Q3 2021 Exela Technologies Inc Earnings Call
Good day and welcome to the <unk> Technologies, Inc. Third quarter 2021 financial results Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
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Please note this event is being recorded.
I would now like to turn the conference over to Mark Griffin with ICR. Please go ahead.
Mr. Griffin, perhaps your line is needed we are unable to hear you.
Yes. Thank you.
Good afternoon, everyone and welcome to <unk> Technologies' third quarter 2021 conference call.
Joined today by Ron Cogburn, <unk>, Chief Executive Officer Mr.
Constant here, our Chief Financial Officer, following prepared remarks made by Ron as you call. It we will take your questions. As a reminder, during today's Q&A session. After on today's call, we will not be able to take questions on the pending exchange offer due to legal restrictions on commenting on securitization.
Today's conference call is being broadcast live via webcast, which is available on the Investor Relations page of <unk> website at <unk> Dot Com a replay of today's call will be available through November 12, 2021 information.
Information to access the replay is listed on today's press release, which is also available on the Investor Relations page of <unk> website.
During today's call Excel will make certain statements regarding future events and financial performance that may be characterized as forward looking statements under the private Securities Litigation Reform Act of 90 95. These statements reflect management's current beliefs assumptions and expectations as of today November five 2021 and are subject to a number of factors.
And may cause actual results to differ materially from those statements.
We undertake no obligation to update any statements to reflect these events that occur after the fall and actual results could differ materially from any forward looking statements for more information. Please refer to the risk factors discussed in <unk>. Most recently filed periodic form on 10-K.
Along with today's press release, and the company's other filings with the SEC.
These are available from the SEC or the Investor Relations page of <unk> website.
During today's call, we will refer to certain non-GAAP financial measures. We believe these non-GAAP measures provide additional information on how management views the operating performance of our business.
Reconciliations between GAAP and non-GAAP results.
As discussed on today's call can be found on the Investor Relations page of our website. Please note. The presentation that accompanies. This conference call is also available on the Investor Relations page of the website.
With all of the mandatory regulation FD disclosure.
Please to turn the call over to our CEO Rod conflict Ron.
Good afternoon, and thanks, everyone for joining us on our third quarter 2021 conference call.
We are focused on executing our strategy to speed up capital deployment debt reduction cash flow improvement and investing in our business for stabilizing performance in growth. The fundamentals of our business are strong and we are pleased with the continued exceptional growth of our digital solutions for the SMB market.
Where we see opportunity for further geographic expansion.
We expect further improvements within our underlying business that will lead to additional improvements in the margins and cash flow in 2022.
Now I'd like to take a moment and point out a couple of highlights for you to remember to that first.
Enhanced cash flow position.
We have the initiatives in place to achieve $50 million in cash flow improvements in 2022.
This is a $25 million improvement from our previous cash flow estimates that's quite an accomplishment.
These improvements are currently underway in Q4 based on previously announced plans to deploy over $400 million of cap.
And second we are executing plans to reduce our debt by approximately 25%.
To $1 billion from $1.355 billion.
So with that let's begin on slide number four with an overview of accelerants investment highlights.
Yeah.
For those who are new to <unk> technologies <unk> is a global leader in business process management solutions.
Our total addressable market is extremely large at $207 billion and growing.
Moreover, there are incremental growth opportunities in digital asset groups or what we call that as we refer to it included in the SMB market, which we entered in late 2020.
We're well positioned in the market with a strong competitive moat supported by our extensive investments in technology and the numerous patents.
Our customer base, which is over 4000 spans across 14 industry verticals, including 60% of the Fortune 100.
We service a large and diverse group of customers from the SMB to some of the largest blue chip companies in the world, where we have long tenured relationships and finally with decades of industry experience. We believe we have the right management team in place to capitalize on the significant opportunities we see.
Now, let's move to slide number five.
I would like to discuss some of the third quarter highlights.
Total revenue for the third quarter was $279 million down from the same period a year ago.
Most significant variations in revenue occurred in our public sector.
Which were mainly driven by the delays in the funding approvals for the agencies that we serve as well as the continued COVID-19 impact.
