Earnings call transcript: Sylogist Q2 2025 sees revenue decline, stock dips

Sylogist Ltd. reported its Q2 2025 financial results, revealing a revenue of $15.7 million, which fell short of the $17.03 million forecast. The company’s stock responded with a 2.08% decline in pre-market trading, closing at $8.95. According to InvestingPro analysis, the company currently shows a WEAK overall financial health score of 1.74 out of 5, though analysts expect net income growth this year. InvestingPro’s Fair Value analysis suggests the stock is currently fairly valued. The earnings call highlighted a shift in revenue composition, with recurring revenue now representing 70% of total revenue, up from 62% the previous year. Despite these shifts, the company’s gross margin decreased to 58% from 62% last year.

Key Takeaways

• Q2 revenue of $15.7 million, below the $17.03 million forecast.
• Recurring revenue increased to 70% of total revenue.
• Stock price fell by 2.08% in pre-market trading.
• SaaS subscription revenue grew by 13% year-over-year.
• Gross margin decreased to 58% from 62% last year.

Company Performance

Sylogist’s performance in Q2 2025 showed a mixed picture. While the company successfully increased its recurring revenue base, total revenue decreased compared to forecasts. SaaS subscription revenue grew by 13% year-over-year, indicating a strong push towards a subscription-based model. However, project services revenue saw a significant drop, contributing to the overall revenue decline.

Financial Highlights

• Revenue: $15.7 million, down from the $17.03 million forecast.
• SaaS Subscription Revenue: Increased by 13% year-over-year.
• Gross Margin: 58%, down from 62% last year.
• Adjusted EBITDA: $2.4 million, representing a 15% margin.
• Total ARR: $43.8 million, with SaaS ARR up 12.5% year-over-year.

Earnings vs. Forecast

Sylogist reported a revenue of $15.7 million, missing the forecasted $17.03 million by approximately 7.8%. This shortfall may suggest challenges in the company’s ability to meet market expectations, although the growth in SaaS revenue indicates a positive shift in business strategy.

Market Reaction

Following the earnings announcement, Sylogist’s stock fell by 2.08%, trading at $8.95 in pre-market sessions. This movement reflects investor concerns over the missed revenue forecast and declining gross margin. The stock has experienced significant pressure, with a -27.24% total return over the past year. The stock’s current price of $2.44 sits near its 52-week low of $2.43, with a 52-week high of $3.70.

Outlook & Guidance

Looking ahead, Sylogist anticipates SaaS ARR growth in the low teens percentage range and expects its gross margin to stabilize around 60%. The company plans to continue investing in sales, marketing, and R&D to support its strategic shift towards a partner-led implementation strategy.

Executive Commentary

CEO Bill Wood emphasized the company’s successful transition to a SaaS ARR-driven enterprise, stating, "From where I stand, our competitive position, execution discipline, and market momentum have never been stronger." CFO Sujit Kinney highlighted the increase in recurring revenue, noting, "Recurring revenue now represents 70% of total revenue, up from 62% at the same time last year."

Risks and Challenges

• Elongated sales cycles in education and municipal government markets.
• Decreased project services revenue, impacting overall financial performance.
• Competitive pressures in the SaaS market could affect future growth.
• Potential economic downturns could impact customer spending.
• Execution risks associated with the shift to a partner-led strategy.

Q&A

During the earnings call, analysts focused on the distribution of bookings, which totaled $17 million across verticals. Questions also addressed the adjusted accounting treatment for VSS contracts and the company’s continued investment in sales and marketing efforts. The Texas contract’s first-year ARR was highlighted as approximately $800,000, underscoring the company’s strategic focus on expanding its market presence.

Full transcript - Sylogist Ltd. (SYZ) Q2 2025:

Alex, Moderator/Investor Relations, Sylogist: Thank you, Michael, and good morning. Joining me to discuss Sylogist’s second quarter twenty twenty five results are Bill Wood, Sylogist’s President and Chief Executive Officer along with Sujit Kinney, Chief Financial Officer. This call is being recorded live at 08:30 a. M. Eastern Time on 08/14/2025.

I’d like to remind everyone that our Q2 twenty twenty five press release, MD and A, financial statements and accompanying notes have been issued and are available for download on SEDAR plus Please note that some of the statements made on the call today may be forward looking. Actual events or results may differ materially from those expressed or implied, and Sologist disclaims any intent or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD and A and press release as well as on selgys.com. We encourage all our investors to read it in its entirety. Additionally, we are reporting our financial results in accordance with IFRS accounting standards or IFRS.

