Q4 2020 Exela Technologies Inc Earnings Call
Good day and welcome to <unk> Technologies, Inc. Fourth quarter 2020 financial results conference call and.
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Thank you and good morning, everyone and welcome to EXL and technologies fourth quarter and full year 2020 conference call I'm joined today by Ron Cogburn, and <unk>, Chief Executive Officer, and Sri <unk>, Our Chief Financial Officer.
Following prepared remarks made by Ron and Sri Comms and take your questions. Today's conference is being broadcast live via webcast, which is available on the Investor Relations page of <unk> and that site.
<unk> dot com and.
A replay of this call will be available through March 'twenty through 2020, one information and access to replay and especially in today's press release, which is also available on the Investor Relations page and it sounds much site.
Today's call Excel and make certain statements regarding future events and financial performance that may be characterized as forward looking statements.
Private Securities Litigation Reform Act of 1995. These statements reflect management's current beliefs and assumptions and expectations as of today March 16, 2021 and are subject to a number of factors that could cause actual results to differ materially from those statements. We undertake no obligation to update any statements to reflect the events and occur after this call and actual results.
<unk> could differ materially from any forward looking statements for more information. Please refer to the risk factors discussed in <unk> most recent.
While periodic report on form 10-K, along with today's press release and the company's other filings with the SEC copies are available from the SEC or the Investor Relations page for themselves website. During today's call we refer to certain non-GAAP financial measures. We believe these non-GAAP financial measures provide additional information on how management views the operating income.
So our business.
Reconciliations between GAAP and non-GAAP results, we discuss on today's call can be found on the Investor Relations page for the website. Please note. The presentation that accompanies this conference call is all successful on the Investor Relations page of our website I would now like to turn the call over to Ron Cogburn CEO. Ron. Please go ahead.
Good morning, and thanks, everyone for joining us on our fourth quarter and full year 2020 call.
We're going to provide a brief business update today and highlight a few of the key takeaways from 2020 and.
And <unk> technologies overall.
What's the current climate and dynamic events and are all of the day, we are witnessing digital drive hyper growth between B and C and B and C, which is living in a traditional networks far behind.
<unk> is well positioned in this environment leaning on our extensive investment and technology based on the business rules of our customers' processes and the industry guidelines.
And <unk> technologies is further enhanced by our multiple patents and process robotics and cognitive automation.
With over 4000 customers, including 60 per cent of the Fortune 100, excel as customers rely on our fully deployed technology stack across banking insurance and health care financial services for payments and bills and intelligent data processing and management and communications.
So, let's turn to slide number five and we're going to discuss sounds like <unk>, 2020 financial highlights and our progress against our key initiatives.
So let's discuss revenue for a second excel exceeded our prior quarterly and annual revenue guidance in spite of the headwinds from COVID-19.
Variations and our full year 2020 revenue were primarily due to three factors.
Net of about $147 million of non strategic transition revenue.
Approximately $90 million of impacts from COVID-19, and of course, our noncore asset sales.
Our digital asset group continues to scale, representing now 8% of our total revenue in 2020.
We added $182 million of HCV in 2020, along with 14, new customers with T C V and excess of a million dollars each.
And early 2021 our revenue has stabilized and we're seeing positive.
Sentiment and our industry segments, except for public sector.
And which has lagged a little bit because of the switch of the new administration.
We're very pleased to have recently announced a new 10 year $90 million contract to provide a cloud based automation service through our PCH global platform to a major U S insurer.
Let's discuss our earnings for a second and most of the variance between the 2020 adjusted EBITDA is due to lower revenue coupled with.
The biggest change being the professional fees and expenses excel or plans to reduce those in 2020 one.
They sell a has $174 million of cost savings and our execution pipeline.
With incremental cash realization of $38 million expected in 2020, one due to the recently completed actions.
With respect to key initiatives and 2020, we cant we completed non core asset sales worth $50 million and we continue to pursue additional sales of businesses that are not complementary to our long term strategy.
And a $100 million to $150 million of noncore asset sales are in progress.
And you sell it continues to eliminate the lagging trap costs from the non strategic transition revenue roll off which we expect to exit by the end of this year.
With respect to the balance sheet.
Improvements our liquidity was $108 million as of December 31, 2020.
And $61 million as of March 12, 2021 and.
Including the outflow of our semiannual interest payments on our bonds yes.
Yesterday, we announced and equity capital raise up $27 million as part of our recent endeavors to expand our investor base and visibility into the equity capital markets and.
And for years of anonymity we.
And we intend to use those proceeds to add liquidity to the balance sheet to pursue cloud hosted technology and V. P. O type deals as we just won.
And prepare the company for growth and return to the pre COVID-19 volumes at 2021.
Our liquidity levels and they'll get this our liquidity levels are now higher than they were three years ago at December 31, 2017 after.