We generated EBITDA of $49 1 million in Q3, an increase of 30% or $11 $4 million year over year.
<unk> generated adjusted EBITDA of $36 million in Q3, which is down 25% year over year.
Also we delivered continued margin improvement in the third quarter.
Q3 gross margin was 24, 2% an increase of approximately 90 basis points year over year.
COVID-19, and the resulting safety measures have had a continuing impact on our onsite business as well as some of our operating system centers we have.
<unk> been impacted by lower usage in the onsite services as well as lower utilization and some of the operating centers.
When we originally forecasted which ultimately affects our margins.
Since the beginning of 2021, we have raised total gross proceeds of $276 million through our equity offerings. These transactions combined with our strategy to reduce costs and increase efficiencies have enabled us to reach a total liquidity of $227 million.
As of November <unk> 2021 <unk>.
Exceeding our total liquidity target range of $1 25 to 150.
$1 million, which we discussed in late November.
In addition, our efforts provided us with the capital to repurchase a portion of our outstanding debt.
Our net debt as of September 30th stood at one point to $4 $7 billion 190 million dollar reduction year to date.
Now, let's turn to slide number six let's talk about some of the key performance metrics.
Our strategy has evolved to scale up our cloud usage, many of our platforms, including intelligent data processing and.
And our work from anywhere initiatives are driving fast adoption of the cloud.
We expect materially all customers and employees will be using the cloud by the end of 2022.
This is up from 30% in Q4 of this year.
Quarterly revenue challenges due to COVID-19, aside we are seeing solid momentum throughout our business highlighted by strong renewal rates expansion activity.
An increasing pipeline of new activity.
Now with regard to COVID-19.
With those impacts we've seen delays in the following areas delays and the plans to return to the office by our onsite customers, which in turn impacting our onsite revenue, which is part of the <unk> sector.
Continuous government restrictions across countries during Q3.
The delays in project execution, and thereby revenue device.
And then lastly, the hiring market at large is challenging and that there is just not as many candidates for open positions as they were before and this last one here is a market wide phenomenon.
Overall, we have a high customer satisfaction level that can be seen in our renewal and expansion rates.
Our renewal rates continue to improve and were up quarter over quarter and year over year.
In terms of contract expansions those were up 16, 9% sequentially.
21% year over year.
Our new offerings are resonating in the market with a pipeline that is up four 6% sequentially.
10, 5% year over year.
Additionally, Additionally, we've entered into a new strategic partnership with one of the largest technology companies in the world.
To pursue new business opportunities.
This is part of our strategy to expand our reach and scale of our platforms and services. We look forward to sharing more on that partnership in due time.
Now, let's turn to slide number seven.
I'd like to update you on the progress of our small and medium business.
Efforts are the SMB efforts, which are part of our digital asset group or day.
The stats you see on this slide really give us confidence in the success of our current SMB offerings, which are leveraging our enterprise customer platforms.
Since our entrance into this segment in late 2020, we have seen consistent strong growth in the number of new SMB customers for our digital mailroom or DMR.
And our new users for drivetrain solutions.
In the third quarter, our DMR SMB customers grew 71% sequentially.
And our dry sand users were up 47% from Q2 of 2021.
Okay.
With the launch of DMR in France, and Germany, as well as the recent launch of dry sign in the Philippines and UK, we expect our strong momentum will continue.
With the success, we have achieved in the SMB space, so far with our DMR and dry sense solutions, we plan to add additional solutions to the SMB market and we're very close to launching a remote online <unk> platform, which will help us accelerate the conversion of the smbs onto our DMR.
At Forum and expand our value proposition to a much broader audience.
So in closing accelerant mange, well positioned in today's environment.
We enhanced our liquidity position through a fortified balance sheet debt included equity raises debt repurchase debt refundings.
Our strengthened financial position along with our continued operational improvements position <unk> to capitalize on our growing global Tam Mauro.
Moreover, we have the technology extensive history powerhouse employee base and the strength of our new financial position that provides us confidence in our strategy for what we plan in 2022.
Now I'll turn the call over to <unk>, our CFO to run through the numbers and our guidance in more detail.
Sure you caught.
