Q2 2021 Exela Technologies Inc Earnings Call
[music].
Good morning, and welcome to the accelerate technologies second quarter 2021 financial results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then 1 on your Touchtone phone to withdraw from the question queue. Please press Star then 2.
Please note. This event is being recorded I would now like to turn the conference over to William Maina Investor Relations. Please go ahead.
Thank you and good morning, everyone and welcome to the extent of the technologies second quarter of 2021 conference call.
I'm joined today by Ron Cogburn of sellers, cheap Chief Executive Officer, and Shrikant sort of true our Chief Financial Officer.
Following prepared remarks made by Ron and Sri <unk>, who will take your questions.
The conference call is being broadcast live via webcast, which is available on the Investor Relations page of VIX sales website at <unk> Dot com.
A replay of this call will be available through August 17, 2021 information to access the replay of listed on today's press release, which is also available on the Investor Relations page of the phones web site.
During today's call of cell will make certain statements regarding future events and financial performance that may be categorized as forward looking statements under the private Securities Litigation Reform Act of 1995.
These statements reflect management's current beliefs assumptions and expectations as of today August 10th to 'twenty 'twenty 1.
Subject to a number of factors that may cause actual results to differ materially from those from the looking statements.
We undertake no obligation to update any statement that reflects the events that occur. After this call and actual results could differ materially from any forward looking statements for more information. Please refer to the risk factors discussed net sales. Most recent 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 of the sales website.
During today's call, we will refer to certain non-GAAP financial measures. We believe these non-GAAP financial measures provide additional information on how management views the operating performance of our business reconciliations between GAAP and non-GAAP results. We discuss on today's call can be found on the Investor Relations page of our website.
Note the presentation that accompanies this conference call is also available on our website.
With all of the mandatory regulatory ft disclosures out of the way I'd like to turn the call over to our CEO Ron Cogburn Ron. Please go ahead.
Yeah.
Good morning, and thanks, everyone for joining us on our second quarter 2021 conference call.
I would like to take a moment and thank some folks on behalf of the board of directors and our employees I want to thank our shareholders.
The existing for the confidence and support that they have shown recently.
We are inspired to build upon our recent reported performance for a brighter future.
We're also grateful to our 18000 employees globally, who have been on the frontline taking care of business and the winning the hearts and minds of our customers.
Today, I would like to focus on 3 key takeaways for.
First excel of strong position in a large market, where we have significant opportunity for growth.
This opportunity is enhanced by our recently launched digital solutions for small and medium business segment, where we are seeing strong growth and plan to accelerate our strategy of the coming quarters.
Second <unk>.
<unk> improving fundamentals.
Our revenue base of stable and our pipeline reflects multiple avenues of growth. In addition, our profitability metrics are improving as we continue to focus on our efficiency plans.
This is evident in our strong gross margin and EBITDA margin expansion in Q2.
And the third excel as improved liquidity position and the strong financial flexibility.
We have delivered on our November 2019 plan, achieving our liquidity target ahead of schedule and reducing our net debt by over 140 millions of dollars.
So of that let's begin on slide number 3 with an overview of accelerant of investment highlights.
We have debt we have discussed various iterations of this slide on prior calls because it underscores our strong position excel.
<unk> is a leader in business process management solutions globally.
We serve a large and growing total addressable market estimated at $207 billion and we see significant incremental opportunity for an even larger SMB market, where we have experienced strong growth since our interests and of the space in late 2020.
Our extensive investments in our technology and numerous patents serve as the competitive moat and.
And position us well to win with the solutions that drive digital transformation and automation.
We serve over 4000 customers across 14 industry verticals, including 60 per cent of a fortune 100 or so.
So our customer, but the customer base is not only large and diverse.
We work with some of the large blue chip companies of the World, where we have long tenured relationship.
And finally with decades of industry experience. We believe we have the right management team in place to capitalize on significant opportunities that we see ahead.
Now, let's turn to slide number 4.
Slide number for underscores our strong market position by highlighting the scale reach and the criticality of the services we provide as.
As you can see from this slide our solutions help our critical business operations. The touch the everyday lives of the majority of the population in the countries that we serve.
