfully went live with Kirby Risk, an electrical supply manufacturing and logistics organization operating in more than 40 locations. This implementation establishes a solid foundation for their next phase of operational transformation, which will include expanded automation capabilities. Overall, the quarter reinforced the strength of our strategy as organizations across healthcare and distribution increasingly seek partners who combine domain expertise with advanced purpose-built AI. With strong pipeline expansion and rising market visibility, we are well-positioned as a trusted modernization partner in sectors where reliability, compliance, and AI readiness are critical. Mark will now provide further details on our Q3 results, as well as financial guidance on several key metrics.

Thank you, Peter. As a reminder to everyone, our third quarter ended January 31st, 2026. I'll start with SaaS. As Peter mentioned, SaaS revenue growth was 17%. reaching $20.1 million in the quarter. That growth was 18% on a constant currency basis. SAS ARR was 83.3 million at the end of Q3 fiscal 26, which was up 10% or 16% on a constant currency basis from the 10 quarter last year. Our elite SAS ARR, which is our core product and the predominant contributor of total SAS ARR, grew by 17% over the same period, which was actually 23% on the constant currency growth basis. Sequentially, SAS ARR increased by $2.2 million in Q3 fiscal 26 compared to the prior quarter, as record Q3 bookings were partially offset by unfavorable impact from foreign exchange of about $2.1 million, and attrition among a small group of non-core customers. which was previously discussed in the Q2 MD&A earnings call. That known attrition will continue to have a moderating effect on reported SAS ARR growth over the next two quarters. One more point about SAS bookings. I want to highlight that bookings from new logos are up over 150% during the last 12 months compared to the year-ago period. That acceleration is an important indicator of the underlying demand environment and the strength of our competitive position. It speaks to the durability of our growth and the expanding relevance of our platform in the markets we serve. SAS RPO was $248.9 million at the end of Q3 fiscal 26. That's up 18% from the same time last year. That's actually 24% growth on a constant currency basis. demonstrating again momentum on SAS bookings as well as renewals in the period. Professional services revenue for the third quarter was up 8% from the same quarter last fiscal year to $15 million. Professional services backlog was $36 million at the end of Q3 fiscal 26. That's down 19% or 14% on a constant currency basis. from a tough comp at the end of Q3 last year. Based on our professional services backlog heading into Q4, we expect Q4 professional services revenue to look more like Q3 this year than Q4 last year, which was $16.2 million. For the third quarter of fiscal 26, gross margin was 51% compared to 47% same period last year. The key drivers here are increased success margins as well as strength in professional services margins in the current quarter. Net profit per quarter was $1.7 million compared to $1.2 million in the same quarter last year. Basic and fully diluted earnings per share were $0.12 in Q3 this year compared to $0.08 Q3 last year. Adjusted EBITDA was $5 million in Q3 fiscal 26. compared to 3.5 million same quarter last year. On a last 12-month basis through Q3 fiscal 26, adjusted EBITDA is up 49%. Turning briefly to our year-to-date highlights, SAS revenue for the first nine months of fiscal 26 was $58.9 million. That's up 21% from the same period last year. foreign exchange is not having a significant impact on SAS revenue compared to the same period last year. Our total revenue reached $143.1 million. That was a 10% increase from last year, which was 9% on a constant currency basis. Excluding hardware, overall revenue grew by 13% or 12% constant currency. For the first nine months of fiscal 26, our adjusted EBITDA increased to $13.3 million, up from $9.1 million in the same period last year. Fully diluted earnings per share for the first nine months of fiscal 26 were 29 cents. That's up 61% compared to 18 cents in the first nine months of last year. We ended Q3 with a solid balance sheet. We had cash and short-term investments of $36.2 million. and no debt. We used about $3.7 million of cash in the quarter to buy back shares under our NCIB. And we also paid out $1.3 million in dividends. Additionally, the board yesterday approved a quarterly dividend of 9 cents a share. After the end of the third quarter, we implemented a workforce reduction of approximately 7% across multiple functions as part of a broader initiative to optimize the company's operations. This action will result in an estimated restructuring charge of $4.5 million, which will be recorded in our fourth quarter of fiscal 26, and is expected to generate approximately $8.1 million in annual operating cost savings. These reductions create flexibility for the company to redirect resources into strategic growth initiatives And accordingly, the future operating cost profile will reflect both the realized efficiencies and the reinvestments required to support long-term growth. Turning to financial guidance, based on our performance through the first three quarters of fiscal 26 and our outlook for the remainder of the year, we're reaffirming our full-year fiscal 26 guidance for SAS revenue growth of 20% to 22%, total revenue growth of 8% to 10%, and adjusted even a margin of 8% to 9%. I'll now turn the call back to Peter to provide some outlook comments.