Thank you Ron.
And thanks to everyone for joining us this afternoon.
I'll cover our consolidated results and segment revenue provide an update on our balance sheet and liquidity position and discuss the updated outlook for the full year 2021.
Overall this quarter, we are happy to report the strong progress on strengthening our balance sheet and solidifying our financial position.
As we have done in the past.
Both GAAP and non-GAAP numbers reconciliations or in our filings and in the appendix of the presentation.
Let's start on slide 10, and review our third quarter 2021 results.
Revenue for the third quarter totaled $279 2 million, a decrease of four 7% sequentially and eight 5% year over year.
Moving on to our financial metrics, our third quarter 2021, gross profit margin of 24, 2% an increase of 90 basis points year over year as a result of better cost and capacity management offsetting the impact from lower revenue.
For context, our cost of revenue year over year decreased by $22 5 million compared to the gross funding revenue decrease of $26 1 billion.
Our Q3 sequential results are not comparable due to a few different factors.
As analogy impact, particularly in the EMEA region being a driver and continued lower volumes and Underutilization of resources as a result of COVID-19.
Sequentially, our gross profit decreased by approximately $16 4 million or 447 basis points from Q2, primarily due to the impact from revenue decrease and certain one time impact in Q2 that did not repeat in Q3 for example, the favorable $3 5 million gain from the recognition of <unk>.
Operating lease liability due to production facility lease termination.
Reported SG&A expense in Q3 totaled $43 2 million up 1% year over year, representing 15, 5% of revenue.
For Q3 of 2021 included a one time charge of $3 8 million on our Lps segment.
Net of the one time charge, Jimmy would have been $39 8 million and would represent 8% decrease year over year.
Turning to EBITDA and adjusted EBITDA in Q3 of 2021, we generated an EBITDA of $49 1 million compared to $37 7 million in the prior year period.
This included a gain on early extinguishment of debt of $28 1 billion for the three months ended September 32021.
Adjusted EBITDA for the third quarter was $36 4 million down 25, 3% year over year.
0.5% sequentially, our adjusted EBITDA margin for the third quarter of 2021 was 13% down 292 basis points year over year, and 435 basis points sequentially from Q2.
Capital expenditures in Q3 was $3 6 million or one 3% of sales in line with our expectations.
Finally, our liquidity per our credit agreement was $227 million as of November two 2021 and includes $24 million back for PC for advisory and professional services.
A detailed view of our third quarter as well as our year to date September 32021, or both can be found on slide 14 for your reference.
Turning now to slide 11 to discuss our revenue by segment.
Revenue for our <unk> segment was $208 3 million, a decrease of 9 million or four 1% sequentially from Q2.
The decline was primarily driven by continued COVID-19 impact as delays in our customers return to office plan are affecting our onsite businesses. In addition to seasonality.
Happened to get it by Ron on fly Fi variation in our public sector revenue due to delays in funding approvals impacted.
Q3 revenue in the segment.
Alright give me a segment remains challenged from lower volumes due to COVID-19, and we continue to believe we are.
Well positioned to see volumes and revenue improve in this segment once COVID-19 impact subsides.
Healthcare solutions segment revenue decreased by $2 2 million sequentially, primarily driven by lower seasonal volumes on our payer business.
<unk> segment revenue decreased by $2 6 million due to certain onetime projects that were completed in Q2.
Overall, our current revenue base, a stable and diversified from a customer industry and geographic standpoint, our backlog is substantial and our pipeline growth remains strong. It does gives us confidence as we look beyond 2021 into 2022.
Turning to slide 12.
The breadth and diversification of our revenue in industries. So there's a significant strength for XOMA two key points that I'd like to make at this stage.
We have long tenured and trusted partnerships, providing critical solutions to thousands of customers that cut across every major industry vertical.
This enables book stability with our existing customers and gives us tremendous points of reference with prospective customers.
Second with low customer concentration deep vertical expertise in industries that have the strongest projected growth like banking financial services insurance health care and deck youre well positioned for growth, especially as the global economy continues to recover post spin Debbie.
Our high margin <unk> business represents 8% of the total revenue.
