Q1 2021 I3 Verticals Inc Earnings Call
And I, we're about to begin.
Good day, everyone and welcome to the I three verticals first quarter 2021 earnings Conference call. Today's call is being recorded and a replay will be available starting today through February 16th the number for the replay of 7194.
Four of 570 820, and the code is 392 zero to three eight the replay may also be accessed for 30 days at the company's website.
At this time for opening remarks, I would like to turn the call over to Mr. Scott Meriwether Chief Operating Officer. Please go ahead Sir.
Okay.
Good morning, and welcome to the first quarter 2021 conference call for ICP verticals. Joining me on this call are Greg Daily, our chairman and CEO Clay Whitson, our CFO and Rick Stanford our president.
To the extent any non-GAAP financial measure is the score is discussed in today's call. You will also find the reconciliation of net measure the most directly comparable financial measure calculated according to GAAP by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information.
And I was prepared in accordance with GAAP.
This non-GAAP information should be considered by each individual and addition to and not instead of the financial statements prepared in accordance with GAAP.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 19, net including statements among others regarding the company's expected financial and operating performance and the expected and potential impact of the COVID-19 pandemic for.
And for this purpose and any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements.
You are hereby cautioned that these forward looking statements may be affected by the important factors among others set forth and the company's earnings release, and and reports that are filed or furnished with the SEC, including risks and uncertainties associated with the COVID-19 pandemic.
Consequently, actual operations and results may differ materially from the results discussed and the forward looking statements.
The information shared on this call is valid as of today's date and the company undertakes no obligation to update it except as may be required under applicable law and now.
I'll turn the call over to the company's chairman and CEO and Greg Daily.
Thanks, Scott and good morning to all of you.
We're pleased with our first quarter 2021 results.
I <unk> focus has been to the squarely in the intersection of software and payments.
Our IPO gave us the ability to further pursue our vision of being a software led company.
We are executing on that strategy.
And Q1 of 2018, 12% of our net revenue.
And from software related revenue.
Our first fiscal quarter of 2021, 36% of our net revenue was from software related revenue.
We expect this revenue stream to increase and the future.
The statistics do not include the payments revenue driven by our own software.
Our integrated payment.
<unk> has grown to 56%.
And we expect continued growth in this area.
Okay.
We believe software and integrated payments are the future and our market.
Okay.
Our core business continues to recover.
As expected there was volatility and our payment volume and the first fiscal quarter.
COVID-19 restrictions were reinstituted around the holiday season.
We will see some of these effects and our second fiscal quarter, but are encouraged by the discussions to reopen more of the economy.
The progress and vaccinations.
Financial stimulus talks should also aid and the return and our core business.
The increases and our software revenue that I mentioned previously.
The offset some of the impact of our payment volume volatility.
Approximately half of our payment revenue within K through 12 comes from lunch payments.
And free lunch program for students will continue through the end of the current school year.
We are hopeful.
And that the coming school year and remain committed to this vertical.
After pausing, our M&A activity at the onset of Covid and early 2020.
And we began to reengage on the M&A front and have completed eight acquisitions.
Since July one.
Our most of that reduce.
Recent acquisition was B I S. It's our largest acquisition to date.
The purchase consideration for this transaction included both cash and stock.
So we have continued headroom under our credit facility covenants the continued future M&A deals.
The ice has a variety of public sector software offerings, some of which include clerk.
<unk> solutions DNV solutions.
And public.
And property assessment and prop and tax solutions.
The <unk> expands our state level and local level of product offerings.
And now market the public sector vertical at all levels.
We have software the <unk>.
Performs for individual courts.
For cities and municipalities and for statewide systems, we welcome the D. I S employees to the I of three family and are excited about the impact they will have on <unk> III.
Yeah.
The events of the last year have cemented the I revision.
And to execute our acquisition strategy.
And continue our vertical focus.
Increase our integrated software and payments.
Improve our organic growth metrics and maintain a healthy and entrepreneurial culture.
This vision is our foundation.
I'll now turn the call over to clay and he will provide more details on our first quarter financial performance.
And Clay's comments, Rick will provide and M&A update and then we'll open up the call for questions.
Thanks, Greg.
And the following pertains to the first quarter of fiscal year 'twenty, one which is the three months period ended December 31 2020.
Please refer to the slide presentation titled supplemental performance on our website for reference with this discussion.