Thank you, Mark. We are very pleased with our third quarter results, and I want to thank our investors and board, our partners and customers, and the whole team at Texas. As we look ahead to Q4 and beyond, we'll be expanding Texas IQ with the next wave of intelligent agents, designed to automate more of the routine, time-sensitive, and compliance-heavy work that burdens supply chains today. These upcoming capabilities will deepen our presence across point-of-use operations, pharmacy workflows, and administrative processes, delivering greater visibility, earlier detection of operational risks, and more autonomous decision support. We are also advancing our AI-enabled productivity tools, which will streamline configuration and simplify the day-to-day tasks that keep enterprise supply chains running. We're also in full planning mode for our annual user conference, TUC 2026, taking place in Nashville in early June. We're on track for one of our strongest events ever, with record customer attendance expected, a standard lineup of customer speakers, and partner sponsorship already exceeding targets. Clear evidence of deep engagement and advocacy. And so, in summary, I want to remind you of our key themes this quarter. Strong fundamentals. Elite SaaS ARR is up 23% year on year on a constant currency basis. Adjusted EBITDA up 43%, our highest order on record. Quality of demand. Record Q3 bookings without migration bookings underscoring healthy new local momentum and pipeline depth. Healthcare leadership. We have robust SaaS bookings and pipeline growth with traction across our diverse range of healthcare solutions. And when it comes to AI differentiation, we are delivering domain-informed intelligence that unifies critical data, surfaces actionable insights, and enables autonomous execution, amplifying the value of our core enterprise systems. We believe these themes will be the bedrock of our ongoing success, profitable growth, and shareholder value creation. With that, we'll open the call for questions. Thank you.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You'll hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. All right. Your first question comes from Amir with Bentham Capital Markets. Please go ahead.

Good morning. Thanks for taking my questions. First off, congrats on the records bookings. If you could give us a sense of what drove that performance, and more importantly, does the strength give you more confidence that the elongated cycle that you guys described in Q2 are starting to clear? Or are these lens already deep in the pipeline for some time?

Yeah, that's a good question.

I mean, our, you know, I've seen our pipeline sort of growing and growing and growing for over a year, like very substantially. And, you know, we always had confidence that the wave was going to break at some point, but it's sometimes hard to predict exactly when it's going to break. There were a lot of distractions through the summer and fall and right after Christmas. I mean, with, you know, tariffs and, you know, changes to the Affordable Care Act funding and even changes to Medicaid subsidies and so on. But the thing is, at this point, it's almost like the future is kind of settled in a way. A lot of the health care organizations and general distributors are saying, okay, tariffs are sort of just a new reality. You've got to plan them into your business planning as best you can, and you've got to move ahead. So we're seeing people starting to ignore the noise. and just start to move ahead with decision making. So, I mean, we'll, you know, we'll see where it goes from here. But certainly, it seems to us that a pretty strong pipeline velocity is back. And, you know, we're pretty excited about what we're seeing ahead over the next few quarters.

So, is it fair to say that the number of deals at vendor of choice stage is lower than last quarter?

No, I would say it's similar to where we were. I mean, we've signed some of the deals where we were vendor of choice, but we've also been made vendor of choice in a number of new deals. So we're feeling pretty good.

Fantastic. On the restructuring, can you guys unpack where the reductions are concentrated? and what you guys are reinvesting into, or does some of that flow into the bottom line? Then maybe related to that, given that you guys just reported record bookings and age-frankening pipeline, I just wonder what drove the decision to cut down now. Was it just efficiency, or are you guys signaling that you're managing more positive outlooks? I don't believe that's the case, but I'd like to hear your thoughts.

Mark will take the first crack at that, and then I may follow up with some extra color.