Moving on to slide 13, I'd like to discuss updates to our balance sheet initiative, and our strategic deleveraging, which will improve our annual cash flow by $15 million.
Since the since we announced our deleveraging strategy, we have raised $276 million from equity offerings through end of September and repurchased $95 million of outstanding debt.
As we execute our multi step strategy, we expect to reduce our interest and loan amortization, but $37 5 million on an annual basis.
The remaining cash flow improvement of $12 5 million will come from reducing our facility and other lease expense.
Our plan is to lower our debt by 25% to $1 billion from 135 5 billion financially stronger company as we prepare for 2022.
As part of our plan to deploy over $400 million of capital. We have commenced an exchange offer for bus priority secured notes and senior secured term loans, both of which are due in 2023.
As we head into 2022, our next strategic focus will be on investing for growth and we have made a number of assignments.
Cost areas across the business, bringing on seasoned individuals who will help us grow our business.
Turning to slide 14.
We covered the quarterly results in detail on slide 10.
On this slide therefore, I'll highlight year over your nine months gross profit and margin performance.
Gross margin for year to date 2021 was 25, 1% an increase of 364 basis points over prior year.
Contact we have an increase in gross profit of $9 million for the comparable period on a revenue decrease of 106 million. This was possible due to operating leverage improvement increase efficiency through the implementation of automation tools and leveraging.
So far worked for many of their model looking ahead, we expect to drive additional operating leverage from higher utilization of our revenue growth as our revenue growth improves.
Finally, I would now like to provide an update to our 2021 outlook.
Earlier due to variations in unpredictable public sector revenue as well as continued COVID-19 impact. We are we are updating our revenue guidance for full year 2021 to be in the range of $1 1 billion to $1. One 8 billion on a reported revenue basis.
We are reaffirming all other guidance for the full year, namely gross margin for 2021 to be between 23% and 25% our adjusted EBITDA margin to be between 16, and 17% capex levels of approximately 1% of revenue.
Turning to slide 15, you will see the takeaways from today's presentation on here I'll close by reiterating that we will continue to focus on improving our balance sheet and liquidity, while making the right investments to deliver improved performance and operating cash flows to achieve both our short term and long term financial goals of growth.
Margin and free cash flow.
We look forward to continuing this progress in the fourth quarter and beyond.
Thank you all very much for joining us on the call today.
Operator, please open the call for questions.
Thank you and as a reminder, during the Q&A session of today's call. We please ask that you limit yourself to one question and one follow up.
Additionally, we will not be able to take questions on the pending exchange offer due to legal restrictions on commenting on securities issuance.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
And the first question will be from Josh <unk> with Cantor Fitzgerald. Please go ahead.
Sure.
Hi, good afternoon. Thanks for taking my question. So my first one is on the government business that didnt come in that to us sounds like it was a timing issue. So can you provide some additional color on this component do you still expect this business to be recognized in <unk> or perhaps 2022, and what potential impact do you think that can happen.
Just most of all thank you for the question I will lead with the lead with it and Ron can give you additional details.
Youre right. It is timing at this point in time, we expect that as you probably heard on the Q2 conference call we expected the <unk>.
<unk> to ramp up late Q3 that did not happen due to the debt ceiling or the funding approvals not procured by the government and therefore this is getting pushed out.
From a timing perspective.
We are waiting to see how this will unfold it most likely could be a 2022 type of an event, but it's still unknown.
Ron do you want to add the specifics behind us.
So this is rod speaking, so yeah to Treehouse point and dealing with some of these federal agencies and we work with some of the largest.
The struggle that Congress has we see this I guess once every four years on death sealing.
Has caused everybody to tap the brakes with commitments to move forward with either projects or continued growth and certain statements of work. So.
While we proposed on.
This new statement of work, which is substantial for us.
About ready to pull the trigger the agency pause for a moment as they were restricted through this.
I guess the exercise of congress's putting them through so we're very hopeful that we'll see this come back to life here by the end of the year.
If not in 2022 would be a very good spot for it to kick off.
Great I appreciate the color there.
