Q2 2020 Exela Technologies Inc Earnings Call
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Good day, everyone and welcome to the Accella technologies second quarter 2020, <unk> financial results Conference call.
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At this time I'd like to turn the conference call over to well made on Investor Relations. Sir. Please go ahead.
Thanks, Good morning, everyone and welcome to the XL technologies second quarter 2020 conference call.
I'm joined today by Ron Cod Burn Axcelis, Chief Executive Officer in Shrikant Searcher, Chief Financial Officer. Following the prepared remarks made by Ron Shrikant well take your questions.
Today's conference calls being broadcast live via webcast, which is available on the Investor Relations page It accelerates website.
Teletech Dot com a replay of this call will be available until August 18th information to access. The replay is listening to today's press release, which is also available on the Investor Relations page Axcelis website.
During today's call Excel will make certain statements regarding future events and financial performance that maybe characterize as forward looking statements under the private Securities Litigation Reform Act as 90 95.
These forward looking statements are subject to known unwrap unknown risks and uncertainties that are based on current expectations and assumptions.
We undertake no obligation to update any statements to reflect the events that occurred after this call, but actual results could differ materially from any forward looking statements.
More information please refer to the rest doctors disgusting to sell US. Most recently filed periodic reports on form 10-K, along with the associated press release and the company's other filings with he has he said.
He started out both on the FCC or the Investor relations stage to tell its website.
During today's call they will refer to certain non-GAAP measures.
We believe these non-GAAP measures provide additional information on how management views the operating performance for our business.
Reconciliations between GAAP and non-GAAP results discussed on todays call can be found investor relations page for our website.
Please note the presentation that accompanies this conference call and Investor fact sheet he'll also accessible on the Investor Relations page of our website.
I'd now like to turn the call other to our CEO long Cogburn lot. Please go ahead.
Good morning, and thanks, everyone for joining us today on our second quarter earnings call before we begin I would like to highlight we have a quick snapshot of Accella slide number five of our presentation for anyone who is due to accelerate or just wants to refresh on a new business.
Now, let's begin today, what slide number stuff.
We're pleased with our second quarter results, which reflect focused execution against our key objectives. Despite the many challenges caused by cobot 19.
The combination of our mission critical solutions focus and quick response to our customers priorities and this current environment enabled us to generate second quarter results that were above our expectations.
Our second quarter 2020, total revenue on a constant currency basis was $309.2 million, which is above our prior guidance. Our Q2 revenue decline versus the prior year period, mainly reflects the impact of covert 19 on our volumes and the elimination of trends.
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We delivered sequential improvement on our gross profit margin yeah, the second quarter, which was up 148 basis points from Q1 of 2020.
We generated $43.3 million of adjusted EBITDA on a constant currency basis in Q2, our adjusted EBITDA margin was 17.1% when excluding pass through and low margin customer exit revenue and was up 210 basis points sequentially.
And we ended the month of July with $82 million total liquidity post the payment of the semiannual coupon of $50 million.
We expect our positive momentum in Q2 to continue into the back half of 2020. We currently estimate total revenue in the third quarter of $305 million to $312 million in the month of June our margins were substantially better than the preceding five months and similar to our margin levels and.
Back in 2018.
We currently expect this upward trend in our margins to continue into the second half of 2020, let's sequential improvement in our gross profit had adjusted EBITDA margins in the third and fourth quarter as our volumes or on a trajectory to recover to post to pre covert 19 levels and we continue to realize event.
That's our cost saving initiatives shrikant sort your will provide more detail on our 2020 outlets and just a moment.
Overall, our results at our outlook not only underscore our ability to weather the coal at 19 storm, but our ability to find new opportunities for growth in this environment, all while executing against our long term objectives of growing our core business, increasing our profitability and then.
Moving our liquid.
Let me provide you with some highlights that illustrate how we are driving forward with focus and momentum.
We are seeing increased demand across our customers and industry groups for solutions that will enable them to operate more efficiently and meet the expectations of their customers partners and employees and a post covert 19 world to achieve this our customers are seeking a partner that can provide them to.
In mission critical business process automation solutions at scale.
