Ahead of Q4 earnings, is Tecsys a buy?

Ventum Capital Markets analyst Amr Ezzat maintained his “Buy” rating and C$52.00 price target on Tecsys (Tecsys Stock Quote, Chart, News, Analysts, Financials TSXV:TCS) ahead of its Q4 fiscal 2025 results, expected after market close on June 26.

He forecasts revenue of $46.0-million and Adjusted EBITDA of $4.6-million, in line with consensus, supported by strong SaaS performance and a normalization of hardware sales after an outsized fiscal 2024.

Tecsys is a provider of enterprise supply chain management software and services, headquartered in Montreal.

In a June 20 note, Ventum’s Amr Ezzat said focus remains on SaaS, Tecsys’ core value driver. He expects Q4 SaaS revenue of $18.8-million, up 32.5% year over year and 9.0% quarter over quarter, continuing strong growth seen in Q3 ($17.3M), Q2 ($16.1M), and Q1 ($15.3M). He noted the back half of the year is typically the strongest for bookings and sees no reason for that to change.

Professional services revenue is forecast at $14.1-million, down 2.0% year over year but up 1.3% sequentially. Maintenance and support revenue is projected at $8.0-million, down 2.0% year over year and quarter over quarter, as the company transitions away from on-premise licensing. Hardware sales are expected to fall to $4.9-million, down 30.0% year over year and 13.9% sequentially, reflecting normalization after last year’s unusually strong demand.

Ezzat said Tecsys is expected to issue full fiscal 2026 guidance with Q4 results. Current forecasts call for Adjusted EBITDA margins of 10–11%, with Ventum at 10.8% and the Street at 10.4%.

He said with hardware and M&S facing headwinds, SaaS remains the key long-term value driver.

“While we are fans of the business model evolution to SaaS, the shift marked a distinct setback. The transition curtailed the larger (but lumpier) on-premise license revenue side of the business, which has historically delivered between 2-3x the upfront revenues of the SaaS model, considerably understating the recent underlying revival in revenue growth,” Ezzat said. “Coupled with a model that remains too reliant on in-house implementation and investments to support the revival in growth, the transition to SaaS has put a strain on margins. The cornerstone of our investment thesis lies in the fact that the revenue stream experiencing the fastest growth (SaaS) also boasts the highest margins (~57%), ultimately paving the way for aggressive earnings growth.”

He said SaaS margins are expected to rise from about 57% in fiscal 2024 to around 75% by 2028, lifting Tecsys’ overall gross margin from 46% to 60%. EBITDA margins are projected to increase from 5.6% to 17.5% over the same period, resulting in a fivefold increase in run-rate EBITDA. He said these trends support a longer-term investment view.

Ezzat thinks that Tecsys will generate $13.6-million in Adjusted EBITDA on $175.9-million in revenue for fiscal 2025. He expects those figures to improve to $21.6-million in Adjusted EBITDA on $199.3-million in revenue in fiscal 2026.

Ezzat said Tecsys delivered a solid Q3 fiscal 2025, with revenue meeting his Street-high estimate and EBITDA coming in slightly lower due to mix, which he said isn’t a concern given the company’s long-term outlook.

“The earnings call reinforced strong healthcare momentum, with new health system wins and a pharmacy pipeline poised for acceleration as key go-lives approach,” he said. “While the SaaS transition has temporarily weighed on revenue growth, the business remains in the midst of an earnings inflection, with explosive SaaS growth driving structurally higher profitability (case in point: the ~3% YoY revenue growth translated into ~34% EBITDA growth). With SaaS margins set to expand meaningfully in the coming years, we see a clear path to a quintupling of EBITDA—a story that rewards patience.”

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