Then switching gears a little bit you guys have made significant progress on your capital structure. This year what in your opinion is the next step to take with the balance sheet. Obviously, you have a lot of moving pieces here, but you know what is the next incremental impact here and what how do you think the current steps you've taken will impact your future cash flow. Thank you very much.
Yes, Josh I think it's Christy quickly laid out for deploying $400 million of capital.
To reduce that 25% levels to get to be $1 billion range and more importantly, also secure the interest cost savings.
Savings targeted at $37 5 million right now in addition to deploying the capital to reduce operational costs like the lease and other equipment costs. So in total we are targeting the 15 billion improvement to cash flow we are deploying.
Capital.
Thank you guys.
Thanks.
And the next question will come from Zach Cummins from B Riley Securities. Please go ahead.
Hi, yes, thanks for taking my questions.
Just tailing off into the health care services segment.
I mean kind of surprising to see that decline on a sequential basis. So can you give me some more insight into what drove that sequential decline and then kind of your confidence in being able to consistently grow in that segment going forward.
Q actually Q3 tends to be a soft quarter for healthcare so to speak and then again Q4. It picks back up in Q1, and Q2 health care revenues tend to be.
Higher as well and then in Q4, because as the yearend enrollments as well as annual exam go through you'll.
You will see more revenue so that's not entirely surprising that we had a seasonality impact from the beer business.
So the 2 million Delta.
While we expected more.
To come through 2 billion Delta it doesn't concern us as much from a seasonality perspective.
Understood and just on the $227 million liquidity number that you reported I mean can you give me the breakdown there in terms of the different components. There just to get a better sense of the actual cash that you have.
Sure Josh in line with it.
A couple of other earlier reporting it remains the same approximately $24 million of the add backs and approximately $22 million to $24 million of availability in our facilities.
Back that out the rest is cash.
Understood I'll jump back into the queue. Thank you.
Yeah.
Thank you and the next question will come from Alex Kramm from Cowen. Please go ahead.
Thank you and good afternoon.
Just a quick one on the updated guidance can you maybe help.
Break that down a little bit.
It's really driving that certainly some of it is.
The public sector contract you mentioned can you maybe help us understand how much of that is or how much of the takedown in guidance is also tied to any transitional revenue.
Sure.
Maybe I can give a very high level answer and then we can drill down to the specific as much as you need.
First of all we are in the mid still working on multiple fronts and options right. That's been the focus and the improvement overall from all the way through late 2019 to now reflect.
Where we are focused on the from a strategy perspective, and how we have executed that said.
One point or is on comparative purposes, right $150 million, you talked about $150 million of transition revenue you talked about last year impacted by approximately $90 million of corporate revenue and then diverse asset sales impact of almost $30 million. So they are talking about $270 million or so of revenue, which we knew were impacted Europe.
Over a year.
As the backdrop.
Point out even before talking about the revenue guidance takedown I'd point out that the two things at least from our perspective internally. What we're focused on is that the base revenue was stable number one number two.
All of our sales metrics are looking out and you saw that slide on this quarter, where we have.
Higher person would be just for from from the perspective of.
The sales the pipeline growing the.
He was growing and expanding with existing customers right all of that said.
<unk> sales cycle and Brian May impact when you look at it from a quarter to quarter perspective, but it's all about timing.
Our focus is going to be on margin and cash flow I just want to reiterate that.
That said lastly, as we talked about when Ben B.
Uh huh.
It looked at the guidance accordingly from movement or changes or unpredictably, the public sector revenue and the impact that view as the business had on Covid continued impact we decided to take it down and becomes a at the number.
I see okay.
I guess, so in terms of going back to kind of what year over year was at $1 50, a transitional revenue. There is is there any additional transitional revenue baked into that particular guidance number or are we should we still think about that transitional revenue as being around $150 million.
Not a whole lot, but it is bound to tail off a little bit just based on the timing of the transition revenue exits right, it's not going to be in the $30 million to $40 million range like the run rate from early 2020.
Our mid 2020, but there is bound to be a little bit, but not a whole lot.
Okay. Thank you.
And then lastly, just on the debt balances.
The company had been repurchasing bonds.
Bonds and loans in the open market.
Maybe give us a sense of what the debt balances look like.