This is a trend that plays to the strings.
Of Excel technologies and is having a positive impact on our pipeline and our new business wins.
Here today are close to one sales for our payment offerings and our work from home solutions or home office, a which includes digital mailroom have increased by 41% in the Americas and 38% in AMEA year over year.
Since March 2020, our pipeline for these same solutions has increased by $64 million with 34 million up this 64 coming from the digital mailroom and the remaining 30 million from the payments offerings. This solid growth reflects new programs and campaigns, we launched target.
Getting solutions that are specifically tailored to address our customers' needs in a remote working environment wherever that may be.
As part of our ongoing cost saving initiatives to all our our workforce.
The Q2 demand environment, we reduced our headcount by approximately 7% during the first half of 2020.
Looking to the second half of this year, we'll continue to carefully balance our cost base, taking into consideration our expectation of increased volumes as well as the further elimination of stranded cost associated with transition revenue.
Our focus and execution on cost savings across the entire organization is a major reasons behind our expectation of sequential improvement in our gross and adjusted EBITDA margins and the second half of this year.
Lastly, I'd like to note that we completed another core noncore asset sale last month.
As we announced on July 20, Threerd, we completed the divestment of our physical record storage and logistics business for $12.3 billion.
This transaction is another milestone in our initiative to sell non strategic business assets, what total proceeds of between 150 and $200 million over the next two years, what the completion of this sale. We have now executed $50 million of this plan helping to stream.
And our financial flexibility the remaining $100 million to $150 million are on schedule.
I'll now turn the call over to shrink up sort your to discuss our results in greater detail. After shrikant I'll come back to cover our outlook and 2020 initiatives in more detail trickle over to you.
Thank you Ron.
Good morning, and thank you all for joining us I wanted to co Rons comments, we're pleased with our second quarter execution than business momentum in light up a challenging environment.
Before I cover all financial results for the second quarter I would like to touched upon how we managed and performed against the four areas within back that we shared with you on our last earnings call.
As a reminder, before area elsewhere, one our expectation that the adverse effects of covert 19 on customer volumes and our financial results would have most impact in Q2.
True expected impact of the transition revenue three capacity and cost structure money spent the goal of achieving normalized gross margin performance and for our capital allocation policy focused on improving liquidity and cash flows I'm pleased to report will be managed and delivered solid performance across each of.
These four areas.
In a challenging macro environment, our team managed to overcome the negative impact of covert 90, and transition revenue and Delaware Twoq revenues above the high end of the guidance range. We provided on our Q1 earnings call.
So why the additional context on our second quarter results, let's talk talk about the monthly progression for revenue and gross margin trends during the quarter.
We experienced lower Walliams in April and May and saw an improving trend across most of personal those lines. In June we took aggressive actions to bring costs in line with activity levels. Our gross margin for the month of May and June wasn't the 24% range and inline with our goal of achieving higher margins after two consecutive quarters.
20% gross margins prior to Q2 up 20 trend.
Our liquidity has remained strong throughout the quarter. That's right Rob indicated on July 20, Thered be completed the divestment of for physical reports storage and logistics business.
<unk> point Threemillion, a spot for inertia them to sell nonstrategic business assets to help strengthen our financial flexibility.
Now, let's turn to our results for the second quarter.
In my discussion today I'd refer to both GAAP and non-GAAP results.
As a reminder, reconciliations of these metrics are available on <unk> in our earnings material.
Any other friends to the corresponding period of fiscal 2019 includes restated results for the interim period of 29 team.
Let's start on slide eight, but the real for a second quarter 2020 results.
Asked me that goes on last quarter's call on John response would be had approximately 150 million <unk> annual transition revenue that we plan to exit by the end up second quarter 2021.
I have a plan in place and a working diligently to rebalance our resources and remove the stranded costs associated with our transition revenue by the end of 2021.
It's important remember the declining transition revenue is expected to have a positive impact on a gross margin profile or the long term the elimination of stranded costs, we continue to lag the exit or transition revenue.
Revenue for the second quarter totaled 307.7 million on a constant currency basis Q2 revenue was 300, a 9.2 million representing a decline of 83 million or 21 person year over year.