After including the $53 million capacity under the existing securitization facility debt remains undrawn, but it's subject to the loan and security agreement dated December 10th through 2020.
With all such initiatives, including the in progress asset sale. Our goal is to take our surplus cash and Opportunistically take advantage and reduce our debt service.
We are creating value for our investors to become neutral.
Two cash flow generating company on a levered basis, and the near future.
As a reminder, and Q4, we entered into a $145 million five year term loan to refinance our existing a our securitization for silver.
And last but not least we engaged UBS to pursue alternatives to strengthen the balance sheet.
So overall, it's been a very busy year for each seller.
And I, thank our entire team around the world for their dedication to our customers and <unk> success, especially in this challenging year, we have a lot of work to do but I'm encouraged I'm encouraged for the strong progress that we're making and confident that we have the right strategy in place for continued improvement in 2020 one.
And let's look at slide number five.
With a proven track record and global presence and more than 50 countries. Let me highlight the current and the emerging solutions that we offer.
Around the Treasury functions, you have liquidity solutions, such as procure to pay order to cash and expense management.
We have payment technologies and services like X V P, which we've talked about it for.
Fireside chat with the Cal and analysts and some other guests.
Favorite human capital management. This is our own platform, we developed to replace work day.
Had up to 10000 employees on work day at one point.
Of course health care, both payer and provider.
And work from anywhere technologies and services, which we developed last year as a result of the other pandemic.
All of that sits on a foundation of information management and communications.
We see good opportunities with existing and new customers for each of these solutions in 2020 and deal.
Now, let's look at slide number six.
We highlight the opportunity landscape before us because it is very significant and it's very diversified.
And here's a fact.
And King and financial services, along with health care and commercial represent excels and largest industry segments by revenue and they comprised of 142 billion of this mammoth $207 billion total addressable market.
We've only just scratched the surface of penetrating about one per cent of our growing addressable market.
And let's turn to slide number seven.
Diversification and revenue and industry served as a significant strength of excel up with.
But most of our revenue and the U S.
We are well positioned to ride the tailwind for the economic recovery post the pandemic.
With low customer concentration and focus on the industries that have the strongest projected CAGR.
Lots of banking financial services insurance and health care are digital foundations are well positioned for growth.
Now, let's turn to slide number eight.
<unk> is an integral part of the essential critical supply chain infrastructure across the U S and Europe.
<unk> services and products enhance or facilitate better efficiency touching everything from communications to commercial facilities for them.
And critical essential services, and finance energy government health care and information technology.
Our digital foundation and a resilient business model was really tested during the total the global pandemic and while we executed well and we earned the respect of our customers who view US as partners. We've also learned many valuable lessons that will service well and the near term.
Now, let's look at slide number nine.
<unk> technology and services touch for the majority of the population and the U S and I just think about debt per se.
As well as over 80% of all non card network payments made in Ireland.
Hundred per cent of the Giro payments made in Sweden and.
Significant volumes payments made and the U K as well.
I'll call out three statistics to take away from this slide.
Burst all U S taxpayers, who fall and non electronic taxes are paid for taxes and the subsequent payments made by our two the IRS a process through accelerated remittance technology platform.
Second with over 200 million subscribers and health care and 20 million veterans, we processed over 700000 claims a day.
Third.
<unk> processes over a trillion dollars and deposits each year.
And let's look at slide number 10 for a moment.
One of the secrets to accelerate our ability to navigate through the pandemic well there's been a long tenured customers with an average tenure of 15 years, we have part and partner through many economic cycles like the one we're in now.
And for Newell's continually expanding our wallet share with these customers.
These logos would include the top banks insurance companies health care and governmental agencies.
Let's look at slide number 11.
The ability to remain a trusted partner and to expand the wallet share with the customers for more than a decade and.
Is enabled by the solution set and our continuous innovation.
We are building digital rose between our customers old legacy platforms, and the emerging standards to address their needs and the future and allow our customers to embrace a digital world.
This is the foundation excel it was built upon which will enable us to capitalize on and significant untapped potential within our customer existing customer base and.
And a large addressable market.
Let's look at slide 12.
Another proof point of our strong client partnerships as well as our resilient model through the COVID-19, and can be found on slide 12.
Despite the macro pressures of the pandemic, our new business wins as a percentage of our total revenue in 2020 remained in line with our historical trends at about 27 per cent.
And if you look at the bottom half of the slide you'll see that the new business won and the renewals in Q4 represented a high point for the year.
Collecting the positive momentum and our business, which I referenced earlier.
And let's turn to slide number 13.
X L. A has come through the headwinds for this global pandemic storm, a stronger company demonstrating our agile business model.
We were able to mitigate gross margin impacts in contrast to the flex and revenue as our customers began to pivot to digital or work from anywhere and models.
Even as we experienced a slight dip and productivity levels from a global perspective, we were able to move over 10000 employees to our work from anywhere platforms continuing to meet customers' expectations all along the way.
And one of the benefits from this showed us that with 10000 and folks working from home.
Did we need all the sticks and bricks and real estate.
The answer is we see about 35 per cent of our real estate that will be able to rationalize and to step out of this coming year.
Let's take a look at slide number 14.
Now <unk> digital foundation powers continuity and long tenure with the customers just like I mentioned, a while ago. The top 15 and have an average tenure of 15 years.
Here's the fact, the more customer utilizes our technologies and longer the tenure.
Now this partnership that started with data aggregation has evolved into information management and workflow automation that enables the customer to move tomorrow and the end solutions, which is what we call digital now.
This evolution continues and more recently and we've launched our front and software, including B to B and B to C and SAS.
This revenue from these license and subscription platforms our digital.
Digital platforms reached over $100 million, and 'twenty, and 'twenty, which strengthen the relationship with our customer expanded higher gross margins and the strength and the backlog and the revenue because these these type of contracts tend to be five to 10 year contracts, which is what we saw with our new win and they include.
The renewals the annual maintenance and support services.
So in summary, we met our Q4 and 2020 revenue guidance.
Our positive momentum in 2020, one is bolstered by the gradual improvement from the impacts of the COVID-19 pandemic.
And the growth of our emerging solutions, such as wood delivered by the digital asset group.
We have been successful with our strategy to exit noncore low margin transition revenue and remain on track to exit trap costs associated with that business.
We have executed against over $170 million of recurring cost savings.
And finally, we've continued to make progress and strengthen our balance sheet and our financial flexibility and we remain focused on continuous improvement.
Looking ahead, we are excited about the opportunities and we see for profitable growth.
And by our technology lab business process automation solutions and the available time.
With that and I'd like to turn the call over to shrink and I'm sure sure.
For <unk> to discuss the numbers in more detail.
For your comment.
Thank you Ron good morning, and thank you all for joining us.
As we have done and the past we are reporting both GAAP and non-GAAP numbers. The reconciliation sorry in our filings and in the appendix of the presentation let's.
And let's start on slide 16, which we believe provides a good snapshot of our business model and hopefully provide you with some increased insight into our business.
Starting from the left.
Which was our largest reporting segment and just over $1 billion and revenue include finance and accounting solutions Remingtons mortgage processing our tax business.
Kim I see and metal print and mail et cetera.
Oh, there is $104 million is comprised of for a digital asset group revenue.
The remaining approximately 900 million is broken into two groups.
The Ucs for United Communications services replace and thing about 350 million of 2020 revenue.
This business does both printing and built the remaining portion of EPS represents approximately $550 million of revenue and include both processing and reconciliation of bills to be adjusted and customer ERP systems, and then processing of payments and.
That's spelled S onsite business from a legacy and nobody takes root.
The average gross margin EPS, it's about 19% and growing.
The revenue model and this segment is primarily transaction based pricing as for less annual licensing and fixed management fee for <unk>.
Contract averaging three years.
Next one of our healthcare solutions segment services include <unk>, which is our cloud based claims processing gateway pay per claim processing and non pay per claim work like adjudication or enrollment coating and other provider services.
And this segment generated 219 million and revenue and gross margin of about 27% in 2020.
The revenue model on this segment is similar to the revenue model and <unk>, which is primarily transaction based pricing as well and will licensing contracts averaging three years.
Up to $219 million about $65 million as provider and 155 million and spear business.
Lastly, our legal and loss prevention services segment includes legal claim settlements notification services and revenue recovery services with.
Approximately 68.002 million 20 revenue or about 5% of our total revenue gross margin and this business average is about 29% on a time and material basis.
Shifting to slide 17, let's review, our fourth quarter 2020 results.
Revenue for the fourth quarter totaled $314 1 million and increase of two 9% sequentially and a decline of 22% year over year.
As Ron mentioned, we exceeded our prior guidance for the fourth quarter on a constant currency basis, Q4 revenue was $310 million, representing a decline of 21 and 2%.
Moving to our segment revenue for me and I TPS segment was $243 5 million and decrease of 26% year over year from $306 7 million and the fourth quarter of 2019.
Our healthcare solutions segment revenue totaled $51 6 million, a decrease of 26% year over year from 69 8 million and the year ago period.
Our legal and loss prevention segment revenue was $18 9 million a decrease of 10, 7%.
However year over year revenue performance, mainly reflects our pruning certain customer contracts and statements of work, which we're not a strategic fit to it for less mission, which we reported to us transition revenue.
Negative volume impacts due to COVID-19, pandemic and toward revenue contribution from our strategic sale of non core assets.
When excluding pass through postage and postage handling revenue with either zero or nominal margin. Our total revenue was $260 million up two 2% sequentially and down 19, 6% year over year.
Our gross profit margin for the fourth quarter was down 120 basis points year over year to 18, 8%, primarily due to noncash charges related to a facility exit as part of our savings initiative.
Italy, offset by better cost and capacity management and reduction of stranded costs attributable to transition revenue.
Q4, gross profit margin declined sequentially due to non cash charges due to fully exit business mix change here and approval of paid time off charges related to carryover of vacation time and benefit in Q3 related to care for that credits.
SG&A expenses for Q4, total $45 9 million down seven 6% year over year and represented 14, 6% of sales.
Shifting to EBITDA and adjusted EBITDA in Q4 of 2020, we had an EBITDA loss of $8 6 million compared to a loss of $234 5 million and the prior year period.
Adjusted EBITDA for the fourth quarter was $37 2 million down from 53 million and the prior year period, primarily reflecting lower gross profit and partially offset by continued cost savings realization and lower and our charges.
Our adjusted EBITDA margin for the fourth camera for 2020 was 11, 8% and excluding pass through revenue adjusted EBITDA margin was 14, 3%.
Now, let's turn to summary for fiscal year, 2020 results on slide 18.
For the full year, 2020 revenue totaled $1 $2 9 billion down 17, 3% and reported and 17, 5% and constant currency, primarily driven by the same factors impacting Q4, namely pruning of transition revenue representing approximately 100.
And 47 million COVID-19 related impact to volumes of approximately $75 million and revenue contribution from strategic sales of non core assets.
From a segment perspective, Itbs revenue totaled one point for $1 billion in the year a decline of 18, 6%.
Healthcare solutions revenue was $219 million down 14, 7% and the olympias revenue totaled $68 4 million.
Excluding pass through revenue with zero or nominal margin and the low margin client exit our fiscal 2020 revenue totaled one point, all 6 billion a decline of 17, 3%.
We successfully eliminated approximately $147 million of transition revenue by the end of 2020 and expect to complete this process during the fourth quarter of 2021.
Also continue to expect to remove the stranded costs associated with the transition revenue by the end of 2021, and we'll continue to see a delayed positive impact on our gross margins from declining transition revenue and.
Cost take a bit more time to it for the business.
<unk> margin was 28% in 2020 down approximately 80 basis points compared to 2019 impacted by the topline performance and the non cash facility. It for charges in Q4 that I, just mentioned, partially offset by our ongoing transformation and cost saving initiatives, including the elimination of trapped costs.
A key call out here is that despite the $270 million decline in our 2020 total revenue our gross profit in 2020 declined by only $69 million, reflecting our focus and cost containment and exiting noncore low margin business.
SG&A for 2019, total $186 1 million down six 4% year over year and represented 14, 4% of revenue, reflecting savings realization, partially offset by higher professional and advisory fees.
Operating loss was $16 4.002 million 20, compared with operating loss of 321 5.002 million 19.
The improvement in our operating loss was mainly attributable to no noncash goodwill and trade name impairment charges in 2020, compared with $349 6 million of such costs recognized in 2019 and spend less lower SG&A and D&A expenses.
EBITDA for 'twenty, and 'twenty was $102 9 million adjusted EBITDA for the full year 2020, total $173 4 million compared to the $254 8.002 million 19.
Adjusted EBITDA margin in 'twenty, and 'twenty was 13, 4% on an adjusted EBITDA margin, excluding pass through revenue and low margin client exit was 16, 3% in 2020.
Now, let's touch upon.
Our balance sheet and liquidity and.
As discussed in the past the company had originally targeted $150 million to $200 million of Fame proceeds and certain non core assets. Since then we have completed divestitures of 50 million to date as part of the announcement and the remaining 100 to 150 million asset sales remain in progress we will continue to explore and implement additional actions to.
For our liquidity.
This includes our plan to complete additional asset sales as targeted accelerating the alignment for our business toward traditionally working capital light model and executing against our planned cost savings initiatives, including cutting stranded expenses associated with our transition revenue.
As Ron mentioned, we recently announced and video offering to add another 27 million for the balance sheet to further boost liquidity pursue cloud hosted technology and BPL type deals to prepare the company for growth and and the <unk>.
Return of 20 Covid volumes in 2021.
Our global liquidity was 108 million as of December 20, plus 2020 and 61 million as of March 12, 2021, after including the outflow of our semi annual interest payment on our bonds. We believe this is sufficient liquidity, even after making the 15 million and interest coupon for the senior secured notes.
In Q4, we entered into a $145 million five year term loan to refinance our existing securitization facility. Our total net debt as of December 31, 2020 was $1 4 billion as determined in accordance with the company's pretty agreement.
Moving to slide 19.
With revenue visibility typically at 90% due to a recurring revenue model 2020, and renewals experienced adventive dependent.
With a strong backlog and our ability to reach and our customers by meeting stringent necessarily we serve as a trusted partner and our company's digital journey we.
And believe our renewal rates will rebound to 290% and 2021.
On slide 20, we provide and update on our operating leverage improvement and cost savings plan.
We currently have in progress initiatives, representing $174 million for run rate savings.
8 million for $174 million is expected to be realized in 2021 due to recently completed actions the breakdown of the $174 million initiatives are as follows.
136 million attributable to the headcount rationalization and increased automation and $13 million to vendor consolidation and efficiencies and $25 million lease improvements.
These cost improvements combined with the continued exit of stranded costs associated with transition revenue will help drive our gross margin and EBITDA margin improvement in 2021 and beyond.
I would now like to close by discussing our 2021 guidance, which is detailed on slide 21.
For the full year 2021, we expect total revenue to be and the range of one 5 billion to $1 $3 9 billion are current estimates assume the normalization of pre COVID-19 volumes renewal rates to return to historical levels pre COVID-19 and continued momentum in winning new business.
We currently expect gross margin in 2021 to be between 23% and 25%, reflecting improved operating leverage resulting from the normalization of volume to pre COVID-19 levels and increased productivity of existing employee base and higher utilization of production infrastructure.
We expect adjusted EBITDA margin to be between 16, and 17%, reflecting higher gross margin effortless and improved operating leverage resulting from the scaling of revenue with minimal additions for production infrastructure and reduction in professional and legal expenses due to normalization of capital structure.
And finally, we expect capex levels of approximately one percentage of revenue in line with historical levels and working capital to be in line with historical levels and recent trends.
I'd like to thank you very much for your time today with that operator, please open the call for questions.
Thank you we will now begin the question and answer session.
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Our first question comes from Trent Porter with moving please go ahead and Oh My God. Thank you for taking the question I guess I wanted to start with three and then I'll get.
And get back and Q.
The first one I think Oh and are for the year was 45.
$46 million.
And so how should we be thinking about Oh, and our next year does it continue to decline.
And my next question I wanted to better understand the sequential EBITDA margin adjusted EBITDA margin variance.
Talking about professional fees and and.
Other other non cash, but it looks like other non cash was added back so and we just talking about professional fees that were not added back and then.
And my final question I, just wanted to clarify that the $178 million of cost savings and progress it.
If I look at your 16% to 17% EBITDA margin guidance for 2021, I think and my thinking correctly.
And that reflects $38 million of that 178 million being achieved and 2021 and then if I could just tack on them or are we done with the transition revenue I'm going forward. That's it for me.
Hey, try and first of all good morning, and thanks for the questions good to be talking to you again.
Oh, and our charges, we expect full and our choices and 2021 to be lesser than 2020, we're not guided to a specific number but as you can see the guidance that would be giving out and for adjusted EBITDA margin to improved to 16% to 17% levels.
And assumption slashed factor and there is for a lesser way not just in other words to say savings will convert to actual.
GAAP cash EBITDA so.
And for us lower and our charges than 2000 and training in 2021 second your question on sequential adjusted EBITDA between Q3, and Q4 lower by $11 5 million net net that's and impact of the changes for gross profit in Q3 versus Q4.
Even though revenues were higher sequentially Q3 to Q4 and I discussed on my prepared remarks, we had one timers are exceptions in our gross margin for Q4, namely the non cash.
Accelerated depreciation for an exit of a lease facility approximately $3 $7 million impact there and then.
Second is the revenue mix and we have and impact of revenue mix.
Share of lower margin revenue in Q4, which is related to the seasonality that impacted the gross margins.
And one there was a higher year end accrual for PTO for.
Carryover of vacation time, and interestingly enough and a COVID-19 world you tend to see a lot of employees and <unk>.
<unk> and therefore, the carryover impacted us.
Even as we compared to last year.
These were the three or four elements that impacted the gross margin and profit margins Q3 to Q4.
We expect it to rebound in Q1.
Thank you very much so I'm sorry for problem you had two more the 178 you read that right as you can imagine these are identified savings initiative.
From identification to execution to flow through.
So as you rightly interpret at $38 million of tours were already executed and we will see the flow through in 2020, one and the timing of the rest will depend on how quickly we pull it together and and execute and see the flow through come through so that that's the right way to look at it and.
And a fourth one trend you asked me and thanks.
The transaction and revenue I think were gone actually that's tough.
Yes transition revenue, we have done for the bulk of it at the beginning of last year, we had approximately $150 million.
As you probably heard from Ron and my remarks right.
Now we are tracking to $147 million theres going to be some more tail off in Q1, but.
But from a transition perspective.
Still in that ballpark range, maybe out of the fight and.
Along those lines 150 to 160 sales. So in Q1, we should be done with the transition revenue.
Okay.
I think you'll probably slap me down and for asking this one but.
The U B S engagement.