I will start with the sequential discussion and transitioned to year over year.
For the first quarter ended this in December.
Adjusted net revenues improved to $44 9 million.
From $38 4 million for Q for the September quarter.
Benefiting from four acquisitions completed during the quarter.
Likewise, adjusted EBITDA improved to $10 9 million per Q1.
From $9 7 million for Q4.
Pro forma adjusted diluted earnings per share increased sequentially to 22 cents for Q1 from 'twenty and Q4.
Again, please refer to the press release for a full description and reconciliation.
Volumes have regained most of the altitude they lost and the spring, but the recovery has been slower than we had hoped when we last reported.
With resurgence of Covid cases over the holidays.
Many state and local governance governments renewed lockdowns and many geographic markets.
On a year over year basis September and October were down three and 4%, respectively, but November week, and the 6% and December seven per cent.
The laggards for us have been education, retail and hospitality, which a number of companies have experience.
We've taken an aggressive approach during the pandemic renew and acquisition activity that was postponed in the spring.
We have completed eight acquisitions since the June 30th pushing and public sector of 45% of our business today.
We also fulfilled our goals of owning software and two additional verticals healthcare and nonprofit.
Which gives us runway beyond the public sector vertical.
Our integration percentage improved to 56% for Q1 from 42% for Q1 fiscal year 18 pre IPO.
The most notable move and a metric for the quarter was Q1 software and related services, which represented 36% of total adjusted net revenues.
Up from 26% last quarter Q4.
Reflecting the heavy software waiting and of recent acquisitions, particularly image soft.
This percentage will move into the forties and 40% when the V. I S acquisition is included approaching our goal of achieving 50% adjusted software revenues.
Adjusted software revenues continued to build during the quarter and well exceed the pre COVID-19 levels. The.
A bright spot for us continues to the public sector, which dominates our proprietary software segment results.
Our nonprofit acquisition had another impressive quarter with high growth over the previous year, and our health care acquisition and turned in a strong first quarter.
On a year over year basis, adjusted net revenues increased 8% to $44 9 million for Q1 2021.
From $41 6 million for Q1 and 2020.
Reflecting the acquisitions completed after June 30th which contributed $9 million during the quarter.
I have integrated Pos declined 1.4 million, reflecting not only of the COVID-19 impact and California, but also our ongoing transition to a SaaS offering.
Our net revenue yield defined as adjusted net revenues divided by the payment volume.
Kris the 118 basis points for Q1, and 2021 from one of 108 basis points for Q1, and 2020, reflecting software heavy acquisitions completed since June the 30th.
Okay.
Adjusted EBITDA declined 8% the pinpoint 9 million for Q1 2021 from 11 9 million per Q1, 'twenty and 'twenty pre.
Merely due to weakness and education hospitality and retail.
Please see the press release for a reconciliation between net income and adjusted EBITDA adjusted EBITDA as a percentage of adjusted net revenues was 24, 2% for Q1, 'twenty and 'twenty one.
Down from $28 five per cent for Q1, 'twenty and 'twenty.
Reflecting fixed costs spread over lower net revenues due to the COVID-19 impact.
Corporate expenses as a percentage of adjusted net revenues increased slightly to six 8% for Q1, 'twenty and 'twenty one from six 2% for Q1 2020.
Although the percentage improved sequentially with higher sequential revenues.
And the normal course of we expect to improve our adjusted EBITDA margin and the absence of acquisitions, which alter the mix.
The segment performance.
And our proprietary software and payments segment adjusted net revenues increased 47% to $20 3 million for Q1, and 2021 from $13 8 million for Q1 2020.
Principally reflecting growth and are thriving public sector vertical, but also of the inclusion of our nonprofit and health care acquisitions for the quarter.
Adjusted EBITDA improved 17% to $6 1 million for Q1, 'twenty and 'twenty, one from $5 2 million for Q1 and 2020.
Reflecting mainly public sector growth, but also the nonprofit and health care acquisitions.
For Q1 and public sector represented over 80% of adjusted EBITDA and the segment.
The adjusted EBITDA margin fell to 30% for Q1 2021 from <unk> 38 per cent for Q1 2020.
Reflecting the drop in education profitability and the inclusion of image soft which carries the margin below 20%.
We expect the inclusion of V I S, which carries a margin of close to 50% will lift the segment margins back to the mid Thirty's percentage points.