Our year over year revenue performance, mainly reflects negative volume impacts due to the Coburn 19, pandemic and our exit from certain customer contracts and statement of work which were not.
But these exit to exit less vision and be referred to the assigns isn't revenue.
On our Q1 earnings call. We had indicated an estimated negative 35 to 40 million impact on Q2 revenue from Cowen 19.
A quick look at our segments revenue for our TPS segment was 243 million a decrease of 21.6% year over year from 300, a 9.8 billion the second quarter Uptrend in my team impact of transition revenue was the highest in the I could be a segment our health care solution segment revenue totaled.
49.2 million, a decrease of 22.4% year over year from 63.4 million in a year ago Peter.
Our legal lost brands and segment revenue or Lps was 15.5 million compared with 17.6 million and the second quarter up 2019.
Gross profit margin for the second quarter, it wasn't down 84 basis points year over year, 21.4%, but up hundred 40 basis points sequentially from the fourth quarter off 2020, reflecting our cost management and cost savings initiatives.
Looking to the second time, almost any 20, we expect our gross margins continued to improve benefiting from revenue lift from higher cost flu volumes, particularly in the health care and payment and from our continued cost management, including reducing stranded costs associated with our transition revenue.
<unk> expenses for Q2 totaled 47 million down 8.2% year over year and are present, the 15.3% booked revenue, reflecting reduced revenues. This was offset by a cost saving initiatives.
Depreciation and amortization expenses was 22.8 million down 2 million year over year, we expect our DNA expense to continue to decline it looks like and up Fannie Freddie driven by lower Capex levels.
Operating loss for the second quarter was off 2020 was 5.1 billion compared with operating income of 5.7 million in Twoq friendly 19.
The year over year decrease in operating income was primarily due to the lower revenue and gross profit offset by or cost saving actions.
Interest expense was went up by 3 million on the quarter, partly driven by the interest costs on or yeah facility, including a catch up adjustment from the prior quarter.
Turning to you've been doing a dozen adjusted EBITDA in Q2 of 20 trying to be generated EBITDA of 19.3 million down from 27.9 million in the prior year period.
Adjusted EBITDA for the second quarter was 43.1 million compared with 44.4 million of the prior quarter and 64.9 million into two opinion 90.
Our adjusted EBITDA decline, but just 1.3 million sequentially. Despite.
58 million declined in our revenue, reflecting strong focus and execution on our cost saving initiatives.
Adjusted EBITDA margin for the second quarter of 2020 was 14% <unk> hundred 90 basis points sequentially from 12.1 person to one.
Excluding pass through revenues in the low margin trying to exit or 200 2020, adjusted EBITDA margin was 17.1% up 210 basis points from two went up 2020.
Although our largest adjustments will arrive with adjusted EBITDA EBITDA included non cash and other income and charges transaction and integration costs and optimization and restructuring expenses also called less well in our expenses.
[laughter] to add backs to adjusted EBITDA in more detail on slide number nine.
I've just been for when our expenses totaled 11.7 million in the second quarter and 24.7 million Oh six months of 20 trying to.
Our Fox top 2020, when I started just are down approximately 17 million year over year compared to the full stop a 59 team.
Looking at second half of 2020, we anticipate went on expenses to land between 15, and 20 million, implying a total of 40 to 45 million before your 20 Trent.
We recorded 4.8 million transaction costs in Q2 of 2020.
9.2 million in the first six months of 2020 up by 3 million and 6 million asking about the respective periods in 2019, respectively.
The increase was primarily from one time fees related to the amendment or credit agreement and recent assets if you.
We expect our transaction cost a decline in the second half of 2020, but the six to 8 million dollar rig.
Finally, we had non cash and other income adjustments so positive 7.8 million in the second quarter and a negative 20.8 million in the first six months a penny trend. This includes the onetime 35 million Dan on the sale of heart PBG business, we expect our second half any pretty charge it <unk> charges in the category print declines.
Sure between eight and $10 million.
Moving to slide deck.
This slide illustrates the strong progress made in the second quarter with improving our margins and setting the stage for a continued upward trajectory in our margin the second half a penny trend.