Certainly your and your posture doesn't sound like you're targeting a distressed exchange and when we.
We've already talked about you've already talked about the asset sales so.
Just.
The one.
I don't want to put words in your mouth are you able to say anything else about sort of where you're going with this.
Yeah, I can give you a high level overview, but more importantly, I think the b.
And we want to probably call out is a sin and of 2019 and right through 2020, we've been fairly consistent with <unk>.
And what our goal is right.
Being focused on liquidity and improving our liquidity and cash flow as part of for our capital allocation policy. We have stated multiple times and the recent past we wanted to get to a stage, where our cash flow neutral or a cash flow positive and the near term.
How do we do with this gross margin improvement business mix and profitable revenue growth right. That's why the transition revenue exit is all about that starting to.
Sure itself in a positive way for us.
All of the benefits in 2020, one and lastly, navigating all of the Covid hadn't bids that we have with that with that as the backdrop be it from a liquidity perspective be it. Our stated objective of additional financing sources are non core asset sales are all.
And if that come to fruition in certain ways UBS engagement was to explore additional strength strategic ways to strengthen our balance sheet, we have a couple of.
Work streams with them that are open and when Theres progress there when there are significant milestones, we will certainly share future updates.
As a reminder, if you would like to ask a question. Please press Star then one also please limit yourself to one question and one follow up our net.
Next question comes from David for Atlas.
Lewis with <unk>.
Please go ahead.
Yeah.
Good morning, gentlemen, thanks for the call.
And I guess I guess my one question is just a follow up from the last question. If you just kind of wanted to bridge.
The.
You know I know theres, some one timers, but you pulled some one timers out so apparently there were some one time benefits in Q3's, EBITDA margin or EBITDA number and then there were some headwinds.
Can you give us any clarity a little bit better on if we wanted to look at that Q3 to Q for apples to apples how would we think about that on the EBITDA line, our gross margin and our gross profit margin whatever is easier for you.
Sure. Thanks, David.
Aye.
Let's see.
And to articulate.
Better and striving to use and there is a 420 420 basis point decline and EBITDA margin quarter over quarter, despite having higher revs.
And is there any way you can bridge that 420 basis point, that's that's just a question.
Yeah. So.
For items that I'd, probably three years or for items that I'd, just because that's the exact bridge for the for 0.55% or 450 basis points right. We have non broken broken out of the details other than I can give you the indication that the non cash facility exit depreciation and accelerated depreciation we took was for $3 7 million.
The two other things that I touched upon the year and PTO accrual.
That and a.
The share stock credit that we benefited in Q3 and non repeated in Q for these three three out of the main items and then as I said business mix.
There was an element of lower margin pick up in Q4 revenues are down and then we had anticipated. So together. These for for items are what make up for the $4 five.
Swing and gross margins and those arent included those items are included in the noncash other charges you added back for adjusted EBITDA I guess, that's my question too on part of that you see what I'm, saying is that that is that not added back and that $31 4 million.
Yeah Yeah.
Obviously, the the heart of it is.
Yes. The facility you said, yes, but we cannot add back and whether it's the cares Act credit and then Thomas you cannot.
And those rights for the PTO accruals and these are items that you cannot add back okay, great great and that was the second another question I had too is that I know you had some liquidity benefits last year from the cares Act I think it was.
And I don't know 25 30 million of liquidity benefits can you talk about that you know the potential impact on cash flows I think you have to pay that back over.
A period of time is that is that something that's going to hit you in 2021 in terms of cash flows. Our can you give any color there would be appreciated.
Sure.
This is something that you will find a very pointed disclosure and 10-K specific to the death roll up the cares Act, that's 14 million and so in theory in theory, we need to be paying back approximately 7 million each and 2021 and 2022 again, that's a high level answer David Moore.
More specific disclosures and the 10-K that will follow.
Our next question comes from Island, Caddo with Beach point capital. Please go ahead.
Hi, Thanks for taking my question first can you just repeat the breakdown of <unk> you gave at the beginning just want to make sure I have that down right.
Sure you want debt in terms of the revenue.
And that had talked about Adam.
Yes.
Yeah, let's let's talk about 2020, itbs, approximately $1 billion and and annual revenue for 2020.
$104 million of that is the digital assets group.
And based revenue digital revenue.
900, we talked about 350 to 360 of United Communications services, both print and you could call it print and mail.
And the rest 550 comprises of our beam.
And the F&I.
And our onsite services.
For the payment processing and.
Boyce processing.
Yes, the payment processing Remington and all of our BPL business.
That's a wider bucket the third bucket is the wider bucket for the $5 50.
Got it got it and.
And then on the EBITDA reconciliation for the fourth quarter I saw the other charges was listed as I think the other caller alluded to about 31 million and what's the breakdown is.
Cash and noncash within that.
Yes.
Hold on I'm, sorry, let me think about it.