Yeah, I've got a few points about restructuring. First, this restructuring is about strengthening the business, not shrinking it. We're aligning resources to accelerate AI-driven productivity, improve sales execution, and increase operating leverage. That's the objective. As a result, we need

that came into today. In fact, the new goal for school 27 has come. And it has been a great success. And in terms of the new schedule, we expect that school 27 ends with our K-4 release release, which is about

technologies that are making us more efficient uh so you sort of take that all into account and run through a clean need moving forward. And, you know, as Mark says, from here, we will continue to reinvest. Some of these new technologies are expensive. We need room to reinvest there. But we're also very focused on efficiency and driving EBITDA to new levels as we're seeing the business sort of reaching an inflection point and a point of maturity in the migration to SaaS that says it's time for a lot more EBITDA.

Fantastic. That's a great comment. Then maybe one last one. On the non-core accretion over the next couple of quarters, can you give us a sense of the cadence or the roll-off cadence? And this is entirely the population that you guys already knew about, or is there any incremental pressure that we should be thinking about?

Yeah. I mean, that's It's pretty much the same story that we talked about last quarter. You know, there's some no nutrition in that non-core group of customers. We've got pretty good visibility, you know, on what that looks like. You know, it's going to, I think, mostly play out over the next two quarters in terms of SAS ARR. It'll have a bit of a lagging effect, of course, on revenue because, you know, You know, SAS AR is forward-looking and revenues is sort of, you know, reported revenues is backward-looking. And in terms of, you know, how much headwind is out there on ARR, I mean, it's going to be in rough terms around, you know, a million dollars over the next couple of quarters. And that will see as headwind there, I believe. And that should play out, like I said, pretty clearly over the next couple of quarters. I think the important thing is, you know, we're trying to highlight when we talk about these metrics, this elite SAS ARR number. And, you know, when people look at what's happening with sequential, you know, SAS growth and is it accelerating or is it decelerating, you know, you should be looking at that elite SAS. ARR number. That's the leading indicator of the core business. As we mentioned in the remarks, as Peter mentioned, that constant currency growth was 23%. That actually accelerated a bit from last quarter where it was 21%. That underlying business and that health in that Q3 bookings that we saw and the strength of our pipeline releasing into bookings, which is manifested in that SASE algorithm. I mean, we saw acceleration there in Qtree for sure.

Thank you. That's very helpful. I'll pass the mic. Thanks, Aaron.

Your next question comes from Gavin with ATB Foremark. Please go ahead.

Oh, hey, good morning, and thanks for taking my questions. I think the Houston Pharmacy event, you talked about the registrations, the pipeline trending well. Any kind of anecdotes or tenor of the conversations or thoughts or advice that you're getting out of the sales team?

Not really. I mean, there's, you know, I mean, the healthcare providers, by and large, as they look out over the next, you know, two, three years, I mean, they do see, you know, restrained revenue, right? I mean, they're not certain how many of their customers will actually come in insured as a lot of customers are having to give up on the, you know, the Affordable Care Act marketplace and finding it just too expensive. And, you know, as the restrictions kick in around Medicaid, those may get further kicked down the field. But generally speaking, I think a lot of these hospital networks tell us as they look over the next few years, they see you know, at least moderating revenue, possibly declining revenue. And yet at the same time, they're seeing that there is, you know, opportunity to really sort of strengthen their operating efficiencies. And we're increasingly in a position where by word of mouth, even we're able to, you know, highlight the very hard savings that we can drive by, you know, operating the whole supply chain, more efficiency across general supplies, implants, pharmaceuticals, et cetera. So, that seems to be overall what's driving it. You know, we've also invested very substantially in quality and, you know, implementation ease over the last few years, and we're seeing that pay off as well. I mean, you know, go lives used to be far too exciting. They're getting more and more, you know, I'm trying to think of a better word than boring, but they're getting you know, very straightforward when these networks deploy and go live. So that, you know, that is causing more networks to be interested in implementing when they hear it. It's just not very scary. It's actually a pretty smooth process.

Great to hear. And then maybe just on the new logo strength that you saw this quarter, curious where customers are starting in the IDN, you know, space. Is that pharmacy? Is it CSC? Is it point of use? Any thoughts there?

It's across the board. It's a general mix, but I would say at this point, you're probably looking at, you know, even if I combine sort of what's signed and what's in the pipeline and so on, you're kind of looking at, I would kind of write down 40% pharmacy, 40% point of use, and 20% CSE would be the, you know, very high-level breakdown there. You know, the CSE business continues, but it's a subset of the idea marketplace that's interested in the CSE. whereas they can all gain efficiencies by better management of point of use, including the OR, cath lab, IR, et cetera, as well as the, of course, pharmacy.

