Greystone Capital Management's Adam Wilk on $SYZ.TO resurgence following corporate overhaul
Dec 27, 2023
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Adam Wilk, founder and portfolio manager of Greystone Capital Management, discusses the resurgence of Sylogist following a corporate overhaul. Topics include the company's strategic review, transition to the cloud, Microsoft partnership, focus on nonprofit and government verticals, and valuation.
Syllagit transformed into a faster-growing, cloud-focused company through a strategic overhaul and prioritized shareholder value.
Rebuilding customer relationships and offering tailored solutions to niche markets have been key strategies for Syllagit's success.
Syllagit has untapped pricing power, with the ability to raise prices significantly without losing customers, and benefits from a strong partnership with Microsoft for increased sales.
Deep dives
Syllagit: A Turnaround Story with Strong Growth Potential
Syllagit is a public sector software business that has undergone significant changes over the last couple of years. Formerly a reseller of software, the company pivoted to delivering their own public sector software through acquisitions. Under the previous management team, the focus was on making acquisitions, paying large dividends, and neglecting customer relationships. However, since the strategic review in 2020, new management has transformed the business into a more durable, faster-growing, and cloud-focused company that prioritizes shareholder value. With a focus on nonprofit, government, and education sectors, Syllagit offers mission-critical software solutions, and their products have a high value proposition among their customers. The company's growth has been driven by repairing customer relationships, providing great support, lower pricing, and customization options that larger competitors cannot match. Their end markets also have less competition and show significant potential for growth. With a strong management team, improving customer relationships, and a focus on growing recurring software revenues, Syllagit is well-positioned for success.
Rebuilding Customer Relationships and Addressing Niche Markets
One of the key strategies for Syllagit's success has been rebuilding customer relationships that were neglected under the previous management team. The company has prioritized customer support and customization, addressing specific needs of organizations in the public sector. By leveraging their products built on the Microsoft Dynamics ecosystem, Syllagit can offer tailored solutions to smaller organizations that larger competitors have not served effectively. They have successfully positioned themselves between larger players like Salesforce and Tyler Technologies, offering lower pricing, greater functionality, and more customization. This approach has led to sticky relationships and high customer satisfaction. Additionally, Syllagit has identified niche markets in the government, nonprofit, and education sectors, where they have found significant growth opportunities. By providing solutions to organizations that previously relied on manual processes or outdated software, Syllagit has created a value proposition that resonates with their customers.
Investing for Long-Term Growth and Future Leverage
While Syllagit's current adjusted EBITDA figure includes ad-backs for amortization of intangibles, the company has been investing back into the business to drive long-term growth. This has resulted in flat adjusted EBITDA figures, as the investments have offset the initial growth. However, management is focused on growing the business and increasing shareholder value. They are incentivized to succeed, with the CEO having a large options package that is tied to the stock price. The company's strategy has shifted away from aggressive M&A and towards building organic recurring software revenues. While the previous thesis included expectations of creative M&A, the current focus is on leveraging their existing product set and achieving operational efficiency. As the investments in sales and marketing, as well as R&D, decrease over time, the company is expected to achieve operating leverage, leading to improved margins and cash flow. With a solid product set, a growing customer base, and a clear strategy focused on shareholder value, Syllagit is well-positioned to capitalize on the opportunities in the public sector software market.
Importance of Partnerships and Cloud Transition
Syllogist, a software company operating in the non-profit sector, emphasizes the importance of partnerships in the non-profit world. Collaborating with other non-profit organizations allows Syllogist to share best practices and resources, creating a collegial environment with a common mission of raising money and doing good. Additionally, Syllogist's transition of legacy on-premise customers to the cloud has been a source of growth. This transition not only provides additional features and functionality to customers but also strengthens the customer relationship and increases the value proposition between the two businesses.
Untapped Pricing Power and Microsoft Partnership
Syllogist possesses significant untapped pricing power, with the ability to raise prices by up to 200% without losing customers. This strong customer loyalty and stickiness contribute to Syllogist's growth potential. Moreover, the partnership with Microsoft plays a crucial role in driving sales. Microsoft, with its vast network of nonprofit customers, directs many clients towards Syllogist's cloud-based system, Dynamics 365, which is not fully customizable. As Microsoft pushes customers to the cloud, Syllogist benefits from increased sales without requiring significant sales and marketing investments. The partnership serves as a win-win, enabling both parties to leverage each other's strengths and capture new market opportunities.
Adam Wilk, CFA, Founder and Portfolio Manager of Greystone Capital Management, LLC, joins the podcast to discuss his thesis on Sylogist (TSX: SYZ), provider of mission-critical SaaS solutions to over 2,000 public sector customers globally across the government, nonprofit, and education verticals.
[1:32] Overview of Sylogist (TSX: SYZ) and why Adam finds it interesting
[9:00] $SYZ.TO strategic review and why pivoted the way they did
[15:49] How $SYZ.TO has evolved over last few years
[18:31] How $SYZ.TO management team is incentivized
[21:41] How is $SYZ.TO beating larger competitors for business / how is transitioning from "on-premises" to cloud offering creating growth? / Pricing power
[30:11] Microsoft partnership
[34:28] Focus on nonprofit and government verticals; value proposition for these target customers / biggest competitor
[38:36] Nonprofit space / Government ERPs
[42:20] $SYZ.TO earnings, specifically on EBITDA
[49:01] Thoughts on what CEO meant when he said "We're stepping on the gas for growth in 2024" on the Q3 call
[52:36] $SYZ.TO valuation and final thoughts
Today's episode is sponsored by: Alphasense
This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.
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