These gains were partially offset by the decline and our education vertical.
And our last conference call, we devoted some time through the outlook for education.
And it's playing out about as expected many districts like Nashville reopened but since students home after Thanksgiving.
And we'll be returning and phases over the next month.
A recent Wall Street Journal article stated the 56% of public school districts, where exclusively remote as of December 18th.
As mentioned earlier the USDA has extended its free lunch program for all students for the remainder of the school year.
Which means we'll will not see a meaningful increase and payments until the new school year and August.
Regardless of how the school year unfolds, we remain committed to the vertical and believe it will perform very well over the medium and long term.
Net revenues for our merchant services segment declined 11% to $25 1 million per Q1, 'twenty and 'twenty one.
From $28 2 million for Q1, 'twenty and 'twenty.
Our hospitality vertical was hardest hit with the exposure to California, and the transition to a SaaS model.
The other non integrated face to face the business and markets, such as retail restaurants, and tea and he had been slower to recover.
Adjusted EBITDA for our merchant services segment declined 15% to seven 8 million for Q1, 'twenty 'twenty one.
From $9 2 million for Q1, 'twenty and 'twenty the.
The adjusted EBITDA margin was 31 per cent for Q1, 'twenty and 'twenty, one versus <unk> 33 per cent for Q1, 'twenty and 'twenty.
Again, reflecting fixed cost spread over a smaller revenue base.
Okay.
Our balance sheet has allowed us to continue to execute our acquisition strategy on December 31, we had 49 million borrowed under our revolver.
As of 275 million facility.
We have since borrowed 53 million for the V. I S acquisition.
The face value of our convertible notes are $117 million.
Taking into account the <unk> acquisition, our pro forma total leverage ratio, which includes of the convertible notes is currently less than four times all of the current strength.
I point zero times.
The multiple paid on the V. I S deal conformed to less than 10 times the adjusted EBITDA.
The interest rate for the convertible notes of 1%, while the interest rate for the revolver is currently less than 4%.
Over time, we expect to convert roughly two thirds of adjusted EBITDA into free cash flow, which can either be used for more acquisitions or debt repayment.
Looking forward, we have decided to reintroduce guidance for fiscal year, 'twenty 'twenty, one and it excludes future acquisitions and transaction related costs and adjusted for write downs of deferred revenue deferred software revenue in connection with purchase accounting.
Adjusted net revenues 198 million to $214 million adjusted EBITDA of 50 million to $56 million.
Depreciation and internally developed software amortization.
And a quarter of million two of $4 seven month for seven and $5 million.
Cash interest expense, four and a quarter of millions of $4 75 million.
Pro forma adjusted diluted shares $32 5 million to 34 point and $5 million.
And pro forma adjusted diluted EPS 93 to $1 six.
The economic recovery during the pandemic has been slow and frustrating for most companies, including I three.
Against this backdrop, we would expect continued sluggishness in the March quarter, and gradual improvement and the June and September quarters, leading to a stronger second half and first half.
And our education vertical we do not expect meaningful improvement and until fiscal Q4.
Which we will anticipate when.
And when we will anticipate the resumption of paid lunch for a portion of the student population.
Yes.
Since the COVID-19 outbreak, we have announced eight acquisitions, which have altered our business mix.
Have a better understanding of our current run rates, we have estimated the following representatives net revenues by vertical.
Public sector, 45% health care, 10%, either be 10 per cent hospitality, 10%.
Retail, 5% education, and 5% nonprofit five per cent and other 10 per cent.
We believe we are well positioned for a recovery our largest vertical is public sector, and we feel increasingly well positioned there.
Acacia has been challenging but the bright side is that we expect the bigger rebound when normal attendance resumes.
Because we have continued to add districts this year.
We now own software and health care and nonprofit so we are of good platform for future growth.
And B to B will continue to grow over time.
Hospitality and retail only represent 15% of our book now, but they also represent rebound opportunities when the economy normalizes.
The convergence of software and payments will continue and we are on the leading edge of that trend.
I'll now turn it over correct per company updates and M&A activity.
Good morning, everyone I want to highlight recent progress on the few operational items before I talk about our M&A status, including a few updates on things I have addressed on previous calls first the progress update on our unified product offering or IPO and our public sector vertical our goal is to make a comprehensive suite of products.