The facts presented here demonstrate our ability to handle critical business processes at a tremendous scale, which is important and this is something that sets us apart from the market. Furthermore, our digital transformation and automation as well as our BPA solutions are not only an integral part of our customer.
The core day to day operations, but they also facilitate increased efficiency.
This is of a powerful value proposition, which helps us drive our long tenured blue chip customer relations.
Let's turn to slide number 5.
I would now like to discuss some of the second quarter highlights.
Total revenue for the second quarter was in line with our expectations of $293 million down modestly from Q1.
<unk> and our revenue mainly reflect continued COVID-19 impact offsets offset by the increased stabilization of achieved after pruning non strategic contracts.
I'm pleased to say that we see we're seeing good momentum in our business.
Our a C V renewal rates improved to 95 per cent in Q2.
We have added new statements of work across many of our key customers as well the.
Public sector of showing potential for solid growth in the SMB vertical is exceeding all of our expectations.
Now here's an important fact worth noting we generated adjusted EBITDA of $51 million in Q2.
Up approximately 10% sequentially and 18% year over year and in line with our pre pandemic adjusted EBITDA in Q4 of 2019.
We find this noteworthy considering the current COVID-19 headwinds.
And believe it further underscores our continued efforts to increase our profitability.
Also we delivered strong margin improvement in the second quarter. Our Q2 gross margin was 28, 6%.
An increase of approximately 616 basis points sequentially, and 722 basis points year over year on.
Our adjusted EBITDA margin was 17.4% an increase of 189 basis points from last quarter, and 336 basis points from Q2 of 2020.
As we have mentioned in the past with facility consolidations, we continue to utilize our work from anywhere of model as well as implementing additional automation technologies and our business.
As a result, our operating profit increased by $21 million in Q1.
Since the beginning of 2021 we have raised total gross proceeds of $224 million through our equity offerings. These transactions combined with our strategy to reduce cost increase efficiencies have enabled us to reach total liquidity of 158 million.
As of August 6th of.
Keeping our liquidity target range of 125 to 150 million as promised in late 2019.
In addition, our efforts provided us with the capital to repurchase a portion of our outstanding debt.
Our net debt as of August sticks stood at 1 point to 97 billion of 1.
140 million dollar reduction year to date.
We ended Q2 was approximately 18000 employees and we expect our head count to increase in the second half to meet the rising demand.
Now, let's turn to slide number 6.
I'd like to update you on our progress with the small and medium businesses or the smbs.
The stats that you see on this slide give us confidence in the success of our current SMB offerings since our interest in entrance into this segment in late 2020, we have seen consistent strong growth in the number of new SMB customers in our digital mailroom and new users of our debt.
Rai Science solution.
In the second quarter, our digital mailroom SMB customers grew 99% sequentially and.
And our dry sin users were up 144 per cent from Q1 of 2021.
With the launch of the MLR in the United Kingdom of Q2 and launches in France, and Germany. This month as well as the recent launch of dry sign in India. We expect our strong momentum will continue.
With the success, we have of cheese in the SMB space, So far with our DMR and dry science solutions, we plan to add additional solutions to the SMB market across the Americas, Europe, and Asia, which we will discuss in the near future.
Now, let's turn to slide number 7.
I'd like to focus on our Q2 segment results.
We delivered strong sequential revenue growth in our health care solutions segment of 10%, reflecting improved volumes due to new statements of work new customer ads and larger backlog.
The legal segment also had a nice quarter with 14% growth from Q1 of.
<unk> 'twenty, 'twenty, 1 and 26% growth over last year.
The T. P segment had lower volumes due to COVID-19, but are slowly coming back as people return to work and we continue to believe we are well positioned to see volumes and revenue improvement in this segment once the COVID-19 slowdown subsides.
Overall, our current revenue base is stable and diversified from a customer industry and geographic standpoint.
Our backlog of substantial and our pipeline growth remains strong.
Give us increased confidence in our 2021 outlook, which we reaffirmed today.
Now, let's move to slide number 8.
We have deep and trusted partnerships with over 4000 customers worldwide. We believe we've only scratched the surface in terms of the potential market opportunity.
Mentioned before and as shown on this slide we have a we currently serve a massive $207 billion total addressable market.
