Q3 2021 I3 Verticals Inc Earnings Call
Good day, everyone and welcome to ice cream verticals third quarter 2021 earnings conference call.
I would call is being recorded and a replay will be available starting today through August 17th.
The number for the replay is 877344 <unk>.
Evan.
I have 2.9 and the code is 10158331. 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 Scott Meriwether Chief Operating Officer. Please go ahead Sir.
Good morning, and welcome to the third quarter 2021 conference call for a few 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 measures discussed in today's call. You will also find a reconciliation of that measure the most directly comparable financial measure calculating calculated. According to GAAP are 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 as prepared in accordance with cash.
This non-GAAP information should be considered by each individual in addition to but 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 1995, 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 this purpose 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 in the company's earnings release, and then reports that are filed or furnished to the SEC, including risks and uncertainties associated with the COVID-19 pandemic.
Consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.
Finally, 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.
Now I'll turn the call over to the company's chairman and CEO Greg Daily.
Thanks, Scott and good morning urology.
What a difference a year makes we're very pleased to report our third quarter 2021 results.
As we once again set new records across the board.
Our revenue.
Adjusted EBITDA.
Software revenue payment volume and integrated volume were all at new highs.
We exited our second quarter with incredible momentum and that momentum continued through our third quarter.
Our third quarter revenues increased 96% over 2020.
Our adjusted EBITDA increased 104%.
Admittedly this quarter has an easy they are easiest year over year comparison as our third quarter in 2020 was our weakest quarter due to the effects of COVID-19 pandemic.
Yeah.
Despite the easy comparisons we were thrilled with the growth we're seeing across the board within the company.
Most notably our software related revenues grew to 40% of our revenue in third quarter 2021 up from 20% in the third quarter of 19.
In 26, 26% in the third quarter of 2020.
We're especially proud of the growth in our software billings our payment revenue have also continued to rebound in the growth in our in the during the growth in our third quarter.
We are delivering our software focused strategy, we will and you will continue to see.
Software and software embedded payments continue to be a primary driver for I 3 journey going forward.
For proof of this strategy, 60% of our payment volume in the third quarter was integrator is.
As this percentage continues to grow quarter over quarter.
For the second quarter in a row, our adjusted EBITDA and proprietary software segment exceeded the adjusted EBITDA in our merchant services segment.
We expect this trend to continue as our M&A strategy continues to focus on software companies and our recent acquisitions are delivering rosemont robust growth rates.
Our software our public sector vertical delivered record revenue growth in the past quarter.
Vertical net represents over half of our company.
The third quarter includes our first quarter with our V. I S acquisition.
Our recent utility software acquisition contributed a partial quarter to Q3, we're very bullish on the utility industry and expect to see this business line to be a major contributor for I 3 as we continue to expand into public sector.
The federal stimulus package under the American rescue plan that did not have a significant impact on our third quarter. However.
Our customers are beginning to access the funds available under the plan.
And have entered 2024 to spend them.
Well, we have seen to date is a more physical confidence in our customer base and stalled projects moving forward and we continue we believe the growth will continue in our sales pipeline to accelerate our customers' access.
They are.
We continue to believe the growth in our sales pipeline will accelerate as our customers access the funds available to them under the rescue plan.
We're very confident in or our solid pipeline of projects to deliver to our customers and the public sector vertical.
Health care has become our second largest vertical.
2 of our most recent acquisitions were closed April 1 and contributed a full quarter in our third quarter. We're excited about the opportunities to grow in health care, both organically and through M&A activity, we intend to focus on growth within this vertical in the future.
Schools are beginning to reopen in person.
And we have seen a partial rebound within the education vertical as a result.
School lunch fees represent about half of our revenue in this vertical and school lunches remain 3 for 2021 and 'twenty 'twenty 2 school year.
We expect the education vertical to come back around 50% of it is.
Historic levels for the upcoming school year.
When and if we return to student pay school lunches in the future, we will see a corresponding uptick in our financial results.
Despite the impact free soon meals, we continue to see growth in our customer base software sales and remained very positive in the future of this vertical.
The rest of the company experienced continued improvement through the third the third quarter.
Revenues within merchant services segment grew to $30 million in the third quarter from $26 million in the second quarter.
Additionally, adjusted EBITDA.
Increased sequentially 8 to $8.7 million.
In the third quarter from $7.6 million in the second quarter for merchant services the.
The increase in charge volume that began in March of 2021, along with new sales were the drivers for the increase in our merchant services segment.