That's you can see our gross profit in adjusted EBITDA margins reached a low point in the fourth quarter of the year, reflecting go with 19 related volume impacts and stranded costs associated with our transition revenue.
In Q2 asked me no would that be Delaware hundred 40 basis points of gross margin improvement and hot an 80 basis points of I just did the de improvement 210 basis points when accounting for foreign currency impact. Despite the sequential 58 million production in our revenues.
Furthermore, our margins in the month of June reached 2018 levels, but you may recall, but 24% for gross profit and 17% probably just a did with yet.
This positive result on a profit margins as a direct impact of our laser focus on our ongoing cost management and cost saving initiatives.
Using the current environment at the time for continued improvement in order to exit this environment a leaner more efficient organization. You also have additional cost saving initiatives that are currently under examination since its work from home policies, but may extend beyond the corporate banking found to make driving reductions in our fiscally de kooning.
Well.
Let's move to slide 11 to discuss our liquidity.
He covered some of these items or our past two earnings call. However, I would like to refresh and build upon our prior discussion our total liquidity at June 30, 2020, 106 million up from the 31 million at year end 2019, and our total net debt was 1.5 billion.
As of June 30, fast our liquidity was 82 million after a 50 million coupon payment of July 15th.
During the first half of Fannie Freddie as you May know, we took several steps to stabilize and improve our liquidity position, we executed on a new hundred and 16 million accounts receivable facility and completed our costs to asset sales.
We get proceeds of approximately 50 million as part of our announced divestiture plans.
Now before I hand, the call back to Ron I would like to discuss our third quarter 2020 guidance.
For the third quarter of training training, we expect total revenue to be in the range of 300 in five to 312 million on a sequential basis third quarter revenue guidance reflects improving volumes from two to have 2020, partially offset but the absorption of transition revenue exit.
A year over year basis, or two or three revenue is expected to be negatively impacted by lower volumes compared with the corner of third quarter opinion 19, primarily as a result of the corporate banking and the decline attributable to sale of our Oh Central Florida.
That's one of the aforementioned exit of transition revenue.
Given the uncertainty surrounding cobot 19, we are maintaining the suspension for annual 2020 guidance. However, I would like to reiterate the factors that we expect will impact our performance for the balance up this year.
But I was just does we expect the adverse effect of covert 19 on customer volumes on our financial results still had most impact in Q2 before improving in the second half a penny train. The caution however, the continuation of covered 19 outbreaks could further impact the market and Oh funds.
And we'll continue to see them back to transition revenue estimate because these contracts and statement of work for the second quarter of.
On top of 2021.
Third the adjustment, we have made to our capacity and cost structure, including eliminating expanded operating costs associated with our transition revenue are expected to lead to improved gross margin and I've, just an EBITDA margin performance and the second half appeal.
And finally, our capital allocation policy is to prioritize improving our liquidity and cash flow continued to focus on our liquidity improvement initiative announced back in November 2019, as part of the initiative. The company had originally targeted hundred 50 to 200 million of sale proceeds from certain noncore assets. Since then we have completed.
Divestiture, so 50 million to date as part of done on to plan and pursue an incremental hundred 250 million and noncore asset sales in support of our strategy or the next 18 months with that I turn the call back or Toronto Ron.
Thanks for economy, now, let's turn to slide number 12.
I would like to briefly review our response to the Kogan 19 pandemic.
As an organization, while adapting to this constantly evolving situation. Our key priorities have remained the health and safety of our teams and serving our customers.
A in a sustainable way a rapid response teams have enabled us to quickly react and delivered nearly uninterrupted service to our customers. While also adjusting our operating or operational capacity to match the demand levels in the mitigate gross margin him.
We reduced our ft. He is by 7% or 1700 hedge during the first half of 2020.
In response to the recent demand environment.
Looking ahead based on our bench strength, we are well positioned to meet the increasing demand when volume growth is expected to recover in the second half of 2020.
We're monitoring the nature of the pandemic, a very closely and we'll continue to adapt in consideration of this evolving situation.