Today, we may also make reference to and discuss non IFRS performance measures, which should be viewed as supplemental. We have included in our MD and A the definitions of non IFRS performance measures used by the company. Furthermore, all the dollar figures expressed on this call are in Canadian dollars unless otherwise stated. Now I’ll be turning the call over to Bill for his opening remarks. Following that, Sajeet will provide a detailed review of our Q2 financial performance, but we’ll then return to conclude with closing comments, after which we’ll open the line for Q and A.

With that, Phil?

Bill Wood, President and Chief Executive Officer, Sylogist: Thank you, Alex. Good morning or good afternoon, everyone. Thank you for joining us. I’m pleased to report that Q2 twenty twenty five was another strong quarter for Sylogist, delivering the second highest bookings in company history and continuing the SaaS ARR acceleration we established in 2024. These results reinforce our successful transition to a SaaS ARR driven enterprise with recurring revenue now comprising 70 of total revenue, a significant milestone in our transformation.

That said, we did experience some unanticipated timing shifts in bookings and ARR recognition this quarter, primarily related to macro timing and customer onboarding delays. Importantly, we expect the postponed ARR to be realized in the coming quarters. I’ll walk you through that in more detail shortly. Most importantly, our strategic focus is working. We’re seeing a growing and engaged partner ecosystem, long net revenue retention driven by loyal customers and increasing market visibility and pipeline growth across our three core segments.

Bookings grew over 33% year over year driven by new logo acquisition and strong upsell and cross sell performance. Notably, excluding the large Q1 contract award from the state of Texas, Q2 bookings would have been our all time high with increasingly balanced contributions across all three of our strategic markets. Back to back record bookings quarters demonstrates the strength of our go to market execution, the traction of our 100% SaaS portfolio and momentum from targeted competitor displacement. Our partner community continues to scale contributing significantly to our results. Partner led deals are seeing win rates exceeding 70% and our internal led opportunities are maintaining a win rate above 50%.

These results affirm the effectiveness of our product development investments and our partner enablement efforts, especially within Cylindiscove. In the Cylindisc mission segment, we’re seeing accelerated pipeline growth across both our ERP and CRM solutions. As we predicted in our early strategic roadmap, the non profit market is responding positively to the value of a fully integrated fundraising to finance platform, a first of its kind. Increasingly, customers are opting for both Syllogist ERP and CRM to replace siloed systems. For more on our positioning, competitive advantages, customer advocacy and partner excitement, I encourage you to visit sylogist.com and follow us on our social channels for real time updates.

While our underlying business momentum remains strong, we did experience some market driven disruptions in ARR recognition delays in the quarter. Those funding reductions impacted a small group of legacy Health and Human Service customers, leading to additional reorganizations and in country office closures. Based on customer feedback, we believe these impacts have now largely run their course. Some ARR originally anticipated in Q2 was deferred due to extended decision cycles in the syllogist ed sector as school districts pause to assess evolving U. S.

Department of Education guidance. Encouragingly, we’re already seeing these decisions resume. And secondly, slower than expected implementations in SyllgisGov’s municipal market, mostly due to partner pacing and customer availability and caution. We view these delays as temporary and are seeing partners ramp up investment and staffing to accelerate go lives. It’s worth noting, Zalogist Gov’s municipal pipeline is now our fastest growing, and we continue to operate in a favorable competitive environment.

With that, I’ll turn it over to Sujit to walk you through the detailed financials for the quarter. Rajeet?

Sujit Kinney, Chief Financial Officer, Sylogist: Thank you, Bill. And good morning and very good day to everybody. Before diving into the numbers, I’d like to remind you like I did last quarter as well that we had divested our Managed IT Services division in 2024. Therefore, to provide a clearer comparison, all financial comparisons that we talk about today exclude that divestiture. Our Q2 results reinforce our continuing transition to a SaaS driven enterprise with a clear focus on growing ARR.

From a financial highlights perspective, revenue for Q2 came in at $15,700,000 for the current quarter and in terms of its component parts, SaaS subscription revenue grew 13%, that’s 13% year over year. Maintenance and support revenue declined 14% year over year on account of the impact of the Doge related cutbacks that Bill just highlighted. And this has caused ARR compression in the range of approximately $550,000 that is for Q2 and an overall impact of $1,400,000 for the first half of this year. These reductions were in the main due to external factors and not related to our solutions per se or levels of customer satisfaction. Additionally, our project services revenue declined to $4,200,000 this quarter compared to $9,000,000 for 2024.

This decline is related to our purposeful shift to a partner led implementation strategy. As Bill pointed out, recurring revenue now represents 70%, that’s 70% of total revenue, up from 62% at the same time last year. From an ARR growth perspective, total ARR at the end of the current quarter was $43,800,000 with SaaS ARR growing to $31,700,000 up 12.5% year over year and SaaS NRR continues to remain steady at 107%. On the gross margin front, Q2 gross margin was 58% for the current quarter compared to 62% in the same period last year. This compression in gross margin is primarily due to margin compression within our project services business and also additionally attributable to nuances around the accounting for costs relating to our VSS that is our victim services suite contracts.

On the expenses front, G and A decreased by $600,000 in Q2 to $2,500,000 and is currently at 16% of revenue versus 19% last year. This reduction is due to lower administrative expenses and professional fees. On On the sales and marketing front, Q2 sales and marketing expenses rose as we anticipated to $2,000,000 in the current quarter versus $1,600,000 last year at 13% of revenues versus 10% last year. This reflects increased investments in our programmatic marketing spend, which in large part has driven the robust pipeline and bookings growth that Bill just referred to. On the R and D front, gross R and D, so that is R and D spend inclusive of capitalized development, gross R and D spend for Q2 was $2,800,000 at 18% of revenue versus 15% last year.

These increases primarily related to higher third party costs in the current quarter. At this point, I would like to point out that due to the significantly lower levels of capitalized development spend in the current quarter, our net R and D spend increased by $1,100,000 year over year. This was due to significantly decreased levels of capitalized development, and we expect this trend to continue. From an adjusted EBITDA perspective, our Q2 adjusted EBITDA was $2,400,000 at a 15% margin versus a 26% adjusted EBITDA margin last year. Our adjusted EBITDA margins for the current quarter were impacted primarily by the margin compression and project services revenue and as I talked about earlier, the significantly lower levels of capitalized development costs.

Additionally, for comparison purposes only, I would like to point out that the decreased level of CapDev in the current quarter versus the same quarter last year had a negative 6% impact on our adjusted EBITDA for the current quarter. For the year ended 12/31/2025, we are updating our outlook as follows. We anticipate SaaS ARR year over year growth in the low teens percentage range, a gross margin of approximately 60% and an adjusted EBITDA margin in the high teens percentage range. This update this updated outlook rather is being driven by the following factors. The first is the elongated the elongated sales cycle that Bill referred to in our education market and slower than anticipated time to SaaS revenue recognition in our municipal government market.

The second factor is the finalization of the accounting characterization of revenue and costs relating to our victim services suite of suite revenue contracts. And the third factor is our expectation around significantly lower levels of capitalized development for the remainder of the year. Finally, we ended Q2 with $4,800,000 in cash and I will remind everyone that the end of Q2 is typically our lowest cash balance point in the year and in line with our invoicing seasonality. With that, I’ll hand it back to you, Bill. Bill?

Thanks, Sujit.

Bill Wood, President and Chief Executive Officer, Sylogist: With all three of our leading SaaS platforms in market, a productive and expanding partner ecosystem, strong customer advocacy and ongoing success in competitor displacement, we are well positioned to deliver scalable repeatable growth. While this quarter came with some ARR timing headwinds that led us to adjust our full year outlook as Sujit outlined, we remain confident these are delays not losses, and we expect these deferrals to positively impact future quarters. The journey from a legacy on prem provider to a fully SaaS customer focused company has required deep structural transformation across Zalogist. Thanks to the dedication of our team and leadership, we are now fundamentally different and stronger company than we were even a year ago. From where I stand, our competitive position, execution discipline and market momentum has never been stronger.

We’re excited about the road ahead and the value we’re creating for customers, partners and shareholders alike. With that, let’s open it up the floor to some questions.

Conference Operator: Thank you. We will now begin the question and answer session. And your first question comes from Gavin Fairweather with Cormark. Please go ahead.

Gavin Fairweather, Analyst, Cormark: Hey, good morning. Thanks for taking my questions. Maybe I’ll just start on bookings. The $17,000,000 was great to see. Hoping you could discuss the mix in there.

It sounds like it was kind of broadly based across verticals. Maybe you could talk about the mix of SaaS versus services? And were there any kind of big chunky deals in there that really helped drive that number? Or was it fairly distributed?

Bill Wood, President and Chief Executive Officer, Sylogist: Hey, good morning, Gavin. Thanks for your question. And I don’t know if we’ll break out the actual SaaS and professional service. I’ll defer to Sujit on that. But I will say that the blend was very across all three segments.

