Valued at a market cap of $130 million, Sylogist (TSX:SYZ) is a Canadian tech stock that has underperformed the broader market in recent years. Down almost 50% over the last 12 months, Sylogist trades at an attractive valuation and is well-positioned for a rebound, given its improving financials.
Sylogist is a Canadian software company that provides cloud-based software-as-a-service solutions to public sector organizations. It serves government, nonprofit, and education customers across North America, the UK, and internationally.
Its product portfolio includes SylogistMission for donor management and fundraising, SylogistEd for school administration and financial management, and SylogistGov for local government operations and victim services. Additional offerings include payment processing, data management tools, and consulting services specifically tailored to the needs of the public sector.
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Is this TSX tech stock a good buy?
Sylogist reported Q3 results that highlighted its ongoing transformation into a software-as-a-service company serving the government, nonprofit, and education sectors.
The Calgary-based firm generated $13.9 million in revenue during the quarter, with SaaS (software-as-a-service) subscription revenue climbing 12% year-over-year. More importantly, SaaS revenue now accounts for 73% of total recurring revenue, up from 68% in the prior year period, which indicates progress in the company’s strategic shift away from legacy software models.
Sylogist ended Q3 with annual recurring revenue of $45.8 million, with SaaS ARR growing 15% to $33.6 million. Its net revenue retention rate stood at 106%, which indicates that existing customers raised their spending by 6% over the last 12 months.
The company’s partner-led sales strategy continues to gain traction, with 48% of ARR bookings now originating through partners compared to direct sales.
Sylogist’s municipal government platform is now fully delivered through partners, with plans to expand this model into its nonprofit sector offerings. Management is also implementing contractual changes that will reduce the time between booking a deal and recognizing associated SaaS revenue, which is expected to improve financial visibility.
Higher bookings and margins
Total contract value of bookings came in at $5.9 million, reflecting typical third-quarter seasonality in the public sector. Project services revenue declined to $4.2 million from $5.2 million in the prior year as more implementation work shifted to partners.
This transition supports higher margins and greater scalability in the long term. The Mission segment experienced increased customer churn due to budget cuts and strategic decisions to exit accounts where the fit wasn’t ideal.
The adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin contracted to 19.3% from 25% in the prior year, driven by lower project services revenue and reduced capitalized development spending.
Management guided for full-year SaaS ARR growth in the low teens, gross margins around 60%, and adjusted EBITDA margins in the high teens.
Sylogist ended Q3 with $14.1 million in cash and generated approximately $10 million in free cash flow, positioning it to pay down debt or execute share buybacks.
Is the TSX tech stock undervalued?
Analysts tracking Sylogist forecast revenue to increase from $63 million in 2025 to $124.4 million in 2029. In this period, free cash flow is forecast to expand from $4.7 million to $32.3 million.
If the TSX tech stock is priced at 10 times forward FCF, which is not too expensive, it could gain more than 150% over the next three years.