<unk> available to each county and city examples of our progress include expanding our law enforcement and revenue cycle management and online dispute resolution systems across all of case management systems clients distributing of new proprietary electronic signature product across our public sector vertical.
This product came with one of our recent acquisitions and it will be a valuable tool for our customers.
Lastly, we were extending direct sales into four new states for our utility billing platform we.
We are motivated by these early <unk> accomplishments and are gaining momentum and cross pollination.
On the <unk> front, our total number of signed and the integrated Isps of at the end of our first fiscal quarter was 73 with four more and the process of integration of <unk>.
Pipeline for Isps continues to grow quarter over quarter, and we are actively pursuing additional integrations.
Sales are the lifeblood of any organization and we are dedicated to supporting our sales staff.
Past week over 750 of our sales of non sales employees from across the country came together for our first virtual sales conference, which was seemed rise up 2021.
And we included our non sales employees to emphasize the importance of our sales efforts and foster a greater sense of community among current among our people, especially since the pandemic has made it difficult to interact we had experts speak to resilience sales activity and best in class customer service. We also had many new proprietary.
Demos and instruction base classes.
With that I'll switch gears now and give some detail on our M&A efforts on Friday February 5th we announced the acquisition of business information systems.
This is based in east, Tennessee, and provides software and electronic payment solutions to several state and local governments.
Resides within our public sector vertical.
The company was founded and 1977 over the last 44 years. The Ias has continued to grow and succeed with unparalleled products and support designed to meet the needs of our customers.
The products include a motor vehicle solution that offers fully integrated software solutions that facilitate vehicle titling and registration electronic insurance verification and print on demand and dealer drive out easy tax land.
Land Records management software with title search capabilities and property fraud alerts payment.
Payment solutions, namely court the PE web the pay per tag renewals marriage license fees motor vehicle charges notary application fees concert tickets park shelter rentals detail sees recreational facility enrollment fees utility flex and much more.
Self service month, Multifunction kiosk used by county, clerks courts and trustees.
The tax billing and collection system is complete software package for collecting real and personal property taxes.
And lastly, smart tax of business tax program that allows for tax billing and collection.
Those Chris Leisure, CEO, and Gerry Shipley, CFO and put together and amazing business driven by many talented people and we're excited to have them as part of the <unk>. It.
It should be noted as clay said earlier, we continue to be disciplined and our approach and our and the <unk> deal was completed within our standard multiple range.
Finally, our M&A pipeline is very healthy and has an emphasis on public sector healthcare and education, and we look forward of sharing more on the acquisition front and the near term.
This concludes my comments Michelle at this time, we'll open the call for Q&A. Please thank you.
The question and answer session will be conducted electronically. If you would like to ask a question. Please press star followed by the digit one if you are using the speaker phone. Please make sure. Your mute function is turned off sort of a value.
The signal to recalculate and once again star one and we'll pause for just a moment.
Okay.
And our first caller today, and we'll hear from John Davis with Raymond James.
Hey, good morning, guys.
Good morning from Greg maybe just one I just wanted to touch a little bit on the BNS acquisition and maybe what products. They have that you could the cross sell through the rest of your public sector business base.
Basically what the revenue synergy opportunity above the normal run rate today.
Good question so.
And they have four of five states that they have big presence in.
And we don't feel like that we're going to be able to sell their product.
Across our installed base quite yet, but they are very excited about selling our products into their installed base of day.
Our R a level or two above.
Where we normally are we're usually and the.
County City.
And they're more at the state level larger contracts.
And so they have built their business around very key relationships.
Netlist and Friday, and they feel very confident that there are four of five of their products that theyre going to have of bonanza being able to sell into their existing client base.
Okay. That's helpful. So that's more taking your products and to theirs versus vice versa, but it's still some synergy opportunity all of the Avalon.
Okay and then the clay appreciate all of the color on the the monthly trends I think you said December was down 7% any any update on January and she can give where at least relative to the December.
Well January was down again February and the first part of the month seems to be so I.
I think it's a little early too.
Say, what the March quarter, I mean, the March quarter is kind of look like and total but.
Things do seem to be improving now but January was.
Wait and just like the December.
Okay.
That's helpful and then.
Maybe just a comment generally speaking on public sector organic growth. If I think back to core you went public I think it was less than 20% of your revenue we sit at 45% historically, you've said that your acquisitions are growing faster. So if I just look at your public sector.
And of vacuum and.
And obviously try and I guess somewhat normalized for Covid.