That's great. And then maybe just lastly on Texas IQ, can you just flesh out a little bit some of the use cases that you're starting to see happen in the base and, you know, maybe just flesh out a little bit how discussions are going with customers and prospects and your sense of their you know, keenness to adopt some of this new technology?

Yeah, I mean, it allows you – I mean, the main thing is it has access to both internal and external data, and it can use it in a combined fashion to sort of highlight, you know, the right actions, right? So you're – I mean, we're seeing at pharmacies probably where we're seeing the uptake the quickest. We're involved with a couple of pilot – environments where we're, you know, using Texas IQ to look at what is actually being consumed within the hospital environment. You know, where do we have over inventory where we may actually run into, you know, product expired on the shelf? Where are we short? Comparing our upcoming needs then to industry data that indicates where there may be shortages coming in the industry, and based on that, making, you know, recommended buys. to fill in the targeted formulary. But it's this ability to sort of write down at a granular level combined, you know, usage data, industry data, industry on shortages from ASHIP and other sources and bring it all together to say, okay, you know, these are the things you need to look after this week and get in here. No, generally speaking, I would say we're not yet seeing, and I think it'll be another few quarters before we see people turning into more automated agents. You know, you need time for trust to build in AI. I mean, AI, as you know, it hallucinates, it makes mistakes, it does what it does. And it's going to take a while for that sort of trust to build up in not just our platform, in AI in general. for people to be willing to say, okay, I'm looking for more than a report and a dashboard from this thing. I now want it to actually initiate action on its own. That's probably another couple of quarters. There's a lot of interest in it, some experimentation, but I would say that's not yet widely deployed. And, by the way, I think that's on our platform and others from what we're hearing from customers, that the platforms just aren't ready for that level of trust.

Thanks so much. Great to see the acceleration.

Thanks. Thanks, Kevin.

Your next question comes from Richard with National Bank Capital Market. Please go ahead.

Hey, guys. Good morning. This is Jack for Richard. Just wondering if maybe just a follow-up on Texas IQ. If you could just give some color on how you intend to monetize it, and then as it scales, maybe where we should expect it to show up in your KPIs.

Yeah, I mean, you know, there's two factors. You're talking specifically with Texas IQ, right? Yeah, exactly. Yeah. Yeah, there's kind of two ways to measure it. We're looking at that ourselves. I mean, you know, on a simple go-forward basis, you know, we're expecting to, you know, close a few agreements a quarter for the next, you know, several years and probably accelerating as we go into that. Now, you know, what does that turn into? You know, these platforms, you know, will likely add, you know, over a year, maybe a million bucks to ARR per year as you, you know, as you roll forward. So, in that way, it's not huge. It could go higher than that. It could go quite a bit higher than that, but that's kind of our baseline as we look to sort of layer this in on top. What I think is the bigger factor and the more exciting factor for us is we think it's going to drive all the rest of the ARR bookings. You know, because you end up with people now looking at a platform like ours and going, okay, wow, this thing can do a lot more than it used to. I mean, AI is useless without a vast amount of underlying data. Our platforms provide that vast amount of underlying data. So when customers start to see what and prospects start to see what AI can do, they end up realizing, they need the underlying data platform. They need an enterprise end-to-end supply chain platform that supplies that data to the AI engine. You know, otherwise, all the AI engine can do is hallucinate. So we think that this is a, you know, it does layer some bookings in on top of bookings that would otherwise be, but we think what we're seeing is an acceleration across all of our types of bookings because of the additional ROI that an AI platform like Texas IQ can provide. So we're, I mean, what we're excited about is that, you know, I know there's a lot of fear in the market around AI. What we're seeing is that for us, AI is a tailwind. It's definitely not a headwind. It's looking pretty exciting.

Awesome. That's really good, Tyler. I appreciate it. And then just on the – I know last quarter you mentioned that you were seeing in the last 12 months, I believe it was 2% churn, you know, elite customers. I'm just wondering if that number has changed at all and if you're still seeing the same.

No, it's still under 2%.

Okay. Thank you.

I'll pass the line.

Thanks. Thanks.

All right, ladies and gentlemen. There are no further questions at this time. I'll turn the call back over to Peter Brereton. Please go ahead.

Thank you, and thank you for taking the time to join us today. As always, if you have additional questions, don't hesitate to reach out to Mark or I, and we will look forward to talking to you at the end of June when we release our Q4 numbers. Thanks. Have a great day. Bye for now.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.