In addition, we expect further expand our Tam and growth opportunity by going after the small and medium business market, which I discussed earlier, the SMB market is enormous representing over 400 million companies globally, and an estimated $676 billion.
In 2021, I T spin.
So in closing.
The items that brought us a successful quarter will continue to be our focus for having the right assets technologies and team in place to capitalize on our growing global team.
We will continue to execute on our efficiency and operational improvement plans to drive further margin expansion.
We'll also continue to focus on strengthening our balance sheet and financial flexibility.
We remain positive with the global economy recovering and the customer sentiment, becoming more optimistic our revenue base is stable and our pipeline is strong and we're seeing great results in the SMB market and.
In the second half of 2021 as the Covid the impacts from COVID-19 continue to normalize we expect our results to also benefit from improvement in volumes in renewal rates.
I'll now turn the call over to our CFO Street kind of short sure to run through the numbers and our guidance in more detail true huh.
Thank you Ron.
Good morning, everybody. Thank you for joining the call. This morning.
In my prepared remarks of will take you through our consolidated results and segment revenue provide an update on our balance sheet and liquidity position and the guidance for the full year.
Overall, we are happy to reported strong sequential and year over year of gross profit margin and adjusted EBITDA adjusted EBITDA margin expansion and good execution of our balance sheet improvement plans.
I asked me of them in the past the reporting both GAAP and non-GAAP numbers.
Felicia sorry on our filings and in the appendix of the presentation.
Let's start on slide 10, and review, our second quarter 2021the results.
Revenue for the second quarter totaled 293 million the decrease of 2.3% sequentially and for 8% year over year.
Revenue for our IPP of segment was $217.3 million a decrease of 6.3% from Q1 and 10, 6% year over year.
The decline is primarily driven by lower transaction volume due to the continued impact of COVID-19, and delayed on site work that impacted the UTP of segment.
Our healthcare solutions segment revenue totaled $56.2 million, an increase of 10% sequentially and 14, 2% year over year.
The increase was primarily driven by new statements of work client growth and increased volume from existing clients due to a larger backlog.
Lastly on a legal in the hospital into the segment revenue was $19.5 million up 14% from Q1, and 25.8% year over year signaling an improvement and more predictability.
Moving on to a profitably metrics.
Our gross profit increased by approximately $16.5 million or $24.4 per cent from Q1 to $83.9 million, reflecting our ongoing focus on cost management.
This also includes $3.5 million game from a day recognition of an operating lease liabilities due to production facility lease termination.
On a gross profit margin for the second quarter increased 620 basis points sequentially, and 720 basis points year over year for 28, 6%.
SG&A expenses in Q2 totaled $36.4 million down 13, 1% sequentially, representing $12.4 per cent of sales right.
Deliberate lower sequential and year over year G&A costs, despite higher professional fees and the advisory costs, mostly related to our equity offerings, which we expect will decline in the back half of the year.
We delivered adjusted EBITDA for the second quarter of $50.9 million up 9.6% sequentially and 18% year over year on.
On an adjusted EBITDA margin for the second quarter was 17, 4% up 189 basis points from Q1, and 336 basis points from the second quarter of 2020.
Our Q2 margin expansion benefited from cost efficiencies, which I just mentioned, including our deployment of work for many of their solutions, which have helped reduce our real estate facility costs as part of for a multi year for some of these plants and cloud deployment, which are benefiting our IP infrastructure expenses.
Capital expenditures in Q2 about $2 million or 0.7 per cent of sales in line with our expectations.
Finally, our liquidity per our credit agreement was $158 million as of August 6.2021, consisting of $136 million of cash 22 million of availability under the global credit facilities.
This does not include the $24 million of add backs for fee speed for advisory and professional services through June 30th 'twenty 'twenty 1.
Please note our June 30th 2021 balance sheet cash excludes $160 million of net proceeds from the ATM equity offering due to timing difference of the transactions that closed on June 29th Authority and settled on June 1st and second respectively of <unk>.
Detailed view of our second quarter as the last year to date June 30 of Russell.
Can be found on slide 13 for your other friends.
Turning to slide 11.
The breadth and diversification of our revenue on the industries. So it's a significant strength breaks out of them.
2 key points that I'd like to make with the breadth of.