Organic growth profile of that piece slightly above kind of the the high single digit range in line with the high single digit just trying to think that it's almost half of the business. How should we think about organic growth for public sector.
Yes, we think in terms of 10% growth for the public sector vertical.
Which is about the rest of our business.
Okay, Great and then last one from me I think <unk> definitely stronger than I was expecting and as well as kind of the the guide.
Just curious what's going better.
And a positive surprises.
Mostly image soft just just curious there all of the color because I think the revenue outlook for the year.
Certainly better the.
And the most expect especially when you adjust for 50% margins of Lps.
Yes, so image soft.
Needle mover for sure.
And the ice will be as well.
But the software is whats going well for us.
It really ramped up and Q4.
We've always had an internal goal of getting to 50% software and 50% of payments.
And we're getting pretty close now.
So we're.
And we're excited about that and it couldnt comment of better time.
Software revenues have been so much more resilient and the payments revenues during the Panther.
And then Mike.
Okay Super helpful. Thanks, guys.
Thank you.
And next we'll move to Peter Heckmann with Davidson.
Hey, good morning, gentlemen, thanks for taking the question so just for clarification.
And I'm just trying to back the envelope math here, but the rest of annual revenue run rate related to the eyes might be kind of high teens to $20 million does that seem about right.
Yeah, I would use the standard mass here, we've mentioned on some previous calls that.
If you take the purchase price and divide by 10 for EBITDA.
And then multiplied times two for revenues and their margin is very close to 50%.
Okay.
Got it and then.
Just in terms of that higher Ed product.
And for tuition payments.
And certainly the fourth quarter would be it off seasonal quarter, but can you talk about any progress you've made there and that you expect that to be a contributor and the.
And the <unk>.
Yes, so youre right.
We got a good contribution from that and the September quarter, we did not this quarter, but we will again and the March quarter.
As tuition ramps up.
It's mainly a C H bigger ticket items.
Parents tend to gravitate more to AC H.
And so the cartridge and the profit contribution and center than normal business, but it will give us some pretty good volume and the March quarter.
Got it got it Okay, and then just lastly I.
What would you say now the between the image soft and some of the other businesses what would that be most similar in terms of of kind of competitors.
And we like our central square or of Tyler is that the right.
The competitive level at the state and local or at the municipal level.
Yeah, I think your Tyler example is a perfect fit.
Great. Okay. Thanks, so much.
Thanks Pete.
The next I move to George.
Cowen.
Good morning. This is Allison on for George Thank you for taking my questions. Just a follow up to the last question given the size of the BS Pis acquisition for instance is a larger acquisition, let me see and the path is the right way to think about the strategy going forward that this is the new normal since you are now a bigger company or was this more of a unique situation.
I wish debt that was we have more of those.
I think we'll do four of five year.
One of them per year may be the size.
But the other three or four will be kind of and our sweet spot of.
$2 million to $5 million of EBITDA.
Okay, great. Thank you that's helpful. And then just one follow up.
From me on the outlook and then.
The point of the outlook.
I suggest the 20 debt of margin expansion from fiscal year 'twenty, what is driving that to be lower than your long term outlook. I know you mentioned mix them earlier and your commentary, but any more color that would be helpful and thank you.
Well I think.
And the free and the first half of our comparisons will be below last year margin wise like you saw this quarter.
With the ISP and the main driver and education being down.
And the second half I think we will have favorable margin comparisons.
And the <unk>.
The and the big driver there so netting out for the year, it's pretty similar to last year, but it's it's all driven by mix when we get back into a growing economy.
We will get leverage on that corporate expense line and we'll get it back.
I think you're referring to we traditionally said, we expect and the normal course.
And our margins 50 to 100 basis points a year.
Okay, great. Thank you for taking my questions.
The next I move to Jason Kupferberg with Bank of America.
Hi, This is Cathy Chan on for Jason This morning.
And I just wanted to ask a clarification question I don't know if you've already asked this but how much of M&A.
Kind of baked into your fiscal 'twenty one guidance at this point.
And.
Yeah, I feel that that's just my first question.
Yes.
Yes.
That's a good thing for me to clarify we don't bake in any acquisitions that have not closed so that guidance only.
Is comprised of companies that we already own.
Oh, Okay got it got it so that I just need the DIR is already baked in there, but nothing else. Okay. That's good and then.