And importantly, there wasn’t anything that was materially chunky that would skew it north in terms of the velocity of the bookings overall. We really saw a good blend of all platforms kind of firing in terms of the deal closing, the partner success that I mentioned before. So yes, was just a really strong quarter for us in terms of the blend and the performance of our efforts.

Gavin Fairweather, Analyst, Cormark: That’s good to hear. And then maybe kind of a related topic, maybe touching on pipeline. I think in the past, you’ve provided some metrics in terms of pipeline growth, and it sounds like you’re continuing to see good momentum in the sales funnel. Any additional comments you could provide on the pipeline?

Bill Wood, President and Chief Executive Officer, Sylogist: I’ll defer to Suji on that. But I will say specifically the blend that I mentioned just a moment ago is the I guess the most positive outcome of what we’re seeing in terms of our motions overall. The products and I think that the corresponding kind of pullback on our capitalization of our development efforts speaks to the fact of a lot of the lift is now behind us. Our platforms are in market, the uptake, they’re live and customers and serving them well. So I believe that the pipeline is reflective of that and further lean in, as I mentioned, in terms of our partners who are getting their legs underneath them even more and more on a monthly basis and really having incredible success out there winning deals that they’re soliciting.

So very pleased on that front. Anything to add there Sujit?

Sujit Kinney, Chief Financial Officer, Sylogist: No, Bill. Mean excellent summary. Gavin from a pipeline perspective, I think the only thing I would add back add there and I will dive back to our prepared comments at the beginning of this call. I mean, are seeing good very good traction from the point of view of the investments we’re making from a sales and marketing perspective. Lots of emphasis, like we said, on the programmatic marketing spend.

Our marketing team is literally zipping across the country, attending conferences. As you know, it’s a very collegial business. Everybody knows everybody. You need to have their face out there and talk to people, which is exactly what they’re doing. So, the spend on marketing, we believe, is yielding good results in terms of pipeline growth.

Our CRO has built out really a robust marketing team under a new head of marketing and specific marketing targeted to each of the channels. So we are very pleased with the traction we’re seeing there as a from an ROI perspective is how we think about it. And we’re very pleased with the ROI that we’re getting on our sales and marketing spend.

Gavin Fairweather, Analyst, Cormark: Appreciate that. And maybe on Gov, you touched on really good pipeline growth in that vertical, and it sounds like it’s been a big contributor to bookings. But maybe you can just discuss where some of the bottlenecks are in terms of getting these contracts live. I think you’re working on making some product enhancements to help try and speed that up. So maybe you can just discuss where the bottlenecks are, how you’re tackling them and whether you could see those kind of implementation timelines compress in the second half?

Bill Wood, President and Chief Executive Officer, Sylogist: Yes, for sure. The guidance is really in prepared comments that I made. It was the partners relative to how they were thinking about the their staffing, their readiness and their ability to move beyond their implementations as they knew it previously into the implementations and the all at once mindset that our city and municipal covers customers require. And so I think that there was not necessarily a blind spot but something that they realized they needed more resources to meet the pace of what the customer timeline was going to require, which they’re now swinging on resources and making investments to cover. I will add that we’re actually embedding some of our team members to assist with that effort as well in their delivery to help to ensure that those are restarted at the same pace that we’re anticipating.

But I also want to highlight that in the municipal government market, there’s just a lot of time that ultimately important people and some of new cities and towns run with a very small crew. When a person or two is out for a period of time or an extended period of time, it can lead to project delays. And so to that end, are helping the partners be more thoughtful about how they stagger around that, how they work around that based on what we’ve learned over time. And lastly, I will say that when you get to that Q2 and the year end that most of the municipalities experienced, when I referenced the word caution, it’s the idea of they almost prefer to wait a bit longer and get through their quantum budgeting season and approval of the next budget on their existing system. And that came through maybe a little bit more so than our partners and we anticipated as we scale to more and more some of the early indicators and certainly early adopters weren’t necessarily indicative

So we feel that that is just more awareness of how we think about the projects going forward.

Gavin Fairweather, Analyst, Cormark: Appreciate that. And then lastly, before I pass the line, in your prepared remarks, you discussed a bit of a shift in terms of how the VSS contracts are accounted for. I’m assuming you’re talking about SaaS versus services there. Maybe you can take that Texas contract as an example. I think last quarter, you thought that, that would be kind of $4,000,000 of bundled turnkey ARR.

Maybe you can discuss how the treatment has landed in terms of the SaaS revenue recognition versus services?