I want to briefly touch on COVID-19 Delta variance as I'm sure everyone has questions about the potential impact at this point in time, we have seen no impact.
On our charge volume payment revenue for software revenue, resulting from a rise in cases, we obviously are keeping an eye on these metrics.
Should cases worse.
We would speculate the results might be similar to 2021, I am sorry to 2020, our schools restaurants and teeny merchants.
It will be impacted by any mandatory mandatory shutdown.
We could also see some sales installs pushed back to the future dates.
Our recent acquisitions and public sector have increased our product offering in DMV and utility spaces.
We would expect an associated revenue would.
Mitigate some of the potential impacts as they would not be affected I want to reiterate we have not seen any impact to our results from the recent rise in Covid cases, we remain optimistic about our future results.
Now I'll turn the call over to clay he will provide more details on our third quarter financial performance. Following Clay's comments, Rick will get provided an M&A update and then we'll open up the call for questions.
Thanks, Greg.
The following pertains to the third quarter of fiscal year, 'twenty, 1 which is the 3 month period ended June 32021. Please.
Please refer to the slide presentation titled supplemental performance on our website for reference with this discussion.
At the end of my commentary on the second quarter results I highlighted a change in presentation that would take place this quarter I <unk>.
Want to emphasize this because of its impact failure to include it will result in an apples to oranges comparison between our current period and prior periods and for that matter consensus estimates.
In Q3 alone the impact was $1.3 million to revenue and adjusted EBITDA and I.
Full 3 per share to pro forma diluted adjusted EPS.
Okay.
Now to what changed and why under GAAP companies must suggests beginning balances of acquired deferred software revenue per fair value as part of acquisition accounting.
Like many of our peers. We have historically included in our reported adjusted net revenue adjusted EBITDA and pro forma adjusted diluted EPS and add back to reverse the effect of purchase accounting write down of deferred revenue in connection with software acquisitions.
We have also always included an estimate of the same adjustment.
Excluding future acquisitions.
And our guidance for adjusted net revenue adjusted EBITDA and pro forma adjusted diluted EPS.
Our historical practice has been based on our belief that such an adjustment.
As necessary for investors to understand and acquisitions performance in the first year and it's true growth in the second year.
The adjustment is noncash and consistent with the treatment and the financial covenants of our senior secured credit facility.
However, as part of the ordinary course FCC comment process.
The SEC asked us to discontinue adjusting net revenue EBITDA and pro forma diluted EPS to remove the effect of purchase accounting write downs of deferred revenue.
Beginning with our Q3 report.
As a result of this change the earnings release yesterday presented adjusted net revenue adjusted EBITDA and pro forma adjusted diluted EPS without the impact of this add back for the 3 months.
And the 9 months ended June 30th.
As we believe the adjustment continues to represent material information to investors. We will continue to provide separately as part of our earnings release, the non-GAAP revenue omitted as a result of the purchase accounting write down of deferred revenue we.
We will also continue to provide an estimate of this amount.
For the remainder of the fiscal year, along with our outlook.
The FASB has proposed guidance that would allow us to not write down the deferred revenue in the first place as part of purchase accounting.
Which we believe would be more useful for investors, but it is not yet effective.
Moving on to results, we had a great quarter with record payment volume revenues and adjusted EPS EBITDA Rev.
Revenues for the third quarter ended in June excluding acquisition revenue adjustments increased 96% to 62 million from $31.6 million for Q3.2020, reflecting.
Organic growth from the lows of the pandemic and acquisitions.
The momentum we experienced during March continued through April May June.
And also in July.
Almost all of the metrics. We track are headed in the right direction for companies. We have owned for at least 2 years. We have recently been comparing our monthly payment volumes to 2019 periods, because twenty-twenty comparisons have distortions stemming from the pandemic.
These companies have increased volumes in the mid 20 percents over a 2 year period.
To clarify that represents total growth not compound annual growth.
Our integrated payments percentage hit a new high of 60%, helping our revenue yield improved to 121 basis points for the quarter from 106 basis points for Q3.2020.
Software and services revenues and excluding acquisition revenue adjustments continued strong growth representing a record 40 per cent of revenue for the quarter compared to 26% for the third quarter of fiscal year 2020.
Reflecting the heavy software weighting of recent acquisitions.
This percentage gains despite a rebound in payments.
Acquisitions completed after June 30th 2020, almost exclusively in our proprietary software segment and.
