Negative Points

• Total revenue declined 6% year-over-year, driven by lower project services and hardware revenue.

• Project services revenue fell 20% and gross margin dropped to 8%, indicating significant underperformance.

• SaaS net revenue retention declined to 99% from 107% a year ago, due to churn in legacy customer base in Gov and Ed segments.

• Adjusted EBITDA margin fell to 10.8% from 15.3% in the same quarter last year (though comparable on a like-for-like basis).

• GAAP net loss was adversely impacted by CAD0.7 million in shareholder engagement costs and CAD0.2 million in severance accruals.

• Cash balance at end of Q2 was only CAD2.5 million, adversely impacted by shareholder engagement costs.

• G&A expenses increased to CAD2.8 million from CAD2.5 million due to higher professional fees and legal expenses.

• The company is still in the process of improving product portfolio and execution, with more work ahead.

• Legacy customer churn remains a concern, though management says it has been contained.

• The company has discontinued capitalizing R&D, which may pressure reported profitability.

Q & A Highlights

Q: Where do you see the best growth opportunities in the portfolio today, and how are you thinking about timelines to getting growth going there? A: Joel Leetzow (CEO) identified the government ERP space as a primary growth engine, citing a strong product position, excellent channel partner take-up, and a rapidly building pipeline. He also highlighted the Education segment as a traditional strength, noting continued progress and a healthy pipeline. Additionally, he pointed to Victim Services as a consistent grower with a strong pipeline, and emphasized that the partner channel has been "loud and clear" about needing more services and support, which will drive growth on the services side of the business.

Q: Can you discuss where you are in the process of redesigning the partner program and any early feedback you've gotten from the channel network? A: Joel Leetzow (CEO) stated that he has personally engaged with the majority of partners, who have reaffirmed their commitment to investing in and building a practice around Sylogist products. The partners provided constructive feedback, indicating that Sylogist needs to improve in areas like documentation and enabling partners to self-serve customers with product and technology. Leetzow confirmed that the company is making significant strides to address these gaps.

Q: Is the plan to ramp professional services revenue back up to the ~CAD29 million level seen a few years ago? A: Joel Leetzow (CEO) clarified that professional services revenue is not expected to return to that historical level due to the company's "channel first" business model. While partners will take on a larger share of services, the benefit is that they allow the Sylogist ecosystem to expand beyond the company's organic capabilities. The future model will involve a professional services engagement with partners rather than providing courtesy support during a transition.

Q: Can you provide some help on the cost profile of the business as we enter into the second half, given the restructuring? A: Sujeet Kini (CFO) detailed that the restructuring reduced the company's bench strength by approximately 40 headcount (combining contractors and full-time employees), resulting in approximate savings of CAD3 million. He expects the OpEx profile for sales and marketing, G&A, and R&D to remain in the same range as seen in Q2, with the cost structure staying at that general level going forward.

Q: Can you share your thoughts on the rationalization or optimization of the product portfolio? A: Joel Leetzow (CEO) explained that the strategy is to balance capital investment between legacy businesses and new modern SaaS products, aiming to elevate those showing great progress. He noted that customer and partner feedback indicates the products are "best in class" and that the company is on the right direction, but acknowledged there is more work to do to make material inroads into markets.

Q: What are you hearing from customers regarding AI, and how do you think about threats or opportunities with AI? A: Joel Leetzow (CEO) stated that customers expect AI-enabled tools, and as part of the Microsoft stack, Sylogist already has native Copilot experiences built into many products. Internally, the company is using AI for QA, documentation, and automation to drive efficiencies. He emphasized that AI must be a major part of the strategy for 2026 and beyond to remain competitive, both for customers and for the company's own operations.

Q: Can you provide an update on the VSS (Victim Services) contract and the pipeline around that solution? A: Joel Leetzow (CEO) expressed strong confidence in the Victim Services business, highlighting its mission-critical nature in protecting human beings. He noted that customers are supporting the company with references and advocacy, and he believes the business will continue to grow at a modest to increasing rate. He acknowledged the market has unique complexities involving laws and non-standard commercial processes, but stated the company is good at it and will get better.

Q: Can you speak to some of the changes underway on the go-to-market side and key priorities? A: Joel Leetzow (CEO) stated he has taken over direct leadership of the sales team and is working closely with both sales professionals and the channel. He is encouraged by pipeline growth and has been involved in deals on the front lines to ensure the pipeline is legitimate. He emphasized the need to be in a better position to win with products whose features are getting on par with legacy systems, and the focus is on being smart about where to spend time to serve the best markets.

Q: Has the persistent churn in the Mission segment been contained, and what is needed to enhance its competitive profile? A: Joel Leetzow (CEO) stated that the Mission segment is incredibly important and that the recent sales lull has been solved by identifying challenges in pricing, services, and product packaging. He is excited about the building pipeline and believes the segment will be a "shining star." Regarding churn, he clarified that new customers are not churning; the issue is with legacy customers, and he confirmed that the churn has been contained and improved through direct customer engagement and revised renewal strategies.

Q: How does your view on leveraging M&A to accelerate product and market access differ from your predecessors? A: Joel Leetzow (CEO) drew on his experience at Descartes to note that he has seen the M&A mechanism work and understands the stability required to take on acquisitions. He stated that the immediate priority is to "get our house in order" first, but he definitely sees an opportunity on the horizon to enhance the business through acquisitions.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .