Q4 2019 Earnings Call
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Thank you for standing by and won't come to that be Archie excess global Inc. fourth quarter earnings call.
This time all participants are in all these an older. Most after just because presentation. There will be a question and answer session to ask a question drilling to Sachin you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
Require any forget is your sense. Please press star Gerald I would now like to have the conference over to your speaker today Mr., Kurt Abkemeier yet the CFO. Thank you. Please go ahead Sir.
Thank you Nico and good afternoon to all of those on the call let us get at the outset that certain statements in this conference call maybe considered forward looking statements under the Safe Harbor provisions.
Private Securities Litigation Reform Act. These statements include statements relating to management's views with respect to future events and financial performance that are based on management's current expectations and beliefs and are subject to risks uncertainties and other factors, which could cause actual results could differ materially from historical.
Experience orphan future results expressed or implied by such forward looking statements.
For additional information on these factors please refer to PR Gx global Incs filings with the Securities and Exchange Commission, including but not limited to its reports on forms 10-K in 10-Q.
Archie acts undertakes no duty to update or revise any forward looking statements, whether as a result, new information future events or otherwise.
This presentation also contains references to certain non-GAAP financial measures such as you get EBITDA and adjusted EBITDA metrics that we use internally to measure our operating performance.
A reconciliation between these non-GAAP measures and that income or loss. The most directly comparable GAAP measure is available under the Investor relations portion of a website it prgf dotcom.
I'll now turn the call for Rob.
Thanks Kurt.
So consistent with the guidance provided last quarter, we delivered significantly improved adjusted EBITDA performance as we rationalize costs in our business and brought adjacent services to profitability.
Quarter marks the highest quarterly adjusted Rabbit, new eat the Dod the company is deliberate in more than 10 years, while our streamlined cost structure is the nearest term evidence of DRG axis transformation. We remain on track to began rolling out our next generation audit platform in Q2 that we expect will drive.
Future revenue growth and improved profitability, we expect to make substantial progress rolling out this technology and 2020 and to see positive impact on operating costs.
2019 was a challenging year for the company beginning with what we now know were overly optimistic expectation for continued revenue growth coming out of 2018.
Following disappointing Q2 results and the realization that we were going to fall short of our revenue assumptions. We adjusted core course quickly taking out costs and focusing on our operating metrics to drive much improved financial performance going forward as you will hear in greater detail encouraged presentation.
We delivered on this change of course with positive results for Q2, Q4 and are confident that we are well positioned to deliver further meaningful improvements in 2020.
In 2020, we expect adjusted EBITDA to continue to grow as we fully realize the cost takeout initiatives in 2019 and continue to improve client profitability going forward.
We reiterate our expectation of delivering 2020, adjusted EBITDA within a range of 28 $30 million, reflecting 25% to 30% year over year growth on an assumed flat revenue days with significant improvement in free cash flow generation.
Looking ahead to 2021 and beyond we expect to return to meaningful topline growth as the market for source to pay solutions continues to grow and PR gx further enhances its position in that market.
I will now turn it over the current to take you through a more detailed explanation of our Q4 and full year 2019 results.
Thank you Ron.
A follow on to Rob's comments I'd like to say that I'm really proud of these results in all the up for the entire team put into achieving these results over the last few quarters. The best quarterly adjusted EBITDA results in over 10 years, my thinking differently about how we can execute our business weve reengineer processes screens.
Longer cost structure and made different resourcing decisions in order to achieve these improved results.
While much of these changes have resulted in taking costs out of the business I'm optimistic that as we gain more insights into our business and our longstanding processes that will be able to make additional improvements that will further strengthen our ability to achieve adjusted EBITDA guidance range of 20 to 30 million for 2020 as well.
It's allow for top line growth opportunities.
This isn't just about taking cost out of the business, it's about freeing up resources that either make us more profitable or can be redeployed into more productive way that may yield attractive growth opportunities.
This is all part that's a greater transformation of the way that PR Jackson has been operating more recently and we'll continue to operate in future.
Now moving onto quarterly results.
Consolidated revenue from continuing operations for the fourth quarter of 29 team was 46.7 million a decrease of 5.9% from the fourth quarter of 28 team on a reported basis and a decrease of 6.3% on a constant dollar basis adjusted for changes in.
See exchange rates [laughter], that's for some color on quarterly revenue performance in the service lines in regions recovery audit Americas decreased 5.7% year over year on a reported basis and 5.9% on a constant dollar basis.
The change year over year can be attributed primarily to two factors.
Changing the scope with one of our larger clients, which had been impacting results the less significantly since mid 2019.
And the swing in the impact of a change in a refund liability estimate which was unusually beneficial in Q4 of 18.
But for these two factors results were essentially flat with various changes in Hawaii rates volumes and scope largely offsetting in the aggregate.
[noise] recovery audit Europe Asia Pacific declined, 6.2% on a reported basis and 6.9% on a constant dollar basis.
The change year over year is primarily attributable to the impact on result of one of our UK based clients in which roughly $600000 of revenue realized in Q4 be team was backed out of revenue in Q4 19.
The 600000 dollar amount was one of the more problematic bad debt issues, we had outstanding during 29 team that we resolved by netting it out of revenue in Q4, 19, instead of keeping it in bad debt expense.
This cost as a swing of twice that amount in the year over year comparison as a result, because revenue was positively impacted by 600 K in Q4, 18, but negatively impacted by 600 K in Q4 is 19.
Similar to the explanation I just provided about the Americas, but for this one single factor results would have been flat to modestly.
As for adjacent services revenue was down about $100000 year over year.
The rationalization of this part of the business, we have achieved profitability, which we shared as an important goal of ours two quarters ago. As we further develop develop our platforms, we see an opportunity in the future to revisit analytics in a much more scalable fashion.
For moving off of revenue I want to know that but for the three items I noted our revenue results were stable overall.
With the work we've been doing on our next generation this need data platform and Panoptix audit platform. We're optimistic that just these platforms evolves, we'll be able to start generating some boise and our topline.
As for adjusted EBITDA adjusted EBITDA for the fourth quarter of 29 team was 11.9 million compared to 10.9 million in fourth quarter of 2018, and the adjusted EBITDA margin was 25.4% of revenue in the fourth quarter of 2019 versus 21.9% in the fourth.
2018, an increase of 350 bips year over year, our best year over year expansion in over two years.
A few things to note about this achievement.
We're pleased with the reengineering and streamlining we didn't our business starting in the second quarter of 29 team and that it's clearly visible to investors as it impacts layered in the results during the back half of the year. This is the highest to adjusted EBITDA result in absolute dollars and as a percent of revenue in over a decade.
Furthermore, we achieved the 1 million dollar improvement in adjusted EBIT EBITDA over Q4, 18, which should formerly been the highest result, despite a decrease in revenue of 3 million year over year.
We've accomplished a lot during the last year as we figured out various ways to streamline the cost in our business and we'll continue to keep refining our efforts here in order to improve the profitability of the company.
As for net loss net loss from continuing operations for the fourth quarter of 29 team was 4.4 million and was largely driven by the same factors impacting revenue and adjusted EBITDA performance that I, just went through as well as an impairment to some of our goodwill and capitalized software developer.
On the balance sheet.
During the quarter, we recorded an impairment of 10.1 million 7.6 million of which relates to internally developed capitalized software no longer in years, and 2.5 million, which primarily relates to running off goodwill related to the acquisition of Lavante.
With our refined operational focus in wrapping up with next generation audit platforms, such a cleanup is an actual outcomes.
Moving onto the balance sheet, we ended the quarter with 15 million of cash and cash equivalents 37 million in debt and 43.8 million in net accounts receivable.
We feel comfortable with the balances at period end and with where we see adjusted EBITDA on Capex trending we would expect improvements in cash and debt balances moving forward.
Turning the capital expenditures there were 3.3 million for the fourth quarter of 2019, and 15 million for the full year of 2019 versus 10.4 million for the full year 2018.
Let's go into the detail of the 15 million in cash Capex for the year.
Roughly 2 million was due to paying down the amounts sitting in accounts payable at the end of 2018 that were paid in 2019.
On the cash flow statement page in our press release at the very bottom we identify the amounts that were in accounts payable at the end of each period. The difference between these two figures represents the pay down of these accounts payable which reflects the swing from almost 2 million to basically nothing.
Roughly 4 million was due to hardware and software used to operate our business like servers storage laptops et cetera.
A large amount of this relates to getting somewhat the infrastructure in place for the next Gen Epiphany data platform and Panoptix audit platform.
Well, so roughly 9 million relates to capitalized software development of our audit tools data platform in auto platforms.
Adjacent services was about 2 million, which we do not expect to recur in 2020.
Our next generation platform was about 4 million and should be the primary focus of software development going forward.
And the extension of legacy tools amounted to about 3 million, which should trend down. This is the next generation platform capabilities ramp up and the legacy tools phase out.
An additional thought on Capex for 2019 in 2018 is that if one factors in the adjustments for the swing in property and equipment and accounts payable, which result would result in looking at what was incurred as opposed to what was paid in cash incurred capex was $13.1 billion.
2019, and 12.0 million in 2018, which is representative representative of the way that we manage our capex investments internally.
Lastly, while we are providing formal capex guidance for 2020 I wouldn't know that we believe we have peaked in our annual capex investment on incurred basis and that we're very focused on generating free cash flow.
Which will be driven primarily by growing adjusted EBITDA and judiciously allocating capex spend in the future.
Turning to adjusted EBITDA guidance for 2020, we are reaffirming our guidance range for adjusted EBITDA of 20 to 30 million.
Our confidence in achieving this level of adjusted EBITDA stems from the net 10 million.
Annualized savings we worked on in the second half of 29 team as well as continued work that will be doing to improve our performance further.
This guidance range would imply an adjusted EBITDA margin improvement of about 400, Bips over 29 team and the level of around 17% for 2020, which would be the highest level on an annual basis in over a decade NPR gx.
The combination of the adjusted EBITDA guidance, a more moderated capex spend compared to 29 team and modest transformation related expenses should enable us to generate over 10 million in free cash flow during 2020.
This compares to an average of about 5 million over the last six years. So this would be a significant improvement by more than doubling that level and we will continue to work diligently to expand even further as we believe this will be an important value driver for PR gx.
This significantly elevated free cash flow target of over 10 million stills allow for healthy investment in our data platform in our audit platform, which we expect to yield both topline growth opportunities overtime as well as profitability improvements as we reengineer our audit processes.
Before turning things back over to Ron I'll make a few comments about Corona virus is that is clearly at the forefront of investors' minds over the last few days in short based on what we know now first we believe drone of Irish should have a minimal impact on PR Gx financial performance and second that we haven't abroad.
Do you have business, an economic characteristics that may make us a relatively attractive and defensive stock in this volatile and on certain environment.
On the point of minimal impact to PR Gx financial performance. There are few factors to know.
If you is as you have seen in our 10-K's each year less than 1% of her revenue comes from audits in China.
Those audits are usually performed out of Hong Kong, but we proactively took steps starting a few weeks to go to move those out at audit out of Hong Kong, so as to minimize potential risk to our audits.
Also worth noting that our businesses can be operated in a distributed fashion from home. Unlike manufacturing operations. The cap. We believe that's a huge point to consider.
As for artists outside of China, the other 99% of our business, while some of our clients may be impacted by suppliers in China that provide goods to these other locations to some degree we believe our relative concentration in the non discretionary retail segment like grocery will mitigate our exposure.
Grocery as our single largest segment and we believe it will hold steady as people do you need to eat.
As for PR Jeep for PRT X to be heavily impacted in this area Corona virus would have to be on a much more catastrophic scale than is currently envisioned.
For the timing of impact to our financials, while many companies may have quarter and current quarter impacts due to very near term supply chain interruption, because our business is largely post audit recovery well. After the fact, we would not expect to see any material impacts to our revenue until probably three or.
Four quarters out said another way, we wouldn't be resolving posada claims of our customers relating to Q1 Twentytwenty revenue.
Revenue for them until probably Q1 2021.
Unlike others with current quarter impacts, we would be able to plan ahead and scale our business accordingly.
Because of the combination of one less than 1% direct exposure to China to lower indirect exposure for the other 99% of or revenue due to the generally more non discretionary retail and grocery skew of our existing business and three much delayed timing impact to our revenue.
As compared to most other business models out there due to the fundamental business model. We have we feel good about the hand, we have at the table in this very unsettled environment and that's on top of everything else. We have already discussed or Ron has yet to just discussed on this call, which we believed to be pretty encouraging.
And exciting to investors.
And with that I'll turn it back over to Rob.
Okay. Thanks, Kurt.
So as Curt noted, we have our financial goals for 2020 laid out goals that our executive team collectively believe are achievable. We are fully committed to delivering on these financial goals in 2020, and I have every confidence that these goals were developed with reasonable topline assumptions and the meaningful cost structure changes we.
Made in the back half of 2019.
So what does 2020 look like from a strategic and operational perspective.
Simply stated, it's about focus and execution.
Today, you will hear about our disciplined focus on our two primary strategic objectives for the company in 2020.
First to be the highest performing and most efficient recovery audit firm in the industry.
Secondly to evolve our core business from a contingency fee oriented post audit recovery provider to a prepayment and an error prevention subscription oriented business partner.
We have other longer term objectives that we will leverage our new technology, an experienced insights to add value to our clients and leverage to our bottom line, but these objectives will come into play leader as we make further progress in Operationalizing, our new technology infrastructure.
So let's go into detail on our two primary strategic objectives for 2020.
Remember number one has to be the highest performing and most efficient recovery audit firm in the industry. While we've made significant improvement in our operations and overhead cost structure in that in the second half of 2019, we have meaningful opportunities for additional improvement through structural changes in how we operate.
Rate improved visibility to profitability at each client and introduction of new technology platforms to improve efficiency and revenue over time as they come online.
We strongly believe that attention to continue and elevated recovery audit performance and efficiency are warranted and necessary for several important reasons.
First our clients have a relentless pursuit for increased return on investment on their audit invested dollars.
We have constant we have constantly we must constantly innovate audit concepts and capabilities as well as increase our operational efficiency to deliver increased value relative to our competition. So there's an element of protection as well as innovation.
Our path to growth include moving downstream to clients with lower levels of spend than our traditional targets at acceptable levels of profitability. We must continue to improve efficiency to enable this important shift downstream.
Improvements in audit effectiveness lead directly to increase claims for our clients and associated revenues for PR Gx. In addition to legacy audit performance, we must continue introducing new claim types and expanding scope to generate additional revenue.
Finally, we believed that improved revenue and EBITDA through audited efficiency and effectiveness, we'll have a near term positive devaluation impact for our investors.
So how do we expect to measure our success in this important objective translating some of the reasons just noted to more specific outcomes, we expect to retain and grow revenues and profits from existing clients. We track this metric closely.
Next we are targeting 20% or more in adjusted EBITDA margin over the next two to three years compared to 13% in 2019 and planned 17% in 2020.
And finally, we anticipate market share expansion in both retail and commercial markets through superior technology, and audit performance compared to our competitors.
So what's the best strategy for achieving this we definitely need to approach solving this problem very differently than we have over the last few decades, which requires rethinking and reengineering our audit processes.
Covered the audit has traditionally been a largely manual process supported with technology and highly specific to individual clients.
Our recently deployed of Tiffany data Foundation, and our next generation compliance audit platform Panoptix, our two key foundational pieces, which will be critical for us to take a next generation approach to performing our audience.
Pits any data foundation is a state of the market in memory high speed and automated data processing platform, which allows us to deliver faster and more consistently for audit and analytic services.
Platform allows us to reduce processing costs improve operating efficiency and our audit processes.
And accelerate audit and analytics processes, which will drive higher client value and incremental PR gx revenue.
Our panopticon compliance audit platform is our next generation calm and audit platform, which will drive global process standardization much faster and technology enabled claims and analytics generation much improved visibility and opportunity identification for clients and suppliers.
And finally, much better internal tracking of claims and operating metrics.
We completed the initial development of a destiny in early 2019 and conversion, Jim and converted all of our core transaction data and ingestion routines. During last year in 2020, we will be processing all of our audit and analytics data using it definitely and will be evolving the platform.
For higher output and impact.
Our initial release with Panoptix will began rolling out in Q2 of this year with the full rollout across the organization taking place over the next few years as we migrate legacy tools and processes to the new platform.
As these platforms get put into place and mature overtime, we will have an opportunity to reengineer, how we go about performing our audits in a very different fashion.
In addition to process reengineering, we're looking at structural and organizational changes to drive higher efficiency and performance across the company.
We look forward to providing updates on future calls as 2020 unfolds.
So our second strategic objective for 2020 this to evolve our core business from a contingency fee oriented post audit recovery provider to a prepayment and error prevention subscription oriented business partner.
We have been working on audit acceleration for years, and it made meaningful progress and getting closer to the original payment transaction in many of our clients acceleration has been an important step towards more toward our ultimate goal, our true audit integration into our clients core business processes, rather than an ad.
After the fact post audit recovery.
Our clients really want us to help them prevent errors are fine number for payment rather than wait until we find them to post audit and pay us a fee for finding them.
Integrating PR gx, most more closely into the internal processes over clients. We believe we can substantially improve the value, we deliver and become stickier for the long term. This is a big in complex problem to solve and we'll take years to fully realize both for full capabilities development and client adoption.
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So what does the preventative prepayment audit look like and what are the implications the idea of prepayment or prevention audit is pretty straightforward. It largely involves the same audit tests and processes that are used in a traditional audit but.
Formed as transactions or process or prior to payment rather than months or sometimes years. After the fact.
In certain cases, we can review deals or contracts in advance of execution and identified discrepancies to prevent errors from occurring in the first place.
This requires accelerating the acquisition of the data and execution of audit algorithms and processes, our new technology platforms will enable this capability.
Implications of prepayment and preventative audit or numerous and meaningful first from our clients perspective errors are found prior to payment or exactly our execution and thus recoveries are eliminated. This provides an immediate positive impact on our clients working capital and EBITDA.
This also reduces supplier for abrasion associated with after the fact audit recoveries.
And from the PR Gx perspective, our actions are much more in the moment as opposed to many months later, we've become much more insinuated into the fabric of our clients our cost to audit is reduced as more advanced automation is utilized to identify errors in discrepancies faster we are far.
More of a partner instead of a vendor we necessarily move much more of our revenue from an after the fact contingency fee model to a before the fact preventative subscription model or some very of this which makes revenues much more predictable compared to today.
And in addition, we believe we have the opportunity to develop additional revenue streams as we get much more integrated into the data flow and processes of our client.
This move to a prepayment and preventative audit may replace a portion of our contingency fee based revenue and more predictable prepaid stickier supplier base revenue.
Clearly this is a tradeoff, which we would make any day of the weak for a much more valuable type of revenue.
Net net we believe the quality ever revenue will improve and that we will have the opportunity to also increased the total amount the revenue.
So leveraging our that funding in our Panoptix platforms, we can execute much more quickly than our clients ever could and more quickly than we have before as we execute on shorter cycles and learn the systems and processes of our clients better we improved the physician to get in front of the payment event entry.
Vince the air from occurring.
Just as with our first objective of being the most efficient post audit recovery business possible. This objective will require specialized automation and lots of process engineering in order to solve the problem.
Tiffany and Panoptix or two key foundational pieces that are absolutely required for us to execute on this objective.
This is a multiyear journey as we will be pioneering something that hasn't been accomplished but we're confident that this will generate significant values for clients and competitive differentiation for us across all audit services for our company.
So in conclusion, we are pleased with our performance in Q4 and believe we are positioned for a strong 2020 and beyond.
Our balance sheet and cost base are in good shape and we are starting to see the positive effects of our 2019 operational improvements and substantial investment in next generation technology platforms. We are low laser focused on our two strategic objectives, and we will build on our momentum and learnings from two to.
Sales in 19 to continue on our own are to continue on our commitments and position the company versus same sustained profitability and growth.
With my comments complete I will turn the call over to our operator for today.
As a reminder to ask a question you will need to press star one.
So we draw your question precipice out there.
Please standby compiled that you anymore.
You have a first question comes from the line of Alex borrowing.
From Barrington Research your line is.
This is Chris how sitting in for Alex. Thank you for taking my questions and congratulations on the profitability that was reported this quarter.
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More on the profitability as you provided already some additional color on the near term.
And longer term.
Objectives with the audit platform on an ongoing basis, how should we assess the potential benefits.
From this audit platform as we look longer term, you had mentioned, 20% or more and adjusted EBITDA over the next two to three years. So I would assume as a pick any intent optic are leveraged.
Within the two to three years and even beyond that if we were to look even longer term.
The your profitability expectations.
Could be even higher considering 20% would be an average over three years.
Yes, I would say that we would expect 20% would be the endpoint during that timeframe as opposed to average just to clarify but I think you are greater point holds.
With the platform, we would expect profitability to did it would open up more opportunities to get more efficient and enhance our profitability, but also in a lot of was more importantly open up revenue opportunities for the topline and really changed the composition and quality of the revenue as Ron.
In his comments a lot of goodness all around.
Yes, I agree with that Kurt and.
I think.
Just looking at.
No. This pivot we're making two.
Different revenue model.
We.
It's not going to happen overnight and that it will definitely be it will evolve client by client as we.
As we as we mature so it's going to happen over time, but I think we feel comfortable with we're definitely on the right track.
And just to also follow on to Toronto point. This goes to the first strategic objective primarily that Ron bears, noting that we want to be laser focused on delivering more of that near term impact to our results.
As we think that that's going to be one of the primary value drivers over the near term.
More tangible for.
Although investors on the call.
And is that as that becomes more tangible I assume.
You could assume some additional savings that haven't yet been quantified as you continue to move through the year.
Yes.
Yes, My follow my follow up question just in regards to adjacent services you broke back into.
Profitability on that segment, how should we think about your goals longer term.
As you find the right mix of capabilities and any idea what that would look like right set of services for that segment of the business.
Well, we've given that.
A lot of thought.
In the past and I think coming into.
This year, we we definitely streamlined just rationalize a lot of the services, we're doing in that area, because we were not able to scale that business and not able to keep it as consistent revenue stream and that's really what we need to get too.
At the end of the day.
Yes.
Analytics and visibility are very important to our clients in the 2019 Deloitte.
CTO survey two of the highest priorities for Cpms.
Going into next year or increase visibility improve and improved management of risk.
And there are also not very happy with a lot of the technology they've been investing in terms of solving those problems. So we feel like that.
Along those lines is built being able to leverage our data platform, but with integrated analytics that come as a byproduct.
As part of that that Tiffany data Foundation.
Is really attractive now, but we're not going to go off ahead of our skis like we have in the past that we're focused on recovery audit business first getting the platforms out getting them up getting them stabilize and then we'll start to move into some of these extensions through analytics and other services that makes sense.
At the source to pay solutions market is growing at 18% to 20% a year is estimated at a 10 billion dollar.
Total addressable market.
So its is a big business that we want to.
Bald into but again first things first we want to stick to our near term objectives are.
Basic foundation in place and we'll revisit it in sometime in the future.
Thanks curtain run for all the color and I look forward to what's to come.
Thanks, Chris.
Your next question comes from the line of Zach Cummins from B. Riley FBR. Your line is open.
Hi, Good afternoon, Ron Kay and thanks for taking my question so.
Yes, it's nice to see the improved profitability here in Q4, it and really setting the foundation for 2020, but can you talk about your confidence in really being able to return to growth in 2021, and then really highlight some of the main drivers for that.
Yes, there were a number of things first of all.
When you when you look Kurt explained.
Some of the.
The variances of last year that occurred that the and we really view our 2019 revenue on par with 28 team.
Netting out some of those puts and takes and then looking ahead. We've had some some very good success in the.
Our sales and and and bookings and the and the last quarter. In this quarter. These revenues are going to take a while to get to bring online.
We've also if you recall on some of our prior calls we've talked about some of the clients, where we were having delays or changes in scope.
We have recently.
Closed a and outsourcing arrangement with one of our largest clients where were taken over all of the internal processes for for their recovery audit and those kinds of problems will go away and we'll have a larger scope to audit. So we are addressing some of those.
I will say client specific issues and there are others that are that we're having similar conversations with which will have a similar impact.
Then.
We are seeing more new clients come in that that are significant and we've we feel good that we're on a good trajectory now there are headwinds year over year, we feel like that Jason services right now we're estimating.
Considerably down from Twoq 2019, simply because we're not we took a big step back in terms of what we're going after there we're continuing to generate revenue RJ adjacent.
Adjacent services segment.
But it wont be as much and were starting some new engagements, but we'll see how that goes. We also have some rate changes that occurred last year, they're going to impact us. This year that we've got to overcome so we're kind of netting those out but overall I think we feel pretty good about where we are in.
It's about managing at the detailed client level and doing the work that needs to be done to.
You take those clients to a higher level, we're we're pushing hard to move it contract compliance and as many clients as we can and.
And having some good momentum towards that so overall I think we can feel good about coming out of 2020 into 21 with good momentum and then we really feel that this platform.
That we're going to be rolling out in Q2 is a differentiator and we've we've won some some significant clients.
With that.
The demonstrate that platform that our clients are pretty excited about so we think we're going to continue to pick up new clients and.
An expanded scope and the ones were in over the next year that will lead us into 2021.
And that just to add on.
Ron hit it noted is.
Second strategic objective of the articulated the one to evolve our core business from a contingency fee oriented post audit recovery provider.
To a prepayment error production and subscription oriented business partner, it's really important that as we rollout. These these new next generation platforms of ours and get more into the data and get more intimate with the processes of our clients that that's going to enable us to get closer and.
Closer to the error events that will draw us in to derive those new revenue streams and improves the quality of the revenue as well.
So this is all about a greater kind of journey that Ron likes to describes it will get us to a much better place than we've been over last few decades different composition of revenue different standing with our clients a different way that were perceived in a way that were indispensable to them.
Got it that's helpful.
And then I guess, just looking at the 20% adjusted EBITDA margin target in the next two to three years can you talk about what sort of assume to revenue growth is needed to get to that or how we should we thinking about this over time as you continue to make progress towards that target.
While while it would be helpful to have revenue growth the buildup that it would assume that it would be modest revenue growth.
Most of that's going to be done by.
Focusing on being the highest performing and most efficient recovery audit firm in the business and it's going to be from doing things smarter with our new platforms that we're rolling out reengineering the way that we do it such that we can yield more out of every dollar of revenue that we get.
Understood. That's helpful. And then final question with you expected to generate at least 10 million in free cash flow. This year I mean can you rank your capital allocation priorities from investing in your tech platform versus potentially paying down debt or buying back stock.
Well investing in our tech platform is before we get to the point of the 10 million in free cash flow right. So thats, assuming a capex spend that's 10 million plus as part of that that build.
At this point honestly I'm, just laser focused on generating free cash flow in doing as much as possible.
Ron if you want to chime in but but not for me, it's free cash flow free cash flow free cash flow nothing allocation I mean, I bet obviously.
We're going to have continued capex required to to drive this platform will be able to no fund that we're not saying, we're going to an elevated levels, but be able to find that out of.
Generated capital versus going out for debt and then we'll have to look at a balance between paying off debt.
Buying back stock as.
Opportunistically and then look at what else you may present itself in terms of opportunities for us, but as skirts as.
Job one is free cash flow.
Yes, good problem to have once we get it.
It's also worth noting getting to that 10 million in free cash flow isn't done.
To the detriment of investing in our business, we think that we get to that $10 million even with.
The appropriate.
But still judicious investment in.
Capex.
Got it Thats helpful. Thanks, again for taking my questions and congrats on the followed quarter and best of luck in 2020.
Thanks, Jack Binion soon.
Your next question comes from the line of Angelo Gordon from Gordon Capital. Your line is open.
Hey, good afternoon, guys and thanks for taking my questions.
Sure you've been.
You've been seeking for a couple of years now to harness the power of your data in kind of evolve your service offering and you touched on that again this evening.
You talk about the penetrating the broader source to pay market and.
A couple quick questions.
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From that broader focus specifically with regard to.
How you see your offering.
Relative to what's provided by.
Cooper.
Software.
And the reason I ask because my sense is that they're largely pretty complementary.
Group focuses more on.
Proactively.
Sobbing managing.
Overcharge for for for indirect spend and you guys are focused more on resold goods.
So I just wondered if you could maybe talk a little bit about how different are the data sets that you focus on versus what they focus on and whether you could.
Hi, there confirm or.
Denied the assumption that your general complimentary versus.
Sure sure I think you look at Cooper Riva There're a number of what you would call.
Story sourcing or procurement management platforms, and we don't seek to compete directly against Cooper, but there will be some areas of overlap and I'd like to tell.
Clients when they ask that question that we're really and rather than the poor we're complimentary to Cuba or any of these is simply because.
Our order Reba are typically deployed for a specific scope of spend in a company. We have a big grocery client for example, that's driving a significant portion of their goods not for resale, which is about 10% of their spend through cooped up the other 90% is going through.
Through 150 different legacy systems that are.
That are very.
Very old and complex and so.
And we we take an enterprise view of this data an aggregate all the data across the platforms. They have oracle they've got.
Cooper, they've got a number of others.
And Cooper.
It was a closed system there there they give analytics and visibility to the spend that they manage and they do a very good job of that and Oracle does the same thing in their world, but we're in open system. We are we take all the.
The enterprise data and that's what we've been doing for 50 years and a lot of the errors in the discrepancies we find or because of all these different does.
Smokestacks systems across the company that are each in their own closed and we find the discrepancies across those systems. So thats a very fundamental difference between what we do we think we have a very healthy place to live in that that environment.
It's a fundamentally different approach.
Full stop.
But it sounds like data sets themselves are different areas of spend that you're focusing on are different and that being the case I wonder if there are.
And if it's to the end declines or to the range of companies that benefit from your services, where are you to be offered by one of these larger players as a cross sell.
Sunday.
Somebody were getting sort of consistent.
Well.
Well first of all the data sets are are not different we get accounts payable they get accounts payable we get but we get all the data they get and we get all the data that Oracle gets when we get all the data coming from Sep, but plus all the miscellaneous system. So it's not a deferred.
Dataset is just an enterprise view across all the different systems that we aggregate and and the very complex matter.
I understand and harmonize so that we can interpret all the different types of data and put it into a format that we can audit and we can do analytics around that's not what Cooper does so thats not what a rebid thats, what something unique to what we do and I think to clarify I.
Okay.
When I when I hear you say, but it's different data. It's just that it's a subset of what we see we see the whole picture Kupol and May see is a small part of the picture are reasonable routinely see a small part or forward see a small part we see the entire picture because we see all of the data they see a subset yeah and that in terms of your question of whether.
They would want it to bring us in absolutely.
We would be happy to.
To work on on that with them and many of our clients are asking us to work across these systems to do certain things.
We have no problem working with any of these providers.
Great well I'd love to flesh out further offline. If you guys have a chance to Jeff and I appreciate taking my question sleep.
Absolutely love to have deeper conversation.
There are no question at this time I will turn back the culture.
Great. Thank you so much and thanks, everyone for joining the call today.
We look forward to get together pretty quickly in the next few weeks. So next several weeks to talk about Q1, but in the meantime hope over everything goes well, we'll we'll talk soon thanks a lot.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
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