I'm extremely proud of our team for stepping up during this unprecedented time and ensuring that we continue to provide our customers with the highest level of service delivery.
Now, let's turn to slide number 13.
I would like to walk you through a case study, which is very important.
This case study reviews, the progression of our provider coder volumes and our health care solutions business between the weeks of March 7th in June 27.
As you can see we experienced they say Nick significant drop off in the volumes to be getting the week of March 21st as a shock to the pandemic starting to take hold our volumes continue to decline before hitting trough levels in the weeks of April 18th and April 20 cents at the high for the pandemic.
Release, the beginning.
In the beginning of the week of my second we started to see the volumes gradually recover through the end of June as patients started to adapt and return to health care providers for elective medical procedures.
They sell these trends and what we are.
Seeing currently in our health care business.
With the resurgence of elective procedures, we estimate the pent up demand from Q2 is approximately 2 million units just in the provider business alone now we expect this pent up demand to help drive our health care revenue growth in the next few quarters. We also believe the recovery of our provide.
Rider coding volumes is a good indication for the recover recovery, we expected continued to see across many other businesses, where axcelis is providing essential services similar to healthcare such as payments. These trends give us increased confidence in improving results in the back half of 2020.
Now, let's turn to slide number 14.
And conclude by reviewing our key 2020 objectives to drive improved operating income and cash flow.
First we are accelerating the alignment of businesses acquired since 2017 away from the working capital intensive model, which is the F. T E based contracts, where you for us the payroll costs first and then you collected revenue later to our traditional model, where the services or less FTD heavy and where the work.
Capital need is minimal as there is no upfront costs that need to be carried for collecting revenue.
As part of this effort, we will continue to exit transition revenue by the end of Q2 2021 and eliminate the stranded costs related to these revenues by the end.
2021.
We will also continue to manage our revenue per ft metrics and optimize our headcount with the evolving demand environment in light of covert 90.
Accella has an increased focus for management down the line to maintain our stable position and prepare for incremental profitable growth at a post covered 19 environment.
Second and closely related to the first go we're focused on driving growth of our core business to achieve target gross and adjusted EBITDA margins like we experienced in 2018.
This includes expanding with existing customers within our banking financial services insurance and healthcare industry sector segments, where we provide mission critical solutions. In addition, we all can continue to convert strong demand for our work from home solutions, such as home office.
Which means you can work from any place, including DMR as part of the new sales. We're also expanding our sales effort with our newly launched solutions like our human capital management and most recently, what you saw dry side our year over year increase in these new business signings is a trend we believe that Illinois.
Traits our focus on this matter.
Third we will look to achieve a total liquidity target of $150 million as part of this effort. We will continue to exit certain non strategic businesses via asset sale. Our goal is to raise an incremental 100 $150 million of proceeds through this process for a total of 150.
The $200 million.
In closing.
We are pleased with our better than expected second second quarter results in light of the challenging backdrop, our expectations for return to the normalized volumes in the second half of 2020 combined with the continue focus and execution of our cost savings initiatives will produce continued positive results.
We are confident that our unique into in business process automation solutions, and our deep domain expertise will enable us to gain market share and this uncertain economic environment.
I'm incredibly proud of all of our global team members for their commitment to accelerate into the customers we serve.
This concludes our formal comments operator with that please open up the line for questions.
Ladies and gentlemen at this time will begin the question answer session.
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If you are using a speaker phone we do have you. Please pick up the handset before pressing the numbers to ensure the best sound quality.
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Once again that is solid and then one to ask the question.
We will pause momentarily to assemble the roster.
And our first question today comes from David Horoscope Polis from you don't Please go ahead with your question.
Hey, thanks, Thanks for the call guys. So can you can you give a little more clarity I'm. Just so you have a 7% reduction in headcount is that that permanent or it looks like possibly these these are furloughed workers I'm just curious what the economics. There are people getting paid still on furlough are those permanent readout.
Action.
David Dykstra, because the settlement for somebody who are looking out there is mostly for load and asked me called on bench there on getting no full payment being made to the employees. It's a flexibility that'd be have or a better Thomas that's how we do the operational optimization pretty good for Q2, that's how we manage the.
