Mention the name TECSYS (TSX:TCS) to a casual observer and the image of a warehouse might spring to their mind.
While the more than three-decades old company is indeed known to those who deal in pallet jacks and container tilters and trans-stackers, TECSYS was never really about any particular setting. The company is, in fact, a supply chain management expert that deals wherever supply chains are in need of efficiencies, which, to those watching with an eye towards how scalable the Montreal-based company’s business might be, is everywhere.
One place you are now more likely to hear the name TECSYS is in hospitals. The company has found its platform works particularly well in the healthcare space, where supply chains are notoriously inefficient. Cantor Fitzgerald Canada analyst Justin Kew believes this vertical is large and addressable enough that it will mark the beginning of a new chapter in the company’s history.
“The long term revenue trend has historically been range-bound between $35 million and $43 million between F08 and F13,” said Kew in a recent report on TECSYS to clients. “However, we believe the recent upward revenue trend is sustainable as management continues to build its success in the healthcare vertical.”
Cantech Letter recently talked to TECSYS President and CEO Peter Brereton.
Peter, TECSYS began in warehouse management but is the platform you have created extendable to other verticals at scale?
Actually, we began in distribution management about five years before we got into warehouse management. Our platform is a technology infrastructure that includes all of our software applications; it is extendable and scalable and can adapt to the size and need of different clients. The core of the warehouse management application is generally common among different vertical industries. Distributors in each industry still have to buy, receive and put away what they bought, and when they get orders from their clients, they still have to pick the orders, pack them and ship them. What is different in each vertical are the unique work flows that may require adaptation of our software to the industry’s specific needs. Our warehouse management is extendable to other verticals and we have done it before. For example, our warehouse management system supports drug safety regulations for healthcare and activity based billing for the third party logistics provider’s marketplace.
A number of health systems that have used our software were able to achieve tremendous success in ways they never thought possible. That is the reason we are in a dominant position in this vertical today.
You acquired Logi-D last May. What does this acquisition do for you?
This was a strategic acquisition; together we deliver more solutions to the entire health systems’ supply chain, end-to-end, increasing our market size and reach as well. Logi-D brings a new revenue stream and a customer base to TECSYS, and expands our target market to thousands of individual hospitals across the U.S., Canada and parts of Europe. In summary, it increases the potential addressable market and improves our competitive position within that market.
How large is the healthcare market for your solutions?
Every hospital in North America is a potential prospect for one of our supply chain management solutions. AHA – the American Hospital Association – counts about 5700 hospitals in the United States. On the health systems front, there are about three hundred IDNs (Integrated Delivery Networks) in the United States that can use our entire suite of supply chain management applications. We are in a very unique and favourable position today; no one else can do what we are able to do in this space. The combination of innovation in our platform and healthcare expertise enable our health systems` clients gain unparalleled optimization and costs savings. As a result, a number of health systems that have used our software were able to achieve tremendous success in ways they never thought possible. That is the reason we are in a dominant position in this vertical today.
A large percent of a hospital inventory is not accounted for, which means clinicians are buying supplies and hiding them to make sure they have what they need, when they need it.
Exactly what are integrated delivery networks (IDNs) and how does your business work with them?
IDNs are healthcare providers like hospitals, clinics, physicians and home care organizations that work together to deliver a continuum of care to a specific geographic area. The concept of an IDN has evolved over the years, today they address common concerns, like supply chain management, capacity, decreased margins and patient relations among other common issues. IDN’s margins have been eroding. Their second largest expense, their supplies cost is out of control. For example a large percent of a hospital inventory is not accounted for, which means clinicians are buying supplies and hiding them to make sure they have what they need, when they need it. The danger is, they are over buying, and it is tying-up a lot of cash in unnecessary inventory. The unused products are expiring which translates into a significant risk as they may accidentally be used on patients, or become waste because most of the time they get disposed of. What’s more challenging to them, their funding and subsidies have also been reduced. So, it is clear, they absolutely need to optimize and take millions of dollars out of their supply chains and improve the quality and safety to their patients. TECSYS enables them to do both. We work with them to setup their supply chain infrastructure properly, we educate them on best practices and help them to execute on both to meet their challenging objectives.
Recently, TECSYS announced it had been granted patent No. 8,839,132 from the United States Patent and Trademark Office. The patent covers the method and system for providing visual instructions to warehouse operators. Why is this important?
The technology that represents this patent is the visual content solution in our supply chain platform. It is a TECSYS exclusive approach, giving users visual and graphical instructions that allow them to perform more complex tasks, faster, and with much more accuracy. Over the last four years, this technology has proven to be a major differentiator in our marketing and sales efforts and one of the key reasons why prospects select TECSYS over the competition. Protecting this IP is certainly essential to retain this exclusivity. It is enabling us maintain a leading position in our markets and helping us continue to win new business.
On September 30th, Gartner published its Magic Quadrant for Warehouse Management Systems. TECSYS was positioned as a visionary for the fourth consecutive year. What does this mean to you?
With hundreds of analysts and thousands of customers worldwide, Gartner is the leading information technology research and analyst firm in the world. During the software selection process, most decision makers turn to analysts such as Gartner to help them find the appropriate software supplier. So being positioned by their analyst in the magic quadrant adds a lot of credibility and awareness to TECSYS, not only to our prospective clients but also to Gartner’s clients as well. To be in the visionary quadrant; you have to be innovative, offering unique solutions to the market. We our proud to have been positioned in that quadrant four consecutive times since we were first engaged with Gartner in 2010.
From a return on investment perspective, on the average our clients have been achieving their ROI in less than two years.
What is the value proposition TECSYS offers potential clients? How quickly do they see a return on their investment?
We turn their complex supply chains into fluid, efficient and competitive assets. In the process, they take control of their operations; they remove significant costs out of their supply chains and become a lot more responsive to their customers. In essence, we enable them to meet their commitments; be it same day delivery, or having the right surgical product for patient care exactly when it is needed. From a return on investment perspective, on the average our clients have been achieving their ROI in less than two years.
Your recurring revenue is rising pretty sharply. What is this a result of?
Growth in our recurring revenue is clearly a sign of continued success and is also an agent of stability for TECSYS. The rise is due to a number of factors, but the most significant one would be the rise in our cloud-based application revenue. Another factor is the addition of new customers with a larger average deal size compared to before. The remainder would be upgrades of our base accounts to the latest release of our software, and the addition of Logi-D’s recurring revenue.
What milestones should investors be looking at from TECSYS over the next 12-18 months?
Typically, we do not provide forecasts, but I will give you a glimpse of the areas for investors to look forward to; first, based on our current run rate we expect, for the first time in our history, to see our revenue surpass $50 million in fiscal 2015. We will also continue to focus on profitable revenue growth, and investors could look for a combination of revenue growth and rising EBITDA as a percentage of revenue. From a market perspective, we are making every effort to gain further traction in the IDN market, and expand our foot print by introducing Logi-D’s products as well as new solutions such as pharma for health systems. On the base accounts side, we see upgrading our legacy customers to the latest release of our platform and growing our base account revenue as a percentage of total revenue in the coming quarters. And finally, we have been working on expanding our distribution and services capabilities through third parties; we look forward to starting to see the results of that effort in the next year or so.