With the flight.
We have long tenured and trusted partnerships, providing critical solutions to thousands of customers that cut across every major industry vertical.
This enables both stability with our existing customers and gives us tremendous points of preference with prospective customers.
Second the low customer concentration of deep vertical expertise in industries that have the strongest projected growth like banking financial services insurance healthcare and tech we are well positioned for growth, especially of the global economy continues to recover post spend on it.
Our high margin dog business represents 8% of the total revenue.
Moving to slide 12, I'd like to discuss our recent equity offerings and strategic deal for the Liberty aging in more detail.
The slide is a powerful presentation of the for successful execution, the previously announced strategic initiatives.
The very pleased to report that they put capital markets have resonated with our conviction in the company and its growth plans on our current liquidity of 158 million has exceeded the target of 125 to 150 million announced in Q3 of 2019.
We'll continue to be focused on strengthening the balance sheet.
As Ron mentioned since January 1st of this year at <unk> has raised 224 million of aggregate gross proceeds from 3 equity offerings.
On March 18, we completed a common stock and warrants offering for $26.8 million of gross proceeds.
On June 30th select completed the sale of shares of common stock in an at the market or ATM offering for a total of $99.2 million in aggregate gross proceeds under the 100 million ATM program and the.
As of August 19th of 2021 it's still not completed the sale of shares of common stock and the medium offering for $98 million in aggregate gross proceeds under the $150 million ATM program.
Well I have the approximately 52 million remaining under this previously announced $150 million ATM offering.
Utilization of the proceeds from our equity offerings, the completed debt buyback of $59.1 million.
We are pleased with the progress you made the of euro against our liquidity improvement of debt reduction plan the <unk>.
And our balance sheet by reducing our debt and increasing our cash and lowered our annual interest expense burden for us.
Melting and increased financial flexibility to pursue growth and value creation opportunities.
Moving on to slide 14, I would lie.
To summarize our key business and operational update.
As Ron mentioned, our revenue base of stable and we see several areas of business momentum. We have added new statements of work across many key customers and also added several new customer logos on public sector pipeline, the indicating the potential for solid growth of health care business is expected to benefit from rising volumes and backlog clearing on.
Our SMB growth exceeding internal expectations with the red.
But the operations operating leverage of improvement our GAAP operating profit improved by $21 million from the first quarter on flattish revenue.
Increased efficiencies for the implementation of automation tools, so just neural networks and intelligent document and data processing and we have expanded our cloud usage.
Also completed the closure of several facility leveraging the stocks of of our work from any of their model. Looking ahead, we expect to drive additional operating leverage from higher utilization as our revenue growth improves.
Finally, the strengthen our balance sheet and increase the financial flexibility.
Fleet of 3 equity offerings in the first half of 2021 for $224 million of gross proceeds of which enabled us to strategically reduce our net debt leading to lower annual interest expense and ultimately higher free cash flows or liquidity is at the historic high and we believe we have sufficient capacity to support anticipated growth as we continue to.
Penetrate our Tam and as Covid had been subside.
Turning to slide 15.
You will see the takeaways from today's presentation.
Everything on this slide of lengths day, some non going to cover it again.
I would say that we wanted the tanks all of X. The last 18000 plus team members for their hard work and dedication to our customers on our company's success.
I also want to thank our shareholders for the continued support.
We'll continue to focus on building up on the positive momentum we generated in Q2 from the second half of 2021 and beyond.
Finally, I would now like to touch up on R 22 on human guidance.
As Ron mentioned, we are reiterating our prior guidance range, which include full year 'twenty 1 revenue to be in the range of $1..2 5 billion to $1.39 billion gross margin for 2021 to be between 23 of them 25%.
The EBITDA margin to be between 16% to 17% capex levels of approximately 1% of revenue.
I'd like to thank you all very much for joining us on the call today with that operator, please open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on you touched on some of them. If you weren't using a speakerphone. Please pick up your handset before pressing the keys to.
Withdraw from the question queue. Please press Star then 2.
The first question is from Josh <unk> of Cantor Fitzgerald. Please go ahead.
Yeah, Hi, good morning, Thanks for taking my call.
Can you speak a little bit about the piece of revenue as we move through the back half of the year, and which segments or industries do you expect to accelerate volume.