There's a number of non cash.
And and I'm just jogging my mind, just to see if it would be and M and P and if it's something that we've given in the past or not.
And I give a couple of pointers that includes the $3 7 million of accelerated depreciation that I talked about it includes a litigation reserve, we have for approximately $9 6 million or so.
And it includes <unk>.
I would say a large portion of it is noncash.
Our next question comes from Gerry Wang with Carlile. Please go ahead.
Hey, Sean and thanks for the questions.
Just wanted to triple check on on the <unk>.
Low margin exit and you mentioned that there was 147.
And that will be taken out in the year.
And I think about that and it's call it 37% or 38 in the fourth quarter and then maybe another 37 or 38 and the fourth and the first quarter of 'twenty one.
Trends and revenue okay.
First of all Gerry Thanks for the question.
And again on the comparator for Q4 for Q4 did you mean, two particularly for did you mean sequential.
Yeah and just.
The $1 47 and breakdown.
And I'm thinking about it as you know call it a quarter over quarter quarter quarter, and like a fourth and for the fourth floor.
So about call it 37 $38 million a quarter of GAAP revenue. He felt like I just want to look and yeah. Yeah. Yeah, Yeah, Yeah quarter, 19 day fourth quarter, 'twenty and I just wanted to see how much of it is the COVID-19 impact vs.
The impact of exiting these these lower cost.
Lower margin contract got it got it for.
And I declare the $79 5 million overall and I'm talking about overall and I'm not focusing just on <unk> $79 5 million transition impact is approximately $35 million Gerry and Covid impact us.
$20 million and then.
The asset sale and another 10 or so million.
Okay got it and then do you expect another call it <unk>.
30, 35 years, or so and the first quarter yes.
Yes, that's why I think youre done yeah, no. That's why I had a follow up for you right. So the way you look at it sequentially Q3 to Q4 transition revenue impact is under $5 million right. Because you already peak and we have already the comparing it year over year. So we've had approximately 30 million and compared to respective prior year quarters, but sequential quarter.
So it's not not $30 million right, it's not $30 million incremental.
And that point Jerry.
If youre looking at Q4 to Q1 transition revenue will not be at 35 levels it'll be.
High single digits or low low teens.
Okay. Okay.
And then healthcare.
Would have expected more of a pop in the fourth quarter.
Was that just timing related or or could you provide a little bit more color there on health care, yeah, absolutely and.
And Ron briefly touched upon it and when he talked about the change of administration or the public sector softness that we saw in Q4 and one of them for our larger customers.
We received a lesser a lot volume than we had anticipated.
I don't know if we can assign it to COVID-19 it could be the change in administration or.
And some other factor, but that's the key driver for the softness and health care volumes Q3 versus Q4.
Our next question comes from Alex Stevenson with G. L. G. Please go ahead.
Hi, Thank you very much for the call the question.
Could you please break down the liquidity.
At the end of December It was 107 8 million and how much of that is cash how much of that is undrawn facilities.
And what's your sort of available facilities you have in place.
You Should've refi.
And our facility and paid back the 83 million out of the $140 million.
And so just wondering.
And the capacity of that you have left and.
And lastly on that what are the conditions for you to.
Received the remaining $53 million.
From a again that.
December alone.
And 135 million. Thank you.
Sure. Thanks, Alex.
Got you.
Since you asked specifically for December 31st the breakdown is $63 million and cash balance available borrowings of $26 million.
And then the 108 buildup is if we are allowed to add back certain fees under the definition and assess for the third amendment to the credit agreement, we are allowed to add back.
The agent.
Certain fees, that's $19 million that's there in the last light up the presentation. The breakup is there that's what makes it for 163 plus $26 19.
Your follow up on the E R and availability just a quick point or the origin really our facility works on and different kind of a boring with chemo there.
And he could have availability under the facility, but the latest December yeah, our securitization is and the term loan type of for facility. So what would it be a drawn and that's what we have no additional availability there and then for the last question that you had the 53 million committed and undrawn under the existing.
Realizations facility the terms of the conditions of the tons are listed out and the LSA field.
Feel free to check out our 8-K, you will have more details on what those conditions are.
Sure. Thanks, the available 26 million.
And you mentioned is that part of the AR facility.
And not not in the United States that is part of a global availability and some of our other facilities and internationally.
Our next question comes from Tom <unk> with Cowen. Please go ahead.
Hey, guys. Thanks for taking my questions just a quick follow up on liquidity and then one on EPS on liquidity and looking at the 67 number.
And last page of the presentation.
And the numbers of March 12.
And just wanted to make sure one.
And one that doesn't include just reading the footnote that does include a $20 million add back so.
So should I be taking that 67 and and and.
And sort of thinking about it this 47 before before the proceeds from the equity and then related to that also.
And doing that cow do I need to be backing out the 35 million and liquidity block and.