Currently subsequent to any repurchases after the quarter.
Okay.
We had one you will see the more specific details when we file our Q most likely on Monday.
But high level.
Uh huh.
You saw the net debt that also on our.
That right there is a breakup on the roll up of the net debt of one 2%, one 2% a $1 billion.
Right Yeah.
Say no.
Probably the key youll have the breakout of what it is between bonds and our bonds and loans.
Anything thats happened.
Since the quarter I think the number there as of September 30th right.
That is correct yes.
Yeah.
Okay.
That's it for me. Thank you. Thanks, Thanks, Alex.
And the next question will be from Jerry Wang from Carlo. Please go ahead.
Hey.
Just a quick one I think you might've mentioned.
<unk> 17, you call it in.
Revenue delays or revenue impacts $1 50, and low margin.
Uh huh.
Revenue 70, Covid delay what was the last 50 you mentioned.
Last 30, the last 30 years, the asset sales Jerry it's for the two businesses that we sold in early two second quarter of 2020.
Right Okay.
I think he might have got it.
Some some growth in the second half of this year.
Was.
What percentage of that was driven from kind of timing from the federal government budgeting process.
Yeah. Thank you framed that question that way just to clarify right My response to Alex.
Italy year over year impact right, so of saying $270 million of.
Revenue annual revenue not on an apples to apples basis. If your question a second half impact thats not necessarily that much from a guidance perspective again since you asked me to give you additional color heading into our Q2 call we still had.
Potential public sector revenue to come through and with Q2.
Alkylation be expected a lot more of the business it could be back up and running is not pre COVID-19 levels at least much better than what we are experiencing right now that is the reason for the.
<unk> guidance change.
So to speak.
Mhm, Okay. So you would say the majority of it yes, but.
But since we are talking about Australia, I'd also like to again hit upon the specific point.
Our stable, we feel very confident about our stable revenue, while COVID-19 impact is ongoing in certain base for us we are focused on liquidity.
Which in turn helps us to deploy capital to reduce debt and in turn its driving down our interest cost rates. So our focus has been on margins and cash flow improvement. The reason I say that on a question about guidance is.
I just don't want to focus on topline alone right would be how to also look at our overall strategy. So when you have a depth of about 170 plus million and when we can execute and reduce it by $50 million. That's again George game changer, one pizza.
While we are talking about revenue or those who want to keep the big picture in mind, that's what we have been doing and what our goals are.
Yes.
Got it.
On expenses.
Your your gross profit was actually not very different.
I think your margins have gotten a lot better.
During the year.
But your adjusted EBITDA is lower this quarter.
Your SG&A is still is up even though your revenues are.
Down.
You had that noncash other charges can you just help me parse through.
Kind of the puts and takes on how you got to about $36 million or what is first what is that noncash unit.
Hum.
Or was there additional SG&A expenses in the quarter that.
Yes, yes.
Again to give you a high level there.
Sequential quarter comparison is always difficult right. That's what I was pointing out in Q1, we were favorably impacted by a pick up of $3 5 billion. We've also had certain one time projects that came in at higher margins.
<unk> Q3, our revenue decrease impacted margins plain and simple that's what it is right we need to do.
You need we need profitable revenue growth.
Fred.
That is why we want to look at YTD basis or annual basis, that's why I pointed out even though year to date, our revenue declined 106 million. Our gross profits were up by 9 million that evens out some of the one timers.
And in terms of your question specifically about the quarter.
I don't I don't think the other charges that you indicated but on SG&A. There was a $3 8 million one time or infrequent, we do not expect that to repeat so on that sounded was slower.
And then on the.
The add back part.
No.
Two big line item, you're looking at for other charges that can help you with that in Q1.
But those are specifically to the one timers that I talked about just now plus the negative add back so to speak for the gain on extinguishment of debt Thats, where youll see that number probably.
Mhm Mhm mhm, okay understood.
Great.
Thank you.
No problem John.
Thanks Jerry.
And the next question comes from Randall Klein from Avenue Capital Group. Please go ahead.
Hey, guys. Thanks for taking the call and nice job on working on the balance sheet and liquidity you guys are much much greater shape. These days.