<unk> contributed $20.7 million of revenues during the quarter.
Adjusted EBITDA, excluding acquisition revenue adjustments more than doubled outpacing revenue to $14.4 million for Q3, 'twenty 1 from $7 million for Q3.2020.
We showed strength across the board with continued momentum in proprietary software as well as a rebound in hospitality and retail.
Adjusted EBITDA as a percentage of revenues both excluding acquisition revenue adjustments increased to 23, 2% for Q3 'twenty 1 from 'twenty 2.3 per cent for Q3.2020.
Reflecting an improvement in the proprietary software margin as well as lower corporate overhead as a percentage of revenues.
Pro forma adjusted diluted earnings per share excluding acquisition revenue adjustments also doubled to <unk> 26 cents for Q3 'twenty 1 from 13 <unk> for Q3.2020.
Again, please refer to the press release for a full description and reconciliation.
Segment performance revenues on our proprietary software and payments segment, excluding acquisition revenue adjustments increased 234% to $32.6 million for Q3, 'twenty 1 from $9.8 million per Q3.2020.
Principally reflecting growth in our thriving public sector vertical, but also the inclusion of our health care nonprofit acquisitions for the quarter.
We enjoyed the first full year of V. I S. A full quarter of 2 recent health care health care acquisitions.
2 months of our second utility software acquisition.
Education, certainly improved over last year, but remained well below 2019 levels due to the free lunch program.
The segment's adjusted EBITDA, excluding acquisition revenue adjustments improved 256% to $9.2 million for Q3, 'twenty 1 from $2.6 million for Q3.2020, reflecting.
Reflecting mainly public sector growth, but also the nonprofit and healthcare acquisitions.
The sector now represents over 50% of our consolidated business.
The segment's adjusted EBITDA margin, excluding acquisition revenue adjustments improved to 28, 2% for Q3 'twenty 1 from 26, 5% for Q3.2020.
Principally reflecting the inclusion of <unk> for a full quarter.
Revenues for our merchant services segment increased 35% to $29.9 million for Q3, 'twenty, 1 from 'twenty $2.2 million per Q3, 2020, reflecting a rebound in hospitality retail and b to b.
Adjusted EBITDA for our merchant services segment increased 30% to $8.7 million for Q3, 'twenty 1 from $6.7 million for Q3.2020.
The adjusted EBITDA margin was 29% for Q3, 'twenty, 1 versus 30% for Q3, 'twenty, reflecting the rebound in retail and restaurant, which carry higher residual expenses.
The balance sheet.
Our strong balance sheet has allowed us to continue to execute our acquisition strategy on.
On June 30, we had 118 million borrowed under our revolving credit.
Our cash balance of $5 million or net net of $113 million under our $275 million facility.
The face value of our convertible notes are $117 million.
As of June 30th our leverage ratio was 3.8 times, while our current constraint is 5 point out times.
The interest rate per the convertible notes are 1%, while the interest rate for the revolver is currently less than 4%.
Over time, we expect to convert roughly 3 quarters of adjusted EBITDA, excluding acquisition revenue adjustments into free cash flow.
You can either be used for more acquisitions or debt repayment.
Before the change in presentation for adjusted EBITDA, we guided to 2 thirds of free cash flow conversion. So 2 thirds <unk>.
Version, we're now guiding to 3 quarters conversion.
We now define free cash flow as adjusted EBITDA, excluding acquisition revenue adjustments minus capex internally capitalized software cash interest and cash taxes.
<unk> and presentation does not impact our cash flow.
Outlook looking forward, we have updated guidance to conform to the change in presentation regarding acquisition revenue adjustments.
<unk> always excludes future acquisitions and transaction related costs.
Just to clarify the 3 acquisitions closed during Q3 were already included in the guidance, we delivered when reported in Q2.
The following increase in guidance is the result of Q3 performance and the current business outlook for.
For an apples to apples comparison, I will give the previous guidance and the new guidance.
Revenues, excluding acquisition revenue adjustments.
$198.4 to $2.14 for previously.
<unk> guidance is $212 million to $222 million.
Adjusted EBITDA, excluding acquisition revenue adjustments previously $46.4 million to $52.4 million.
It is now 49 million to $52.5 million.
Pro forma adjusted diluted EPS, excluding acquisition revenue adjustments previously 85 to 95.
Currently 90 to 96.
The acquisition revenue adjustments included.
Or not excluded in the previous guidance was previously $5.6 million.
And the new guidance is 5.083 million.
The impact on pro forma adjusted diluted EPS would have been 13 previously.
And the current guidance is I have an 11.
Impact.
I'll now turn the call over to Rick for company updates and M&A activity.
Clay good morning, everyone like our previous calls I will start with an update on a few operational items, including updates on things I have addressed before after that I will discuss M&A first we continue making progress on our unified product offering our <unk> and our public sector vertical over the last quarter, we have expanded our geographic.
<unk> and product reach with solution sales in Delaware, Minnesota, Arizona, Ohio, Indiana, and North Carolina with add on solutions also being sold into Arkansas, Texas, Georgia and Louisiana.
<unk> has successfully expanded our kiosk business line historically only used for DMD with additional units being deployed across multiple product categories, including utilities and several court solutions multiple entities in multiple states B I.
<unk> also won a new state level motor vehicle inventory management contract.
Image soft has achieved state level wins in our digital evidence management solution and document management contracts.
As referenced we are achieving multiple product categories sales kiosk law enforcement Records management and digital evidence management to name a few across multiple states.
This is evidenced by continued wins for specific customers by designing leverages data and processes across public entities.
With our day money domain expertise and seamless integrations, we are assisting our public sector customers and enabling them to be more responsive to their constituents.
On the I S V front, our total number of signed and integrated <unk> at the end of our third fiscal quarter was 84 with 7 more in the process of integration our pipeline for Isps continues to grow quarter over quarter.
I will now speak about our ongoing M&A efforts at any 1 time in our pipeline. We are working 3 to 4 primary deals towards the term sheet. These targets targets typically range from $2 million to $5 million in EBITDA and usually each are at varying stages in the process.
With that said, we have entered into a non binding term sheet with a company in our health care vertical and we are currently in the due diligence phase <unk>.
Assuming the process goes as planned we anticipate closing this deal in our first fiscal quarter and before calendar year end.
Further our pipeline continues to be strong and we believe we could potentially close another deal by the end of the calendar year.
As always we continue to be disciplined in our approach relative to multiples Lamb.
Lastly, our M&A pipeline has an emphasis on public sector healthcare and nonprofit and that order from most to <unk> and we look forward to sharing more on the acquisition front in the near term.
This concludes my comments there at this point, we will open the call up for Q&A. Please.
Thank you we will now begin the question and answer session.
I ask a question you May press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Joe Your question. Please press Star then 2.
At this time, we will pause momentarily to assemble I lost day.
Our first question comes from John Davis with Raymond James. Please go ahead.
Hey, good morning, guys.
Yes, I think clay you commented that you saw some nice sequential improvement from 1 <unk> to Q versus 2019, just curious what July trends look like relative to 19, and if you've seen kind of that continued improvement. There are also any comments about how trends worse throughout the fiscal third quarter.
Well.
As you know we had a really nice March exiting Q R are the calendar Q1.
April may and June.
Each sort of improved sequentially.
And then July has had very slight improvement over June but it's seen.
Seems to have plateaued.
The growth we were seeing a from a jam.
Okay, and then just I heard Gregg loud and clear on a delta, but I think your guidance range is still relatively wide.
For for the implied for Q, So I would assume that that would contemplate if we did get some impact there that would be the difference maybe between the high and the low end.
Just any comments there would be helpful.
Yes, I think from that is a variable for sure.
Software deliveries are also a variable.
About half of our software and services revenues are.
In time as opposed to.
Recurring and so.
The timing of those can be accelerated or it can be delayed than that.
We're always going to have that variability as long as we are shifting more towards SaaS over time.
Our customers are shifting more towards SaaS over time.
Currently it's about 50.50.
Okay and then.
I think public sector is now over 50% software is over 40% integrated is now 60% yes.
I guess, where do you see those kind of trending over time, I mean, its public sector going to become 60 plus percent of the business over time, obviously that would bring up your percentage of software revenue as well as as well as integrate it and then also when do you think you'll actually see the revenue benefit from any of the American rescue plan. There was something that we should think about fiscal 'twenty 2.
Any color there would be helpful.
Well as far as the metrics go.
The integration percentage.
We think that'll probably top out around 80%.
Over time, and we have a target of improving 10% a year.
The software and software.
Software and services percentage, we have a goal of getting up to 50% of revenues.
As we add payments to some of our software assets.
That will go in the other direction over time, but we have we think 50.50 would be a nice mix there.
As far as timing of the American rescue funds, Ric or Greg do you have.