Sujit Kinney, Chief Financial Officer, Sylogist: Yes. Gavin, I can take that. So you are right. When we were originally thinking about this contract and in discussions with accounting experts on this matter. There was initially a very strong feeling that this would be more in the nature of an integrated arrangement, almost a bundled arrangement, if you will, where effectively the accounting consequence of that is that everything really is recurring revenue and is recorded as such.

That has really, again, the accounting consequence of that is a higher level of ARR and everything from a income statement geography perspective being reported within SaaS revenue. Based upon your additional guidance and so on, the considered view is that this is in the nature of a separate arrangement. So essentially, it causes an unbundling of the arrangement. So effectively, is an allocation of revenues to the SaaS portion and allocation of revenues to the project services portion. Without getting into too much detail, the punch line really here is that allocation happens based upon what is called a standard history of one standard selling prices that apply to such arrangements.

And it causes one’s project services revenue and one’s recurring revenue to be allocated based upon that standard selling price. The net net effect of all that is there is an unbundling on the income statement line, but more importantly from a project services perspective, the costs get allocated at their full value. So there is a near term or a short term deprecatory impact from a gross margin perspective in the initial part of the contract. And then as the contract comes up for its first renewal, it bounces back to the original value of the SaaS ARR. So there’s a lot I said here, but effectively that is the impact of this arrangement from an accounting perspective.

Gavin Fairweather, Analyst, Cormark: You might not answer this, but I’ll try anyway. Can you help us understand like $4,000,000 of SaaS ARR was your original expectation? Can you give us what the new number will be?

Sujit Kinney, Chief Financial Officer, Sylogist: From a SaaS ARR perspective, in the first year, the expectation is that the ARR portion, will be approximately about $800,000

Gavin Fairweather, Analyst, Cormark: Appreciate the color. I’ll requeue.

Bill Wood, President and Chief Executive Officer, Sylogist: Yes.

Conference Operator: And the next question comes from Suthan Sukumar with Stifel. Please go ahead.

Suthan Sukumar, Analyst, Stifel: Good morning, gents. Just a question on the AR timing headwinds. Is this more of a function of deal slippage quarter to quarter implementation delays? Or is there something else to consider? Just wondering if the stars do manage to align for you over the back half of this year, is there sort of is there still a line of sight to getting back to that prior 20% SaaS AR guide?

Bill Wood, President and Chief Executive Officer, Sylogist: Good morning, Shetan. Our guidance is reflecting that the because of the cadence of where we are in the year, the likelihood of that happening in the back half of the year is lower than we had anticipated for the reasons that we’ve outlined. However, as we think about the roll forward, we see the pickup coming in the subsequent quarters unquestionably because of this being postponement and for the rearchitecture of the revenue that we had assumed based on the BSS on the guidance that we had received. So that is the most material portion of the change is really that component tied to the Texas BSS agreement overall. So yes, we see the we’ll push, but we think we thought just resetting on the guidance side was fair relative to what we anticipate here over the next couple of quarters.

Suthan Sukumar, Analyst, Stifel: Okay. Got it. Thank you. On the margins from a margins perspective, can you speak about some of the areas of investment and your investment priorities beyond what’s happening in the R and D line as you think about the growth investment outlook ahead? And how are you thinking about the sources for operating leverage, call it, more mid to longer term that will support more margin expansion back to the levels that you’ve been at historically?

Bill Wood, President and Chief Executive Officer, Sylogist: Yes. On the investment side without a doubt as Sujit highlighted, we are seeing very strong ROI on our further lean in on our sales and marketing motions. And those are both partner kind of advocacy as well as the idea of what we’re doing directly. Our CRO was outlined to us not too long ago where he said a year ago I would say very few municipalities in Canada knew about SyllogisGov. Now it would be surprising if nearly every community wasn’t aware based on what they’re hearing and what our partners are advocating for.

So, we’ll continue to lean in. As I’ve said from when I started, we have a responsibility once the investment and when we have our platforms where both the competitive advantages and the market appetite is clear, leaning in will present kind of the rocket fuel for us as we think about scaling and building the business with our partners at our side. We’ll continue to look at how and we provide platforms for our customers as I’ve said before to speak on our behalf. That is why we are seeing the traction is that the customers are very pleased with what they’re seeing. It’s not just a like for like comparison.

I’ve now gotten through the conversion, but they’re seeing material advantages in the new software that’s being provided. So the lean in on sales and marketing is very much in our focus. And partner enablement clearly is something that will continue as we push forward. Our capital expenditure, our overall thesis on that, we continue to look at the pillars, as we’ve said previously, how we think about paying down debt, how we think about our opportunity for inorganic opportunity as well as the exercise of the NCIB and investing in the business where we believe it continues to create value creation long term.