Hopefully two quick questions. The first was really quick quick Ron when you start off and then it came up a couple of times, a $50 million cash flow improvement, obviously thats focused on your interest in lease expense savings and I think you've mentioned around obviously on top of that I'm assuming.
Directionally you guys are hoping to do something very material on EBITDA gross margin called EBITDA net profit et cetera.
And that's really centered.
Since you're not guiding to 2022, I assume thats why youre not kind of talking about it but I assume that's kind of a hole on top of these other.
You know kind of more regular way savings is that correct.
But thats, partly correct Randall first of all thank you for acknowledging that the positive.
Ron I'll take this since it's nowhere base yeah.
Randall.
Our multi your friend rate book as I said, our focus on strengthening the balance sheet as well as continuing to improve our profitability.
For the 37 million and also the overall 50 million target would be helpful cash, but it really matters, particularly a lot of that is going to come from interest cost savings.
We deploy the capital and reduce the debt that matters because on the capital structure you can look at it it's the 170 plus of debt service.
That's creating challenges so to speak.
The best thing to for Us to do as we deploy capital and reduce interest cost is it frees up a lot of free cash in turn is going to feed all of our investment in growth in the business.
So as Youll seen over the last few quarters you have continued to focus on margins continued to focus on the business and operations.
This is in addition, the capital structure Flexes. In addition to that one piece of it so to speak.
Did that address your question on video.
Well look I agree obviously the fit is great and important I was just I was trying to differentiate fundamentals on the income statement and margins, which it sounds like yes of course, you are trying to increase revenue and increase margins by definition and I guess again, given you don't have two.
2022 projection per Se you can't really put a number on that today, which is fine I have no issue with that but okay.
And then second question is your implied Q4 guidance effectively.
Three quarters, now and you're still you're updating your Q.
2020 on guidance it seems like there's a decent theres actually a rebound in revenue there will be revenue growth Q3 to Q4.
And potentially pretty good profitability.
A little hard to tell exactly.
Take a look at your EBITDA margin guidance, I think 16% to 17% and yet you're only 15% year to date, which implies a nice jump, although kind of gross margin. It looks like it's more flat. So I guess that begs the question on your last quarterly call. You said the ONR charges should be running about 20 million for the year or 5 million a quarter.
Directionally is that still true. So we can kind of back into what we think kind of EBITDA before ONR charges would be.
Yeah.
Right.
There are two or three different elements that you touched upon there right.
Of all you're right. There is an expected revenue growth in Q4.
We are usually favorably impacted by the seasonality in both on our health care business as well as more importantly, the EMEA region, where B b.
B have usually higher Q4 revenues.
That is number one and number two.
You are looking at it in the right way from adjusted EBITDA perspective, as well given 15 three years or so for year to date.
To get to 16%, we should hit the $50 floor levels right. The way to look at it and also if you look at what we did in Q2.
Q2, we were benefited by one timers.
Q2 results repeating in Q4.
They'll get up there.
Speak.
So it is not.
Not not in Fathomable sitting at this point in time, but we need to continue to exit.
Execute.
Got it great. Okay I'll go back into queue. Thanks. Thank you. Thank you Randall Thanks Randall.
The next question will be from AMR to woman from Imperial capital. Please go ahead.
Hi, guys. Thanks for taking my question.
Sure I just wanted to reconcile something.
Looking at your.
Tender offer I'm not asking about that.
That says that you're going to use the back to 25 of cash.
And looking at your liquidity that you just reported you have about.
At $2 27.
Yeah.
Assuming that you get on the tender goes through.
Can you sort of talk about the backend of liquidity.
Off the company, what the number would be or how do you intend to sort of manage it.
Sure.
Thanks for the thanks for the question, even though even though its not specific to the tender offer it's in a roundabout way having to discuss about that whole mechanics right. So instead of talking about that let's just talk about the fact that.
You'll probably have to give credit to the fact that we have set liquidity targets, we've achieved those able to generate cash.
Raise cash.
So the way we look at it as any of the multi step.
