The company is benefiting from secular tailwinds like aging infrastructure, water security, and energy transition. It has a strong track record of organic growth and strategic acquisitions, and it has a solid pipeline of acquisitions along with a high backlog. It trades at a premium valuation to its peers, but we feel this is reflective of its operational performance, margin expansion, and long term tailwinds. While we feel that its price may need to move sideways in the intermediate term to help its multiples contract, we are upgrading the name by one notch to a ‘A-’ due to its strong track record of execution.

KSI’s critical solutions to large pharmaceutical and biotech firms are highly sticky software. KSI’s customers not only tend to stay with KSI’s platform for the long term, but also expand spending over time. As a result, Annual Recurring Revenue (ARR) – a key performance indicator of SaaS business, which KSI consistently achieves strong growth over the years. In the most recent quarter, KSI reported a 51% growth in ARR. Also, KSI has started to demonstrate cost control discipline, as all expenses consisting of research and development (R&D), sales, and general and administrative (SG&A) expenses grew much slower than sales in recent quarters. We think the company could start to see some meaningful improvement in terms of profitability and cash flow over the coming years. KSI resembles some of the early compounders in the making. We think that if the management can continue to execute, the company could be a great long-term holding for growth-oriented investors. We are initiating our ratings at ‘B’.

SYZ used to be an attractive name for income investors, but it started to change the investment thesis completely in recent years. SYZ has invested meaningfully to become a growth SaaS name rather than a steady dividend-growth legacy software company. SYZ also focused more on organic growth rather than through large acquisitions. SYZ is a high-quality business with tremendous cash flow generation and an attractive double-digit growth driver from the subscription segment. SYZ may see a natural gross margin and multiple expansion over time as the SaaS subscription business becomes a larger portion of total revenue. It is still early days, but we are seeing a positive trend in SYZ’s fundamentals. We are open to an upgrade in the future if the company can continue to execute to drive double-digit subscription growth. To be conservative, we will maintain the rating at “B” for now.