Suthan Sukumar, Analyst, Stifel: Yes. And just one last one for me guys. Just on the booking strength. I mean, this has obviously been quite impressive to see back to back quarters of this level of performance. Can you talk about what the mix was between net new business and expansions with existing customers?

And on the net new side, how much of that is from competitive displacements?

Bill Wood, President and Chief Executive Officer, Sylogist: I’ll defer to Sujit on if we provide the mix. But I will say on the new all of them were targeted competitor replacements. These were these are not bluebirds that came from left or right field. These are very much part of the motions and the exposure that what we have our sights set on relative to specific competitors. So as I said in my prepared remarks, that is really paying dividends for us in terms of the repeatability of those and the success we’re seeing in not only the wins, but the stand up of those customers as well.

I will say before hand it over to Sujeeta something there, you mentioned about the return to operating leverage. The operating leverage as we see in the business is really tied to that ARR. And ultimately because of this postponement of the ARR that we anticipated, that’s why we’re seeing some of this compression. Most specifically, as Suji highlighted, how we have to absorb the total cost of the PS of the professional service delivery of this monster Texas agreement in a very short window versus what was originally anticipated over a much longer over the term of the agreement. And so that’s where that’s the major contributor as to why the compression is occurring right now, different than we anticipated.

And the idea that as we move forward, it creates a very bright picture for us as that ARR blossoms and the margin goes way up on that because it’s now not offset by professional service costs that were amortized at all. So that’s a very strong case to where we see that operating margin that we anticipated in the back end coming back into the business, Sufan.

Conference Operator: And your next question comes from Daniel Rosenberg with Paradigm. Please go ahead.

Daniel Rosenberg, Analyst, Paradigm: Hi, good morning Bill and Sujit. I just want to come full circle on the VSS contract. So in year two, are we to understand that you’re still your expectation is still that $4,000,000 ARR level in terms of bookings or actual accounting treatment?

Sujit Kinney, Chief Financial Officer, Sylogist: Dan, I can jump in there. And sorry, let me just reset the numbers a little bit. I know we’re referring to $4,000,000 There might be a little bit of commingling on between USD and Canadian dollars from an initial contract perspective from a year one perspective and these documents are available publicly. It’s 2,000,002 million contracted value from a year one perspective and that steps steps up. So that’s a U.

S. Dollar value. So effectively from a Canadian dollar perspective, it’s $3,000,000 on an annualized basis, just on a contract value basis. And I will also say that the $800,000 number that I just articulated was a U. S.

Dollar number. So essentially in terms of year one, the breakout is approximately $1,200,000 on the services side and another $800,000,000 on the recurring revenue side. Once one gets into year two of the contract, the characterization changes to becoming entirely the entire $2,000,000 and I’m speaking U. S. Dollar numbers here, 2,000,000 effectively becomes the recurring value of the contract.

I hope that clarifies your question, Dan.

Daniel Rosenberg, Analyst, Paradigm: Yes. Thank you. And then maybe could you speak to it sounds like you’re booking the cost, but from a cash perspective, it’s not there. So you should see the cash flow. Could you maybe just speak to the actual cash treatment, the cash asset Yes. To

the

Sujit Kinney, Chief Financial Officer, Sylogist: essentially on a contract like this one and in terms of the arrangement with the customer, the invoicing is a biannual basis. So regardless of whether it’s professional services or ARR, the invoicing happens on a biannual basis. So there is a lag effect from a cash flow perspective as the invoicing happens. And Daniel, to the question that you asked, there is an upfrontedness in terms of the costs period cost incurred perspective as well as a cash out the door perspective because one is spending money on the implementation I. E.

On the project services side of things. And that happens pretty much in a bulk manner in the first half of the year sorry, in year one.

Daniel Rosenberg, Analyst, Paradigm: Understood. Thanks for the clarification. Next, just turning to the pipeline. I mean, sounds like record level bookings are in that range. And then your managed services business were coming up on a year from when that sale occurred.

So I was wondering if you could help us think about changes in growth expectations as we look to Q3 and Q4.

Sujit Kinney, Chief Financial Officer, Sylogist: Sorry, is the question in the context of the managed services business? Are we adjusting downwards our growth expectations? The answer is that the managed was services not as material.

Daniel Rosenberg, Analyst, Paradigm: Okay. So then maybe expanding on that a bit, the bookings levels are reaching record levels, but you did speak to some elongated timing issues. So I’m just curious about how that growth curve looks like. Could you please add some context there?