Activity levels revenues.
Is your volumes increase would be theoretically these employees come back on the payroll kinda outside of temperament. Okay. Okay say you have some flexibility there great Oh by the second question a follow up I have on the gross profit margins it and Oh I guess two questions can you talk about you talked about the cadence as you went through that.
Order that.
They improve a pretty meaningfully as we exited June can you can you review that and I'm, just kind of questioning too as part of the double part of this gross profit margin question is what would the strict can you can you.
Provide like that the impact from stranded costs this quarter on that that your gross profit margin percentage. Thank you.
Yeah, David again, and that's a big let me say bill space or be do not have a specific breakout for the gross margin and back from the stranded costs. Obviously there are stranded costs that we are we're working on getting it out of the system right but.
Lets focus on Okay last quarter. When you talked about does need be kind of said improving gross gross margins Baroque Paramount important for us. It's also driven by focusing on profitable revenue not just topline growth without the the results on bottom line impact.
No apart from the optimization them back that you've talked about apart from having a laser focus on wanting to make sure that the costs are our cost structures in alignment with the revenue that reap thing you should be the argument to grow the gross margins from one to 2% to 3% again I'm not going to give a particular range, but again I said the last call.
So we knew we were at higher margin the past going from 26% margins to 24 to 20.
Q4 up 20, Ninee teen and Q1 off 20 to 20 be able to 20% margins. There are clear that we that trend how sort of worse very glad that in Q2, it's now back up 21.4% and in the current world that we are in very I'm more focused on weekly and monthly in and whatnot.
You'll see that I say explained on my prepared remarks may and June has been very pleasing that you've had almost 24% margin. This goes back to one I said optimization.
Optimizing our operate operational optimization number two cost savings initiatives, yes related to the transition, but when you're trying to costs are coming down.
And serves potential.
We caution on stranded cost and what it is a you run example, they're not just the headcount. We also could have facility related costs operating cost that are either amounted to be the contracts or in the nature of fixed element to it that will come off slowly.
Okay.
I answered, but yeah, right and it'd be clear you exited in June at 24% gross margin that data screw up okay. Thank you.
And our next question comes from Anton Schultz from men in capital. Please go ahead with your question.
Yes, how does work from home initiative really affect your from as well as your clients and what does it looked like once we're past the worst of covert 19, there's the possibility that work from home could you positive contributor ongoing as well as a new business initiatives picking up.
And Tom This is Ron those are great questions. So you know at the end of the day work from home initiatives.
Demonstrated the flexibility in the strength of the platforms that we currently have like many companies we were able to pivot at the height of the pandemic and push workers to geographies, where you could not come to an office to a home environment.
So you know we have built in certain amounts of efficiencies, we have what we call home office.
Applications kinda like or digital mailroom kind of like dry side that you just saw that was launched we specifically target the efficiency of Homeworker, our remote let's call him a remote worker because you know they don't have to be sitting at their house they can be.
And be able to facilitate and use our platforms, but when you think about post cobot environment, which were all you know anxiously awaiting for that day.
There are certainly will be consideration on our part to the efficiency to the cost benefit for being able to have a workforce. They can operate remotely at or above our current efficiency levels and to continue our customers have the same conversations some of our customers came to us burn.
Early on and said look we're not going to open our offices until Q4 2020. So I'll have said and you've read about someone said, they're not going to open until Q1 of 2021. So.
The biggest thing they have the biggest challenge is they're receiving in the sending up.
So our digital mailroom solutions stepped up and the last figures I saw which I think are public we're almost at 100000 users now just in the digital mailroom environment and it's all as a result.
Our customers their employees, saying look we can do this remote location and this is a tool that makes a difference.
Excellent. Thank you.
And our next question comes from Holland Kato from Beach Foreign capital. Please go ahead with your question.
Hi, Thanks for taking my question I guess first when I look at headcount from Q2 end to Q1, it looks like declined by about 1000, even including the bench of people at the end of Q2. So it was 21 thousands of right out of new normal to think about.
Alan District on to let me take that question. It is the new normal but then.
