Tecsys (Tecsys Stock Quote, Chart, News TSX:TCS) already has the makings of a double in 2020 but is there more left in the tank going into 2021? You bet, says Echelon Capital Markets analyst Amr Ezzat, who just gave the stock a major target raise in an update to clients on Thursday.
Supply chain management and logistics software company Tecsys saw its share price spike almost 16 per cent on Thursday as the market reacted to the company’s latest earnings report. There, the Montreal-based company posted record revenue for now the seventh consecutive quarter, the company’s fiscal Q2 2021 for the period ended October 31.
Tecsys’ SaaS revenue continued to show strong growth, up 142 per cent year-over-year to $5.1 million. The company has been transitioning to SaaS offerings, where over the first half of fiscal 2021, 81 per cent of the company’s bookings came from SaaS versus 75 per cent over the same period last year.
For the Q2, overall cloud, maintenance and subscription revenue climbed 33 per cent year-over-year to $13.4 million. Professional services revenue was up 16 per cent to $11.8 million and total revenue hit $30.7 million, up 18 per cent from a year earlier. Tecsys was also ratcheting up its profits by raising the Q2 gross margin to 52 per cent compared to a year earlier. Adjusted EBITDA was up 31 per cent year-over-year to $4.8 million.
“The pandemic has had minimal negative effect on our business and solid growth in our pipeline bodes well for our financial performance for the remainder of fiscal 2021 and beyond,” said president and CEO Peter Brereton in a press release. “Our trailing twelve month SaaS bookings are up 159% compared to prior trailing twelve to a large extent driven by an explosion of business coming from our customer base. Finally, volume on our distributed order management platform was up 140% for the black Friday period compared to last year.”
In his note, Ezzat called it another blockbuster quarter for Tecsys, driven by aggressive SaaS growth and what the analyst called the company’s direct exposure to favourable trends accelerated by COVID-19.
On the numbers, TCS’ $30.7-million in revenue was a hair better than Ezzat’s $30.0-million estimate as well as the consensus $29.1 million, while the company’s $4.8 million in EBITDA was also ahead of Ezzat’s and the Street’s estimate, both at $2.9 million.
Ezzat noted Tecsys’ annual recurring revenue which at $50.9 million as of October 31 represented a year-over-year increase of 26 per cent. As well, the analyst described the company’s balance sheet to be in great shape with $20.3 million in net cash.
“As we pointed out in the past, in our experience, double digit organic top line growth together with higher visibility revenues are key valuation drivers in the software space. We’ve seen this story before and Tecsys is no exception. Bookings continue to grow at a healthy clip, suggesting there is more growth to come on the back of aggressive adoption and deployment of SCM software in the healthcare space. We remain bullish on the Company and despite the recent stock outperformance, we believe there is more upside to be had from current levels,” Ezzat wrote.
Ezzat pumped up his forecast for Tecsys, now calling for fiscal 2021 sales and EBITDA of $123.6 million and $17.2 million, respectively (previously $121.4 million and $13.3 million), and for fiscal 2022 sales and EBITDA of $143.3 million and $21.5 million, respectively (previously $138.6 million and $16.7 million).
With the update, Ezzat reiterated his “Buy” recommendation and raised his target from $35.00 to $54.00, which at press time represented a projected 12-month return of 36.6 per cent. Tecsys finished 2019 up 73 per cent, while for 2020, the stock is currently up 93 per cent.
Tecsys has an omnichannel retail order management software platform and offers solutions for warehouse management, distribution, transportation management, supply management at point of use and retail order management, along with financial management and analytics. The company covers the healthcare, retail, service parts, third-party logistics and general wholesale high-volume distribution industries.
2020 has been a unique year on the logistics and management front, as retailers have had to adapt to changing customer patterns, including the accelerated growth of e-commerce, with the current holiday season emerging as a high point of that uncertainty and change, according to Tecsys.
“The reality is we have no benchmark for what this holiday season will look like,” said Steven Berkovitz, chief platform officer at Tecsys, in an article by Material Handling Network on November 9, 2020. “Based on the steep rise in order volumes across non-physical channels that our customers have experienced since March, we believe that Black Friday/Cyber Monday and holiday shopping will cause more spikiness and compounded order volumes.”