Sujit Kinney, Chief Financial Officer, Sylogist: Yes. And so essentially the outlook that we have provided is a reflection of the like you mentioned, the elongation of the time to revenue. And speaking on the cost not on the cost side, not the capital side, the revenue side here. So the change or if you will be updating in terms of the outlook is a reflection of the combination of the fact that there is an elongation of the sales cycle as well as the fact that as we get into that partner led more robustly into that partner led delivery motions. There are essentially impacts that are happening from the point of view of the costs as well.

So, and then as Bill pointed out, you know, there’s a specificity in terms of what we’re seeing on the education side as well as the municipal government market. So that is the reason why we’re updating the outlook. It is not per se because of any sense of bookings per se being impacted, which is we see the bookings as really being driven by the growth in the pipeline and that’s how we think about the bookings.

Daniel Rosenberg, Analyst, Paradigm: I

Sujit Kinney, Chief Financial Officer, Sylogist: hope I’m answering your question and I hope I’m understanding your question.

Daniel Rosenberg, Analyst, Paradigm: Yes. Let me

Bill Wood, President and Chief Executive Officer, Sylogist: just say, I think our booking outlook in the coming quarters and ahead into ’twenty six remains very strong. And I will say it is very encouraging from the increasingly balanced perspective that that bookings pipeline includes across all of our platforms in all the segments. We’re seeing the engine really start to fire up in terms of the product competitiveness, partner efficacy, our marketing motions leading to win rates that are incredibly high and increasing market appetite. So we feel very good about the bookings outlook as we think about the go forward. And this kind of some of the temporary things that we saw kind of disrupt Q2, we see those largely working themselves out here in the back half of the year.

Daniel Rosenberg, Analyst, Paradigm: Thanks for that. Lastly for me, you did mention very strong win rates with your partner channel well as internally. I was just wondering how you think about any levers there? Is it really about just pushing more business through the partner channels that are winning so successfully? How do you think about maximizing the opportunity?

Bill Wood, President and Chief Executive Officer, Sylogist: Yes, it’s a great question. And we think about it in terms of the awareness that I’m saying is now kind of those investments and why we’re leaning in on the marketing side. But I really want to stress the idea of the partner attached deals are now becoming more partner led deals where they are identifying where and some of them are within the cohorts of large customer communities on Great Plains or other systems that maybe have been implemented within these segments for a long time, where they now have increased confidence in where and what we offer and their ability to go in and start transitioning those larger flocks. So we feel very good about the partner excitement around what they now feel is a very viable and exciting solution for them to introduce to the cohorts of existing customers that they have. So that Daniel is a real exciting kind of chapter that is just starting to unfold where it’s they have sightlines to opportunities that even our marketing motions may not have uncovered because of the relationships they have.

So that’s an exciting accelerator for us. And one of the pillars of the partner’s thesis is we believed that they have cohorts of customers that they have significant influence around in terms of decision making.

Daniel Rosenberg, Analyst, Paradigm: Good to hear. Thanks for taking my questions. I’ll pass the line.

Conference Operator: Your next question comes from Amr Azad with Ventum Financial. Please go ahead.

Andre, Analyst Representative, Ventum Financial: Hey, good morning. Thanks for taking my questions. This is Andre on behalf of Amr. Starting, can you give us some more color on the revenue decline in Mission? Is it strictly on the NGO customers due to The U.

S. Federal cut? Or was there any other incremental impact?

Bill Wood, President and Chief Executive Officer, Sylogist: Yes. Good morning, Andrew. Thank you. No, it is predominantly what we mentioned in comments relative to the further dose cuts and the impact that it caused. It’s a very small handful of our customers, but the materiality of those in the past has led to as they think about reorg.

The biggest part was some of the in country. There are global charities on the health and human service side. So they’re actually collapsing some of the in country footprints that they had at a greater rate that they anticipated in the initial take that Doge was going to cause them to have to do. So, the majority of that is what we saw on the pressure there was as we said.

Sujit Kinney, Chief Financial Officer, Sylogist: Yes. And Andre, sorry, I’ll just jump in supplementally there to add to Bill’s comments. If your question is on a gross to a top line basis, the bulk in addition to what Bill said, really the bulk and the big driver of the reduction in mission was on the project services side. In terms of pure SaaS subscriptions, we were we still maintained and we slightly added both from an ARR perspective as well as a revenue perspective. Of course, like Bill said, offset by the impact of the dose reductions.

But just from a headline perspective and from a numbers perspective, do want to emphasize that the vast and predominant amount of the reduction in mission is Ocunto project services, the one time recurring non recurring project services.