As you know right if walliams ready to come back to Prequaled levels, obviously, that's going to be a adjustment one build other well be able to continued to be focused on cost savings cost management initiatives.
To bring it officially on T cells for US you know.
In addition goes.
But I wouldn't want to big onto that number it's our belief that the current volumes. That's that's a good number to think about.
Got it sorry, so if revenues were to recover would it was there a possibility you'd have to rehire around a thousand people potentially.
Overtime, Yeah, I like I said I don't want to come.
Let's say calls then as a number it's going to be inline with the volume increases that we see.
Okay got it got it.
And then I think in the queue you guys mentioned that August seven liquidity was around 78 million. So.
It looks like that's offset most of the July coupon payment, but it's down versus 82 million at the end of July slightly so should we interpret that as kind of a spike in receivables creation or partially a function of timing on when the receivables and payables are made intra month.
That's exactly what it does it's working capital movements.
Okay got it yeah.
Then on EBITDA margins should we think about 14% as a baseline and grow from there with the add backs being oh in our trend this transaction costs and.
Other targets being kind of 14 to 99 per quarter based on the slide.
That's correct and if you can think about it a you know again, we have not guy you did but let me let me put it the say there's enough material on the earnings deck, but he couldn't look at it look at a normalized data and to your point yeah. That's the baseline right now.
So other than one timers from our perspective expectations are it'll go up from there.
Got it and I think the previous caller asked about this but if you can't give the margin impact the stranded cost is there any estimate or quantification you can give on the approximate dollar amount that still embedded in the business.
Okay.
Because you just talked about this for a couple of quarters right. So let me give you know very quick small example, but when it comes to transition revenue I was talking about the revenue plus and the strike related stranded costs next when it comes through this transition revenue.
It's a certain process that'd be followed we look look at individual gross margin of customers. We have a threshold that we want to.
The gross margins to be yet, it's often on a customer by customer basis and this can differ from each for a line of business or or it could help you can factor in things like what's the future contract value.
Once we know what it needs to be worked with the customer to opt to optimize the margin.
That's that's our goal.
We want to grow as a business asphalt.
Quite honestly more than the revenue growth no. Our focus is all on gross margin growth and liquidity growth the dot in mind, when we work with the customers on optimizing the margin banks, sometimes it works out sometimes not it's usually mutually agreed to transitional likes it cannot be couple transition.
In a situation like that I would like to take the example loved LMC eat right to explain the deep headcount or the personal spend as the easy part transition revenue goes away, there's a timing impact it could be a month or two later, usually the headcount as those tends to drop in the LMC example.
Again, I do not want to use a general example, and make specific but for us to articulate the better let me unpack the and that's a person like a lumpy, let's say well it was a customer that was involved in the printing facility, we have certain operating costs it could be facility cost utilization maintenance.
Lease commitments when we exit that revenue the lease cost the picture and the main systems. None of this is actually going away, we have to two or three options. There are bringing higher margin customers to build up capacity or absorbed those costs for a certain long.
Period till you can either consolidated the facility or or figure out all the way to it could be a.
Take the stranded costs out of the system.
So doug but that being the backdrop, that's why when a cushion like what's the stranded cost impact on your margin, it's not really a function of a simple person to age. It varies the took you know there's a certain range within which we work.
Okay got it so it's kind of fluid and depends on individual customer contracts as to what you can you can potentially guestrooms gross margin okay got it.
And then just circling back liquidity last question I'm talking about working capital being kind of seasonal in you know.
The decline from the end of July August seven, but within the month of July No. I think you guys ended June was 92 million of liquidity.
Roughly and then you pay the 50 million dollar bond coupon.
I guess, how to liquidity kind of snap back so quickly to 82 at the end of the month.
It was just a lot of free cash flow or receivables collection any color on that would be helpful.
It's a mix its a makes its free cash flow. It's it's working capital swings and Oh, you know how seen on the tend to we have availability in our facilities haswell and the Q in but to the some do it was split between cash and the facility. So you'll see that our revolver stem too.
<unk> or or or whatever would be on professor these tend to fluctuate asphalt. It's a combination of all three.