And then.
Secondly, I just wanted to ask on on margin, but I know it kind of dipped a bit quarter over quarter is that within your expectation the net.
Are there sort of salary increases or investment.
We can kind of expect or I saw this quarter and at this point out all of the costs that were taken out fully baked back into the business.
The costs are fully baked into the business now.
We are beginning to reinvest.
If you.
If you are.
Following the previous conference calls we.
And went through some cost containment and.
And it didn't pay bonuses this past year, we expect to resume that this year.
And we have hired select people and we have resumed the normal raise the environment. So.
But what youre seeing and the fourth quarter and the in the December quarter is of fully expense load going forward with the exception of the eyes of course.
Got it got it and then just the final question from me just slip in there how much I know you guys don't break apart the revenue by vertical, but how much of the collective headwind to <unk> growth what have you.
Location, and retail and hospitality for the quarter and and what kind of growth are you assuming in your 2021 forecast. Thank you.
Well Hum.
Hospitality, we did give a number that it declined one 4 million.
Let me find the.
Yes, $1 4 million was the decline and hospitality and part of that is we're transitioning to a SaaS model.
So that was a headwind there I think we'll have a flat year and hospitality in 'twenty and 'twenty, two and then I will resume growth in 'twenty and 'twenty three that's.
Mainly a function of the SaaS transition.
And.
Education, we said last quarter, we expected.
50% of what we normally get from education and.
And the payment side of that is about $10 million a year and so we're missing $5 million from that.
We do have fixed costs and education. So the profit impact is more like 75 per cent.
And so the educations profitable but.
Not very right now.
And then and then <unk>.
And <unk>.
I know travel restaurants that sort of thing.
It's all down I would estimate 20% it really varies by region, we've got pretty heavy exposure in California, but.
When the economy when the economy normalizes.
We'll get a bounce back there as well.
Thanks, guys very helpful.
Thank you.
And next I move to Josh Beck with Keybanc.
Okay.
Thanks team for taking the question.
Clear of what are the unpack your software comment a little bit it sounds like that's the area of the business that is.
Performing really well maybe you could just help us kind of double quick within that software revenue stream, maybe help us understand.
Maybe just qualitatively, what's the composition between the perpetual and SAS and and what are the going to be the the.
The major drivers of success and that.
Slug of business moving forward.
We're about half of perpetual and half SaaS right now.
And I will say most of all of our businesses are transitioning more and more to SaaS.
Image soft. Good example of that they started the transition maybe two years ago.
And over the next two years they'll become.
Almost all of SaaS.
And that's why all of their new businesses now fast.
I asked I would estimate 88% of their.
Revenues of SaaS as opposed to perpetual.
So that's where we stand now and you know it really.
Really it depends on the customer.
Some of them prefer.
Perpetual and some of them.
And most nowadays preferred fast, but we did have.
A big swath of customers that still want perpetual we're pushing SaaS I mean, that's.
And what we're leading with and then.
It's being received well.
Okay, that's helpful and.
Just trying to unpack some of the the guidance commentary I think it's really helpful. That you were able to put out the number for the full year. So I appreciate you doing that.
With respect to the March quarter.
Just trying to understand what is the is.
It was a good starting point and.
Obviously, you said, it's a little too early to probably predict but at least maybe from I'm not sure. If you. Just for example run rated what's happened so far if we'd be kind of flattish sequentially. If we'd be down obviously, there's seasonal factors M&A of factors.
It's many moving parts so any.
Other cut.
Color you can share just maybe help us build the shape up our models a little bit, particularly with.
With respect to your fiscal <unk>.
Well it will increase.
Image soft we only had two months and the December quarter. We have November December so, we'll get three months of image soft Q and the March quarter.
Pis will get two months and the March quarter, but three months and the June quarter. They started at February one.
So those are the two main things to tweak.
Volumes tend to be weaker Janney.
January February March and they do October and November December.
But the retail restaurant, where you see a lot of that is becoming a smaller part of our business.
So the the two adjustments I would make if I were you are image soft and.
And then from a margin perspective, I think it'll be pretty similar to Q1.
And then the second half will be noticeably better.
Okay. That's really helpful. Thank you for.
And for that quick.
And then just when you think about.
What's transpired and the last year.
Obviously, you've had some really good momentum and public sector and <unk>.
This break ins and the health care.
Just curious if it's and you obviously met with many companies.