Andre, Analyst Representative, Ventum Financial: Okay, great. Thanks. That’s helpful. And, should we think of Q2 as peak OpEx intensity or will investments continue into the second half?

Sujit Kinney, Chief Financial Officer, Sylogist: We would, the way we see it is sorry, go ahead, Balan. I’ll jump

Bill Wood, President and Chief Executive Officer, Sylogist: go ahead, Sujit. I apologize. Go ahead.

Sujit Kinney, Chief Financial Officer, Sylogist: No, no. So, Andre, the answer is we’re obviously thinking thoughtfully through we think thoughtfully through each quarter. We will continue to invest where we get the max ROI. And we did talk about in our preparatory comments, we did talk about the investments in sales and marketing and the investments from the point of view of essentially supporting pipeline growth and so on and so forth. So from a profile perspective, we really want to stay away from comments around, a quarter being a peak or a trough kind of thing.

Mean, we will expect we will continue to expect when we invest rather where we see the best ROI. But we also think the operating expense sort of nature of Q2 will continue into Q3 with selected targeted investments where we see MAX ROE.

Andre, Analyst Representative, Ventum Financial: Okay. Thanks. And one last one here. I may have missed it, but I didn’t see SaaS RPO disclosed this quarter. If it wasn’t included, could you provide the number?

And on that, I understand that there’s an elongation of the sales cycle, but could you give us a little more color on the pace of converting bookings into revenues?

Sujit Kinney, Chief Financial Officer, Sylogist: Yes. So on the RPO front, we can confirm that the RPO number itself, the total RPO, which for the benefit of everybody definitionally, is the value of the deferred revenue, which is visible on the balance sheet, plus the value of SaaS ARR contracts not converted into revenue plus project services revenue. So Andre, to your question, it is more or less exactly the same number as it was last year, slightly above what it was the same time last year. Sorry, what was the second part of your question, Andre?

Andre, Analyst Representative, Ventum Financial: Thanks. Yes. And the second part was on that. I do understand that there’s an elongation of the sales cycle, but could you provide us a bit more color on the pace of converting bookings into revenues?

Sujit Kinney, Chief Financial Officer, Sylogist: It does vary by segment, Andre, and we typically do not get into guiding on the specificity around revenue conversion cycles by segment. But there is there is a there are characteristics that are specific to the Ed market and the and the Gov market. The Ed tends to be even more elongated because of just the nature of school years and when we can go in and do implementations and so on. And similarly on the on the gov side, there are nuances around the gov the gov market also specific to the states in which the municipalities are located. So, we do not really get into that level of specificity, but we can confirm that it does vary by the vertical or the segment that one is looking at.

Bill Wood, President and Chief Executive Officer, Sylogist: Let me add to that because I think it’s real important to clarify one portion there. What also seeing in the Ed and Gov space is what we had originally and foundationally I’ve seen for a very long time where there was more of an attitude of I have this very narrow window to be able to work with. Now that certainly applies to a student information system being swapped out and so on. But we’re seeing a very marked change that this idea that it all has to happen in this tight window when it only comes up once a year is collapsing and our partners are really an effective tool for that. So other than in the prepared comments that we offered in terms of some of the gov implementation delays and what was associated with that, we don’t see that in any way being pervasive elsewhere in terms of the implementations.

But I do want to highlight that a major shift is we’re not going to have to wait necessarily until next year for this to matriculate. We see now more of a normal cadence where we can much like the rest of our other markets, they’re willing and school districts in terms of their ERP, they think about a year end, which is ultimately a calendar component as well as a budget component. There are other windows where we are having very good conversations and it makes a lot of sense for them and us to be able to have more windows throughout the year. And in our partners on the gov side where it’s 100 delivery, they’re implementing and starting projects with our municipal customers every month. And so that’s a very that’s an important sea change that I want to point out that that allows us to think about ARR recognition and as well as some of the postponement doesn’t necessarily mean a postponement for a twelve month period.

I want to highlight that and that’s a very important component that we are now seeing and we have more influence over.

Conference Operator: This concludes the question and answer session. I would like to turn the conference back over to Bill Wood for closing remarks.

Bill Wood, President and Chief Executive Officer, Sylogist: Yes. I just want to say thank you again for your continued support and confidence. And I also want to extend a special thank you to our customers for your trust and your advocacy and to every Sologix team member for your unwavering commitment, energy and determination. It’s making a difference at Sylogis and Sylogis is at a very good place relative to as we think about the go forward. Thank you all for joining.

Have a great day and be well.

Conference Operator: This brings to a close today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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