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As far as the value I see, companies with Sylogist's fundamentals, nearly 70% recurring revenue, >15% annual revenue growth, 60% gross margins (75% for software), 25% EBITDA margins and strong cash flow conversion don't trade at a high single digit multiple of cash flow. Especially when they are non-discretionary with counter-cyclical aspects. Public sector organizations that rely on their ERP systems, fund accounting and donor management capabilities don't rip out their software when the economy hits a snag.
Whenever I get frustrated at the market's reaction to Sylogist's operating performance, I remind myself about how the business has moved from here to there since our first purchases. Revenues have grown 17% per year since 2021, organic growth in recurring subscription revenue has gone from negative in 2022 to a mid-teens rate today, and Sylogist has gone from a standing start in their Gov and Ed initiatives to generating nearly $30mm in high margin revenue between the two segments. Were it not for growth investments being made, EBITDA would be accelerating nicely along with top line growth. The market is skeptical these investments will ultimately pay off. I am not. This is the year that accelerated growth and operating leverage will materialize.
We added to our position toward the end of the year, and we were not alone. I was thrilled to see multiple members of the management team, including CEO Bill Wood, purchase stock in the open market toward year end. In addition, management has complemented their efforts by repurchasing stock at opportune times, providing a boost to free cash flow per share. Sylogist is our largest position for good reason. I see upside of greater than 100% over time, and I am optimistic about 2025 and beyond.
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