Comment on that.
Great.
I.
We know we have been instrumental in helping our customers understand what is available to them.
We've been very proactive on that basis of they've had a lot of good questions, we know theres activity around that but.
There's certain amounts of hurdles that they need to overcome to get the funds. So I would say its reasonable to say that we're looking at our next fiscal year before we start to see any kind of impact from those funds.
Okay Fair enough and then just public sector is this I know obviously you have education coming back at some point.
Once the lunch program expires.
Something we could think of as being kind of greater than 50% of the business going forward I just kind of how do you think about the long term of of your revenue mix relative to public sector and the others.
Yes, I would be surprised if in sorry, I forgot to address that I wouldn't be surprised that public sector. They can get the 60%.
And may be higher over time, it just seems to in our pipeline it'll be largely acquisition driven.
And what deals we're able to get done but I.
Our pipeline, it's over 50% of our pipelines. So I got I believe public sectors, and I get larger rather than smaller.
Okay I appreciate all the color guys. Thanks.
Okay.
Our next question comes from George from <unk>.
Allen. Please go ahead.
Good morning. This is Allison on for George Congratulations on the results from thank you for taking my questions first 1 from me it looks like based on the old reporting method that the <unk> results came in roughly 5 million higher versus consensus from revenue yet the EBITDA flow through was relatively low is there anything we need to think about it and then mark.
<unk> standpoint in this quarter.
We think you mean Q4.
I think we can expand margins a little over Q3 and Q4, if you look at the midpoint of our guidance for revenue and EBITDA. It does imply some improvement there.
Generally we try to be conservative with revenues were more concerned with.
Revenue dollars than we are the percentage margin.
And I think we've generally guided to.
If we get a dollar of EBITDA that.
Translates into $2 of revenues, because our software assets, sometimes have high margins like me I asked at a 50% margin.
But some of the acquisitions we've done have.
30%, 20%.
Margins and I think that accounts for the over performance in revenues.
Okay, great. Thank you that's helpful. And then you also mentioned within education. There was some rebound there I think previously you anticipated quarterly revenue around the $2.5 million range with about 600000 of EBITDA over the near term have those estimates now changed a little bit upward.
Well our revenues this quarter in education, we're about 2 and a half million dollars.
<unk>.
Q3 last year they were.
Almost $1 million less so last year was a horrible quarter.
Schools were just shot.
But we're still making this quarter, we earned less than $1 million of EBITDA in education.
So that's.
A pretty good step down from what we are doing back in 2019.
Okay, Great. That's helpful and then last 1 from me.
I know you've been mentioning how public sector is now 50 per cent of the business with health care now the second largest vertical.
Is it fair to think health care is now around 20% of the business and how do you think about the long term growth rates between Nazi verticals. Thanks again.
No.
Health care is not that large yet it's somewhere between 10 and 15% still.
We are growing in public.
Public sector is weak.
Keep mentioning that has been growing even more quickly through acquisitions.
But we do think the assets we have we can grow 10% organically and then.
We're hopeful about landing some more health care acquisitions, but.
I will tell on that.
Great. Thank you guys.
Our next question comes from Josh Beck with Keybanc capital markets. Please go ahead.
Hey, guys. This is matti on for Josh. Thanks for taking my question I was wondering if you guys could talk about the recovery that you're seeing in hospitality and how you expect it to recover in the second half of the calendar year and then I have.
I'll follow up folks.
Well.
For internal growth purposes.
We used.
In the last couple of years, we've been excluding hospitality from those numbers.
Because we've been undergoing a SaaS transition.
In that business.
This quarter hospitality grew over the same quarter last year.
And we're reaching a point in the SaaS transition where.
Okay.
If we if we arent positive in a quarter I won't be a big deal so I am thinking.
That's something we will remove from <unk>.
Our disclosures going into 'twenty, 2 it's just not.
Headwind that was in the beginning of the SaaS transition.
Okay Super helpful. Thanks, and from my follow up I was wondering if you guys could talk about.
The trends that Youre seeing.
If there's any interesting opportunities from our pipeline there.
Thanks.
Yeah. Good question. So I think somebody asked yesterday about valuations in our various verticals public sector, where we're seeing the same valuations we were seeing a year ago, nothing has really changed daily highly fragmented.
A lot of opportunity day, or DDB valuations are crazy.
That's why I rarely talk about <unk>, and our pipeline because unless something just perfect falls in our lab, we're probably not going to go after that stuff because.