Sure. Thanks for the question Josh.
As you probably noticed of both of our health care and L. L. P. S. B of seen sequential and year over year of growth, we expect to see those trends in those segments, particularly with the health care within the P. S.
The positive has been the public sector, where we have seen growth in and a few other industries, including commercial utilities.
And professional services, it's been stable revenue.
So we expect it.
The back half of the year that you know hopefully for a built in payments and some of the other industries, where our volumes are not added back up to hopefully pick up as the COVID-19 headwinds start to subside from our perspective.
Great. That's super helpful. And then shifting gears, a little bit the Dag how's the build out of the F&B sales force going and are you seeing any increased traction there and also looking further out for the future of which the AG product do you expect it to be the biggest source of future growth.
This is Ron.
No. The Dag question in terms of sales is a good question, Josh and the.
With the launch of the DMR and dry side those were the first 2 entrants into the market and we're looking for.
The adoption and we have seen as you've seen the number of users of our subscriptions has climbed more than we ever expected.
We have dedicated sales force pointing at both of those particular solutions and offerings.
And as we mentioned in the coming quarters now we've launched it in Europe, France, and Germany, and India and as we look at this we have the the sales force in place to help manage and drive that and we're very excited to see how these began to rollout.
Along with some of the other products.
Products that were going to offer in the second half and we'll probably have a separate.
Call her score for announcements on those products, but look forward to share that with everybody. When we when we launched those.
Yeah.
Great. Thanks for the color there last 1 for me can you provide the update on your strategic alternative and just kind of give us the ballpark of how you're feeling in terms of issuing more equity or perhaps of completing a noncore asset sale in claims weighing 1 just trying to the.
Figure out what kind of strategies the company may take the through the back half of the year.
Sure.
We are the Josh again of Great question, but an important 1.
Given that there are so many initiatives on our focus on executing more importantly, as you know we have laid out targets that would be of being able to hit that gives us a lot of them for that would be ahead of them the right direction that said.
The simple way of saying this is for.
Focus on executing and we'll continue to do things that led us to for such an impressive quarter.
Be it on a on a operating friend or from a financial friend.
So then in terms of what we wanted to do with equity and debt in the near term future. It's really you know, making sure the shareholder value was to.
Taken in duck on create value for the shareholders the how to balance of the cost of capital.
We have the how various things to figure out the rest assured we'll.
Provide specific updates as and when they arise.
Great. Thank you very much for Ya com.
No part of things.
Okay and if you have the question. Please press Star then 1 the next question is from Terry Wang of the Carlyle Group. Please go ahead.
Hey, guys. Thanks for the questions good quarter.
A lot of the promises that we've made them sometimes.
Sometimes late last year.
Wanted to check in on the.
<unk> business is.
Is a bit softer versus the other 2.
Hmm.
Given that you reaffirmed your guidance for revenues.
And for 2021 I guess, we're expecting growth.
And third and fourth quarter do you expect that to come more in the back like in the fourth quarter or do you expect more of kind of.
Balanced growth and the.
Third and fourth quarter.
The Josh Josh again, Thanks for your question since you zeroed in on I T. P. F. Let's suck the zero down on that a little bit of sequentially $14.6 million or from a year over year. It's 25.8 million of herself revenue drops sequentially, it's usually the year end.
In our unified communication business at the year end.
Sorry, I said I said, Josh sorry, Gerry.
Got it.
So.
It's the ear and the statement that drives the certain seasonality, which sequentially IDP of thrown the Mcdonough that's not for the major driver year over year I think indicated.
I think for yourself, so as to a variety of different industries, we are seeing positive momentum or upticks in volumes in public sector and a couple of other areas.
Some payments.
Not seeing as much as it would be the like to the hope that it stopped gets to the starts to pick up into 3 and 2 for.
There were there's additional softness is on the on site, our onsite business as people come back to work of the.
We are confident that that business for that.
The industry or that side of the business will start to pick up.
That said you know.
There are projects that are in the ramp, particularly there's a material project, we expect to ramp late Q3 of it.
What's driving our confidence that revenues will be the you know.
The higher than the Q3 Q4 timeframe.
As you probably saw of you've had a number of S O W.