Got it right. That's all I had thank you.
Excellent.
Our next question comes from Howard, Yes from Avenue Capital. Please go ahead with your question.
Morning, Rawness, you're calling thanks for the question I Hope all is well I'll just a follow up question on that.
August 7th liquidity or for the Q on page eight it says that the additional source of liquidity of 35.8 million from borrowing facilities and then a few winds down it says that also as.
August seven the company has full we draw on the remaining availability out there to be a our facilities. So.
Just just to clarify as of August seven.
Does that 35.8.
Remaining.
Capacity from the air facility or.
For something else.
Oh, Hi, we're comfortable doing about thanks for asking.
Yes.
But but they also sleeping on just the last let me let me just clarify it so it's or global of it'll be up or Oh, the facilities hospital.
Got caught us other okay. So I'm just.
So maybe I have a correct. So as of August 7th is your air facility pulling that out.
Hi, how could double check the way it works our borrowing base fluctuates every day Howard the depends on the AR collections, and the borrowing base and button related loan or whatever the.
Technically their ideas wouldn't be can borrow and they are facility and maybe be don't.
I don't have a break up from 35, so how much was probably a little of come they are on that specific day.
Got it maybe I'll fall off trunking, yeah, yeah.
And our next question comes from James Atlantis from Exodus point. Please go ahead with your question.
Hi, guys. Thanks for doing the call. One question for me is just can you talk a bit more about the Mastercard and Vocalink initiative, and just kind of how we think about that and the potential for it and both the short term in the long term and then I'll follow up from there.
Yeah. Thanks, James This is Ron.
So we're real excited about this relationship I think you probably read recently, where pay UK had validated the mastercard request to pay.
Platform that we provide all the technology to in terms of development.
It's all the UK banks, so our current agreement is focused.
To be the first to market with us with UK banks for B to B to C E Commerce.
Excel is going to offer these solutions to its customers in the UK as well.
And then we have plans to host the solutions same solutions in other markets.
We will have a broader update a little bit later on.
All the plans we have terms so.
These kind of digital assets and things like that.
About the Rollouts in other countries and the other forms.
Okay, and I understood, but I guess, how do you get paid on this is it a transactional basis revenue stream or more of a subscriptions your customers.
Yes. Good question. So you know we have this is called business process as a service. So you have a SaaS component and you have a service component. So there's a subscription base as well as a.
Transactional base.
Got it okay, and I guess, one more on that too is should they think about this is a use expense new geography is I'm going to other markets, where I guess the vocalink before Mastercard bought it had a large presence.
For the use of the expansion look like that or am I, just getting too far ahead of myself here.
No no I think it's the right question. So we have had a relationship with vocalink for many years and we have gone to the different geographies with them when the opportunities that present themselves.
With the acquisition by Master card. This opened up a larger footprint for us. So you know where we have customers have 50 countries right. Now. So we're excited about first going to the customer base that we have and then if there are other opportunities to partner with Mastercard Vocalink in a geography that were not currently serve.
I mean, certainly we're going to look.
They said it last thing for me is doing business being a bigger b to b product or a bigger b to C products.
Well I think what you'll see as being to be has been sort of our bread and butter for lots and lots of many years. So the rollout of the digital assets like dry. So for instance, so that's clearly.
To be a b to C play because we've got lots of information.
His in April the consumer if you will.
To be able to function and environments that.
Our remote car distance or call wherever they might be so we look forward and you can look forward to later this year more announcements around these digital assets and our plans to to market those.
Great. Thanks, so much for the thorough answer Im looking forward to future up it's I think the emerging payment cycles really interesting there.
You bet. Thank you.
And ladies and gentlemen at this time will end today's question and answer session I like to turn the conference call back over a few Ron copper for any closing remarks.
Thanks, Jamie.
We really appreciate everyone participating day in the the Q2 call. We appreciate the questions as always there's an open invitation to reach out offline. If you didn't get your questions answered.
And we look forward to seeing everybody on the Q3 call later in the fall thanks, everyone.
And ladies and gentlemen, without will conclude today's conference call. We thank you for attending you may now disconnect your lines.