Potential acquisition candidates.
Made you.
And I always want to re orient or emphasize different sectors that you wanted to focus on and say yes.
And maybe not necessarily this year, but more of the mid to long term I am just.
Curious if it's maybe made.
Retail for example, less interesting and maybe some of these more.
Yes.
Perhaps non discretionary areas more appeal and just curious strategically if it's driven and.
And any notable change on and where you want to take the business of the middle.
Longer term horizon.
Sure I think we are and the early innings of and we do tweak.
Our pipeline.
We would like to do more and.
Healthcare and nonprofit.
And that our pipelines.
Probably 2025% of that.
50% is still.
Public sector.
And we really like our utility billing.
And I think we've told everybody that the.
We love day to day, but it's it's expensive and so I am not optimistic about doing any further deals are indeed of the I'm in love with what we have.
But that's the kind of you.
<unk>.
Focusing on public sector because.
With the I S and image soft.
And we're ready for just about anything and where we're growing up quickly.
And our existing companies.
That we have had for a year or two.
Performed phenomenally well and through the pandemic so.
We're excited with the latest two additions being image soft and D. I S too.
Put up some big numbers and the public sector.
Thanks, Craig that's really helpful.
Thank you.
As a reminder, please press star one if I would like to ask your question next we'll move to Chris Donat with Piper Sandler.
Sandler.
Good morning, gentlemen, thanks for taking my questions I wanted to just follow up on the the last comment about the.
B to b sector being more expensive I've heard from some larger payments companies when they think about their acquisition strategy that.
They've seen the.
Valuations bid up some of that is from the the stack activity and some just from other sources, but.
But as you think about targets out there.
Beyond B to B have you seen.
Acquisition sort of normal or are they getting bid up and sort of a knock on effect from spec activity.
Well, we're a little unique situation, we self source all of our deals we're looking for companies that arent for sale and.
Our lead source.
Comes from our Ceos of companies that we already own.
And so.
We go in with the well we feel like is a very fair proposition.
Proposition with our story.
Giving them autonomy.
And they're part of the team taking care of their key employees.
And that seems to be.
Received well from older software companies.
And you really don't see that and the <unk> world.
And.
It's it's.
<unk>.
We're not focused on acquiring anything else and that space.
At this time.
Okay.
Thanks for that and then just one clarification on the the revenue mix play that you gave.
That is <unk>.
Revenue mix as of fiscal first quarter right, that's not sort of of normalized revenue base.
Post pandemic and terms of.
But like the of 45% of revenue being public sector.
And I'm, just asking because if I think about the.
The future that like education should theoretically double right and the second half of the year.
And September quarter.
Yes, I am glad you asked that question.
The fiscal year, 'twenty, one mix, including the EIF. So it is normalized for <unk>, but it's not a post COVID-19.
And the education of assumption is that.
It comes part of the way back and the September quarter, but not all of the way back.
I think we're going to have some <unk>.
Social distancing and and whatnot and school side I don't see it being a 100% of what it was.
Two years ago or last year and.
And 2019.
But yes, it's sort of a run rate I guess, that's the best way to think about it.
Okay, and then just one last one from me on the software being about $20 million of revenue for the quarter you shouldn't we should we think about that as the run rate or was there anything special in the December quarter.
And I know of bounces around a little bit but.
It certainly seems more sustainable and what the the SaaS model.
Trying to think about future quarters for software.
Yes, I used to call out when there was a big one time.
Revenue like perpetual licenses or whatever so people could normalize for that it. It was we have so many different software companies and it's hard to keep up with so we are publishing that monthly thing and if you look at that and the supplement and you can see the November December.
I took a step up and.
Image soft is the main reason for that.
So we'll get three months of that this March quarter, and then with the ice will take another step up.
But no nothing nothing out of the ordinary and the December quarter for share.
Okay. Thanks very much.
And that will conclude the question and answer session. At this time I would like to turn the call back over to Mr. Greg Daily for any additional or closing remarks.
Again, thank you guys for joining us this morning.
I like to give a shout out to our team that has performed the <unk>.
Normally well over the past 12 months and the pandemic.
And especially.
Rick Stanford, our Tom Brady of M&A.
None of the amazing job so.
Thank you guys for your support and we'll talk to you next quarter.
And that will conclude today's call. We thank you for your participation you may now disconnect.
Okay.
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Okay.
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