That'd be the 1 of our Q2, our renewal rates have been a.
Positive. So some of these things gives us the confidence that the the second half of the year could pan out to be there be 1 from a revenue perspective.
Okay great.
Appreciate all of that color.
The.
The.
Call. It the 147 of transactional revenues that you quoted you know sometimes they.
Sometimes last year didn't mention that as much or you largely exited by now in the first quarter of 'twenty, 1 or second quarter of 'twenty 1 debt.
The.
The transitional revenue kind of outlined back then his desk on granted there might be some stranded cost tail, but the transition with gross debt that's gone on at this point.
Keep your eyes, Yeah. Gerry you eat is so the last quarter I think I had kind of mentioned on a trailing 12 months Q1, we were trying to get $145 million or so against the target of 1.115 minutes you're on.
On the similar range for trailing 12 months Q2, it's around 145.137 million of transition revenue that said, it's the on site side of the business, where there's higher transition revenue some of those exits for in Q3 and Q4 of last year. So 1 of the reasons Youll see that Itbs's down.
Apart from volumes are wanting the compression of the on site and the other side. It's also a tail off of the transition revenue.
A quick simple answer to your question is of your seeing the run rate of 145 for the last couple of quarters from the trailing 12 month perspective.
Okay good to hear.
Your employees I think you mentioned 18000 or so are in employees. I think you were down to 18400 <unk> are you still in that same context or are your lower now.
If we are on the same context, it's 80 pounds of 18000 employees Sylvia on the same context the jewelry.
Okay, Great and then really last 1.
I know you bought back $50 million of debt are you looking to retire that or what's kind of done.
The use of of that of the.
The buyback.
We are evaluating all our options and strategies.
The the important goal for us is to keep the financial flexibility to make sure we retain liquidity and lastly.
To make sure it's delivering and we get our debt service cost of our interest costs low in terms of specific thought of you about retiring obviously, it's something that we'll probably share of a and b have more.
Okay fair enough that what did you say of the same for the stub piece of $50 million of ATM left.
Got it.
Yeah, that's right, Okay fair enough great. Thank you.
Thanks Jody.
The next question is from Alexander Graf of Cowen. Please go ahead.
Yeah.
Thank you and good afternoon I'm just out of question regarding the regarding liability management.
In the near term maturity with the revolving credit facility. How are you guys thinking about addressing this maturity in light of all of the fresh capital that's come in and how are you balancing that with buying back more debt potentially on a discounter and given our current trading levels.
Thank you yeah, yeah, Alex on thanks.
Thanks for the question similar to what I told the jewelry right, we're gonna be strategic about it and more importantly, the good thing we're gonna be on how the financial flexibility and when we have the liquidity on hand, as I said the the.
1 of the key key things that'd be going to do is to make sure. We protect it put it to put it to good deals and more importantly, also drive that to achieve some of the other operational and financial targets that we have improved margins stronger balance sheet.
Keep the liquidity and focus on improving cash flow that said in the context of the revolver debt.
It gives us the flex the based on the liquidity that would be how right now right. So.
Now how does that unfold over the next few months of quarters, that's something that of your thinking through.
Got it great. Thank you and in terms of the 50.559 million aggregate an amount that you bought back what's kind of the split between bonds purchased in loans purchase.
Yeah.
That's been home mention most likely it'll be on our subsequent event footnote on the 10-Q, given that would be a non disclosed it anywhere else.
They'll probably pass on debt.
Okay fair enough.
Just wanted to confirm the cash number of $136 million.
That does not include any adjustments per the credit agreement right. That's the true cash number.
That is correct.
Okay great.
And just on gross margin expansion up to around 29% as you mentioned sort of roughly I think the delta.
Between 2019, and this year is roughly 18 million can you maybe help us quantify that.
<unk> talked about are you of real estate closures about for facilities and certainly employee reductions that have helped on the operating leverage of the business. So.
Maybe just some granularity on on how to quantify that would be super helpful.
The via your different cost saves cost saving plans.
Sure sure you know great question, there and.
We're extremely pleased with how Q2 performance came on particularly from a gross gross margin perspective that said 1 of the things that I highlighted in our prepared remarks is we had a pick up of $3.5 million or so for a day recognition of the facility that would be extended again, it's linked to the a stranded costs that we are sitting in.