Strategy that we are planning on we have the ability to execute on what we need to right. We have the sufficient capital and we will take care of the execution from our sources perspective, theres going to be multiple livers genera.
The generation of cash beyond the SPM, they're raised more cash you have other levers too right. So we are absolutely going to be very strategic in intent pull on what we wanted to do and how we wanted to do it I'll put it that way.
So.
Would you have the ability to maybe.
Like another bank.
Bank facility or something in place too is that also part of the equation or.
I'm just trying to figure out what.
Yeah, Yeah, absolutely fair question out there absolutely fair question, but since we're in the midst of it I don't know if I want to discuss all of those specifics right like I said and I said there are multiple levers obviously.
We are working on multiple things.
Yes.
Yes.
I think all my other questions were answered so thanks.
Alright, Thanks, Amir Thanks Sundar.
And the next question is a follow up from Josh Sigler from Cantor Fitzgerald. Please go ahead.
Hi, great. Thanks for taking my follow up I, just wanted to turn focus over towards one of the growth drivers of the business here the digital asset group.
Given the outsized growth you experienced this year in DMR and dry side do you expect the digital asset groups would be a larger part of that mix as we move into 2022, and how do you expect that to impact your margins just on a higher level.
Well, Josh this is Ron let me give a.
Just a walk through that so I won't talk about the numbers, but what I do talk about is the.
The adoption and this is really what we've been doing since the beginning of the year with both DMR.
And anything Thats, one of the platforms within the digital asset group, so whether it's dry sign or DMR, we have.
Eagerly than watching the growth quarter over quarter of new users. So as we have seen that adoption rate exceed anything we imagine.
We look at that and for 2022, we see this expanding not only in just the number of users, but in the geography and the presence and also some additional features or products.
We're very excited about that right now I think Dag was 8% of our revenue. So it would be an expectation that that would become a larger contributor.
And it is one of our higher gross margin business.
Unit. So we're very excited about where that will take us.
Yeah.
Great. That's very helpful. And then just diving a little bit further into that can you provide an update on the SMB sales force and how that's been progressing.
Yeah, I think we mentioned we've been we've been picking up some new talent as we go along the way part of the challenge in this market is to find those folks and to be able to secure them, but we've had a lot of success in all of our geographies and as.
As we launch in 2022 and continue through the rest of this year.
I think you'll be able to see through press releases or announcements things that we've had success with so we're we're very excited about the folks in leadership in terms of what they're doing to drive the new sales.
And just the general adoption itself.
It's a great comfort to us and our our look at the strategy for 2022.
Great. Thank you very much Ron.
Thank you and the next question is also a follow up from Zach Cummins from B Riley Securities. Please go ahead.
Yeah. Thanks for taking my follow up questions.
Just wanted me to help me bridge the gap of the expected debt pay down I think you outlined $355 million unexpected debt pay down is that already including the $95 million that you have paid down year to date I'm just looking at the tender offer assuming that $250 million of debt can be retired with cash so I'm just trying.
To bridge the gap there in terms of your plans to get that debt Paydown target.
Thanks sure. It does not include the 95 already it does not.
It's an addition.
Understood. That's helpful. And then finally can you just give us a give me an update on the cost savings plan at this juncture.
Where youre at right now and what you can expect to start flowing through the model next year.
Hey, sorry, a quick follow up the 355 are what you are talking about it includes the 95.
Okay. Thank you so.
Thank you.
Yes, Scott.
Got it.
On the cost savings plan cost savings plan.
$12 5 million of.
The cost savings is items that are either executed at the end of Q3 are in process in Q4, we had some.
Equipment and lease savings executed late Q3, so it will it will start flowing through in Q4, and then we have under the basket that would be actually good heading into Q4.
Specific.
Initiatives that we're going after this quarter.
Understood. That's helpful. Thanks for taking my questions no problem. Thank you.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Ron Cogburn for any closing remarks.
Okay.
Thanks, operator.
And once again, thanks to everyone today for participating in our call and thanks for the questions and as always.
Do you feel like you have other questions you'd like to ask feel free to reach out to our.
Mr Relations group, and we will be glad to get back with you.
Thank you and we will see you again next quarter.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Okay.