Q.
You put in place for them.
And block.
To the to the turmoil and credit agreement.
Yes.
And what you were thinking about it the right way addition, pointers for you being back out to 'twenty.
You'll get to 41.
Feel free to factor and the $27 million net debt is coming in and the next day or two.
So that's the point or coming back to your backing out the 20 and then looking at Okay are we there.
Sure for the 35 that is where the $20 million add backs comes into play.
Credit agreement and liquidity includes the add back.
You have to look at it that way.
Got it Okay. That's helpful. And then just a quick follow up on <unk>, just trying to parse that number or that the revenue breakdown and a.
A slightly different way.
The 350, I think United Communications part of the business should I think of that is that basically the level that you'd like to see and arbitrage.
And then and mailroom business or is that.
Legacy and all of it takes somewhere else one and then two.
And I appreciate the color on this within the rests within the bulk.
Process, I guess and payment processing business.
And of that is.
Processing and what can be a volume decline trends versus.
And we've been able to do from a price perspective.
Perspective, and they're just sort of offset some of the volume declines.
Okay. Let me there were two or three questions within that let me answer one by one so Tom even before I do that just so that I'm clear the breakup for Itbs and all of these segments.
To help everyone get a better and understanding of the revenue mix because thats something that we often get asked I do not want to interpretation that this is a segment base for business unit based revenue that we and we track our or have a certain.
Color to it which you know theres constraints for them, which I can tell you how much and what with that as the backdrop as you rightly pointed out.
And nobody tax side of the house, we call that enterprise solutions by the way. It has two key competence one is the on site.
Business with the onsite services, we provide to our customers. The other one is the again bulk print of males are you'll see us confident so the 350 Ucs confident does have no legacy and nobody tech spin it.
And then on the other $5 50 and that includes the onsite side of the <unk> component.
And coming to the payment I think that's fair I think indicated that 550 bucket and includes a remedy and that includes our BPA business. It includes onsite and includes a few different elements to it.
And each one of these has its own revenue model associated with it so giving any further breakout would only make it kind of muddled.
That the last one for your question, which has to do with the pricing element or why do you ask about volume. So it's not really able to grasp it well, but what I can say is payment volume. So we are seeing it come back up not obviously to the pre COVID-19 levels, but honestly said and our last earnings call as well and.
Q3, Q4, we are seeing a FEMA.
Payment volumes.
Rebound.
Our next question comes from Tijuana with Imperial capital. Please go ahead.
Hi, guys.
My question is.
And trying to figure out your.
Free cash flow breakeven, if I watch and do some generic map here.
The guidance for sure.
Adjusted EBITDA guidance seems like 235 ish million.
At which point do you think.
And you can get to that free cash breakeven.
And within that range.
Sure sorry.
Sorry, I didn't catch your name and what does it AMR and Ami.
Hey, good talking to and I'm here.
Youll, probably looked through the guidance low and high and you probably looked at adjusted EBITDA percentage as we are given and other.
Probably looked at our debt service and backed it out and and if Thats the basis for your question.
My answer is two fold number one if you total if you take the low end up and revenue low and up the adjusted EBITDA margins and look at the at the desk service and our Capex et cetera, you potentially could come up with the math, where theres, a $10 million to $20 million.
$10 million to $20 million.
Cash burn so to speak right, Oh, and iron is something that debt you need to factor for appropriately something debt.
It's not 45 million that's for sure not not at 2020 levels.
That said, we wouldn't want to look at it at the low and it all right not just a low and <unk>.
Two part answer to this.
We are and I'm looking at worst case scenario number one number two even if you go to the midpoint I think there is.
It is cash positive cash neutral slash cash cash positive that's number one number two and very importantly, and.
As we have at least from a from a management perspective over the last three to four quarters, what's been important and pleasing as <unk> been able to course correct.
More focused on.
And day to day Slash weekly flash.
Monthly focus on on what other levers that we can pull right. So.
Long term you can look at it and kind of interbred based on the guidance that at the low and at the worst case scenario. There is a cash GAAP, but at this point and time I don't think that focus and.
Looking at it and that way.
Got it thank you very much yeah no problem.
This concludes our question and answer session I would like to turn the conference back over to Ron Cogburn for any closing remarks.
Thanks and.
And we really appreciate the questions today, and everybody participating and I want to leave you with this thought.
Many of you saw the recent.
And 90 million dollar win.
And this is for the first cloud based platform.
We are.
We're witnessing a strategic shift and our business mix and.
And this is going to.
Tribute to our profitability, but some interesting things about that when that should probably maybe non recall, but.
This deals with a cloud based platform that we've had for years and we one of our platforms BCH global.
And the deal is is 10 years and is $90 million. So.
Stay tuned and look for more of these kinds of announcements and the near future. Thanks, everybody for joining our call and we'll see you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.