B the the.
The real estate footprint that would be of rationalizing right. That's 1 example of where you'll probably see more of those come through number 2 it's really from a from a cost perspective, the way to look at it is.
Where we have done a.
Fairly decent job in the last few quarters and particularly in Q2 is the.
We use the existing capacity to Delaware, 1 time of increased volumes.
That kind of gives us a more.
Higher the project based revenue has come in at higher margins second capacity expansion happens only when the when we know for certain of that theres going to be of long term recurring revenue in other words of.
We are managing our capacity very well or you can call the demand driven kubacki of money right. So some of these are helping that apart Q2 of you know some of the projects were probably through higher margins and.
In general are moving.
The we experienced favorable operating leverage in Q2.
Yeah.
Got it. Thank you very much for the time I appreciate it.
Most of all of them here.
Nice to have us all the walk from Josh the glare of Cantor Fitzgerald. Please go ahead.
Hi, guys. Thanks for taking my follow up.
I just wanted to touch on Delta obviously, you know, it's it's spreading throughout the globe are you seeing any change or any sort of hesitation from some of your clients and any any per se on how about the impact volume moving forward.
Oh this is Ron I'll take a crack at it you know Josh its a good question you know we have been on sort of this.
Operational mode now for for more than a year.
Around how you manage the COVID-19, how you manage it of that facility.
All of our customers react to it.
Kind of had the cadence or that discipline, if you will around how to manage through those types of impacts and so.
So the Delta variance certainly is out there, but we haven't seen the kind of reaction that we saw initially from the COVID-19, when it when it really took hold last year.
The third quarter. So we remain optimistic that we will navigate through any changes that might happen because our customers look at us as long term partners on I didn't.
Mentioned it today, but.
You can look some of the previous calls our largest customers of our top 15.20 customers of bandwidth that's more than 15 years. So we have navigated through a lot of rough waters and a way.
We have got their confidence we brought them through a real crisis last year. So we feel pretty good about where things are headed.
Great that's the.
That's great to hear.
Also I believe in your prepared remarks, you mentioned that you have the increased confidence in your Twain playing on outlook. So what events occurred in Q acute that bolstered that confidence I mean, you feel stronger about your outlook.
Right, Okay, I can take that Ron who can add more color.
I think I addressed it on 1 of the already of the questions. Josh 1 of we have a particular project that's ranked the ramping up in late Q3, that's 1 thing it's the.
The statements of work that we have signed recently that will give us the it gives us the line of sight and hopefully steady revenue over the next few months on a couple of quarters.
The volumes coming back up to your point earlier question are the unknowns as it relates to Delta are the other headwinds that we could run into that'd be on onshore, but but it's keeping in mind. The the Q2 of renewal rates that we've had the projects that are ramping up and some of the sort of abuse on volume.
Coming back up.
Yeah that was good for kind of you know, let me just add Josh the 1 way when we talk about.
How we forecast how we can look at the future of how we look at the operations of the company.
For at least 18 months for we have looked at maybe 12 months, we've looked at it from a perspective of when will things normalize.
And we have seen in the first 2 quarters of this year more indications of normal what we'll call of the new normal behavior.
Save you know the onsite business and Theres a lot of the facilities and the larger cities that have not come back to work as quickly, but overall, we're beginning to see the signs of things that we hoped for and that we planned for so I think that as much as anything the renewal rates as a test of 95.
The 5% in the quarter for the HCV. So that's.
That's a clear sign that people are are they.
They have confidence of what we're doing for them and we see it as a real positive.
Great. Thank you Ron and shrink on thanks for taking my follow on.
For Brian Josh Thank you.
This concludes our question and answer session I would like to turn the conference back over to Ron Cogburn for closing remarks.
Thanks, operator.
Like to reiterate the of the thinks.
That we have for the shareholders, new and existing and.
The support that they've given us on the call of as they have of us our employees as well it has been the heroic efforts.
But those 18000 employees of the broadest where we are today.
Stay tuned for for more announcements around the SMB.
Business and some of the solutions that we're going to offer in the near future and we look forward to seeing everybody on the Q3 call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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