The valuations are really extremely high.
If you look at healthcare.
Some are higher some are low so it's kind of 50.50, we can fund stuff, where the reasonable and the nonprofit is very high as well I would compare that to beat it but either is crazy valuations out there in a non-profit let neil.
Great.
Thanks for taking the question thanks, guys.
Thank you.
Yes.
Our next question comes from Chris Donat.
Hi. This is Ryan. Please go ahead.
Hi, Chris.
Chris you might be on mute.
You're correct me I'm on mute can you hear me now.
Yes.
Sorry about that.
Just wanted to go back to the trends you saw through April May and June.
And that July was a slight improvement.
Is it safe to say that expectations for August and September sort of at that kind of plateaued.
Level and we're sort of.
Expected to plateau from here or is there any reason there should be dramatic change.
Set aside the Delta variant for now I guess.
Yes, I think Thats fair.
We've reached a plateau in the recovery I feel like.
Now seasonally every year August is a bigger month in September.
But.
Other than normal seasonal things, yeah, Yeah, I would say.
Plateau.
Outlook in the chart volume as is appropriate.
Okay and then just my follow up is on the the integrated volume if that tops out at 80%.
Should we think about the.
The 20% that's not integrated does that sometimes though you're.
Your pipeline or is your pipeline really away from that is that not a big contributor to the future integrated volume the volume that's not integrated at this time.
It's not really.
We're not looking for.
Face to face non integrated company.
Companies to buy but sometimes.
New innovative technologies are found within legacy companies.
Transitioned 10 years ago.
As I grew up in a face to face world and like Us day.
Seen the light and transition to more of an integrated strategy and so you.
You have to buy the entire company you can't just buy the part of the company you like.
And so we're always going to have some of that.
Plus the ISO business.
It's pretty effortless on our part and so and we love the Isos and so.
If they come to us and I want to switch to us from 1 of our peers, we're always happy to take them.
Got it understood. Okay. Thanks very much.
Our next question comes from John Rodriguez with D. A Davidson. Please go ahead.
Hi, John coming off from Pete Heckmann, just a quick question what was the tool acquisition revenue and adjusted organic growth from us.
I am.
Acquisition revenues were $20.7 million during the quarter.
And so I think you can just make that adjustment to come up with your growth rate.
Awesome and just a quick follow up roughly what percentage of revenue.
Now I had the convenience the attached and what are the implications for fee rate and margins. Thank you.
Do you mind repeating that.
Yes, what percentage of revenue now as convenience fee attached and what are the implications for fee rate and margin.
Well I think the volume you see in our proprietary software segment.
That is generally all what we call payback or convenience fee.
And we gave you that in the supplement on page 3 at the bottom.
I think you could assume that proprietary software number that's all convenience fee is generally higher margin and you see it's had tremendous growth.
Year over year.
Got it thank you.
Okay, and if you'd like to ask a question. Please press Star then 1 at this time.
Our next question comes from Jason.
Greg.
Bank of America. Please go ahead.
Hey, guys. This is Kathy on for Jason.
I wanted to go back and follow up a little bit about the margins. I know you guys are talking about how youre expecting a step up in the next quarter can you just talk about your visibility on that acceleration like what factors are you expecting to drive it whether it's by topline or maybe there's opex cadence or are there any other factors involved that we should be aware of thanks.
Well I can't say, it's largely a mix issue and V I S coming online.
Uh huh.
With a 50% margin, we got a full quarter this quarter.
And so that helped.
And the.
Reseller, we bought last year image soft has a low margin and so.
The 3 acquisitions, we did 2 in the beginning of April 1 and the beginning of May.
I have higher margins than that so it's just a blend.
This quarter, we had.
3 months of 2 of those in 2 months of the utilities company.
Our utility software company, so getting 3 months of the utility software company will lend us a little higher.
In Q4.
Got it okay.
Okay understood and just a quick housekeeping question from me at the other pieces of your guidance unchanged like your diluted share count interest expense D&A et cetera.
From last quarter.
No. They are all pretty close so we didn't see any reason to.
Reiterate them with just 1 quarter to go.
Okay perfect. Thanks, guys.
Thanks Cassie.
This concludes our question and answer your question I would now like to turn the conference back over to Greg Daily for any closing remarks.
Maybe on mute Greg.
Okay.
Well, thanks, everyone for attending and we.
We look forward to.
I am talking with you. If you have any questions just give us a call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.