Q4 2021 Consensus Cloud Solutions Inc Earnings Call
For holding we appreciate your time and patience. Please stay on the line and we'll be back in just a moment.
[music].
Okay.
[music]. Thank you for holding we sincerely appreciate your patients stay on the line and we'll be back in a moment.
For clothing, we look forward to talking with you soon please hold the line and we'll be right back with you.
[music].
Good day, ladies and gentlemen, and welcome to consensus Q4 Investor call.
My name is Tom and I'll be the operator, assisting you today.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
On this call will be Scott <unk> CEO of consensus.
Jim Malone CFO .
John never golf CLO.
Adam <unk> senior Vice President of finance and accounting of consensus.
I will now turn the call over to Adam <unk> Senior Vice President of Finance and accounting of consensus. Thank you you may begin.
Good afternoon, and welcome to the consensus Investor call to discuss Q4 2021 preliminary unaudited results.
2022 guidance and other key information, we'll share with all of you today.
Joining me today are Scott <unk>, CEO , John never Golf, CLO, and Jim Malone, our newly minted CFO .
The earnings call will begin with Scott providing opening remarks.
John will give an update on operational progress since our Q3 investor call.
And then Jim will discuss our Q4 financial results and 2022 guidance.
After we finish our prepared remarks, we will conduct a Q&A session at that time, the operator will instruct you on the procedures for asking a question.
Before we begin our prepared remarks allow me to direct you to the Safe Harbor language on slide two as you know this call and the webcast will include forward looking statements.
Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results.
Some of those risks and uncertainties.
Include but are not limited to the risk factors outlined on slide three that we have disclosed in our form 10, SEC filings as well as a summary of those risk factors.
We have included as part of the slideshow for the webcast.
We refer you to discussions in those documents regarding safe Harbor language as well as forward looking statements.
Now, let me turn the call over to Scott.
Adam Thank you very much I'd like to add my own welcome to all the investors and analysts who are joining us for the first earnings call of consensus as we report our Q4 2021 financial results.
As you can see since we completed the spin we've been very busy.
First making strides as an independent public company.
Two producing outstanding operating results in our first full fiscal quarter, three winning a significant contract servicing the veterans administration health system for acquiring summit held just outside of Boston and five initiating our first stock repurchase program, which is an element.
Our capital allocation strategy.
Our biggest accomplishment and filling out our public company personnel has been the hiring of Jim Malone as our CFO .
Jim comes with a depth of relevant experience in accounting finance and health care.
He has already made a significant contribution to consensus welcome Jim.
He will take you through all the financial results and guidance later in the presentation.
Despite the distractions of the spin in the immediate aftermath of separation, we were able to achieve the high end of the revenue range for Q4 and above the high end of both our adjusted EBITDA and non-GAAP EPS.
I want to thank our employees, who despite many distractions and continuing to work from home remained very productive. We are thrilled that after an extensive RFP process through our relationship with cognizant <unk>, we have been chosen to be the exclusive cloud fax provider to the V as more than 1200 health care facilities.
We believe that over time this will be our single largest contract. However, this is a year of investment.
We have allocated approximately $5 million to stand up and have a fed ramp certified system for the V. H health facilities, and we will have the ability to market that system to other government agencies.
Finally, before turning the call over to John I would like to discuss our capital allocation strategy.
Since the spin was announced I have made it clear that we are not an M&A focused company.
In part this is due to the number of organic efforts that we have on our plate.
As well as an aggressive hiring plan over the next two years to enhance and deepen our technical team. However.
However, we do look for acquisitions that are complementary to our product roadmap will bring us additional customers and services and most importantly, great teams of people.
We have found such a company in summit health.
There are opportunities for cross selling of their H L seven and fire products into our base and the ability to sell consensus solutions into the summit base, which is rich in health care systems utilizing the Meditech EHR solution.
Yes.
I would like to welcome again all of the former summit employees to consensus it was great to be with you in early February and I look forward to many more meetings.
John will provide you with more details on both the VA contract and the summit acquisition shortly.
Targeted M&A, such as summit fits nicely into our capital allocation program.
To fill out that program our board recently authorized $100 million stock repurchase program over the next three years.
This program is opportunistic with no annual goals of repurchase as.
As we gain more trading of our stock, we will be making decisions as to the attractive prices for repurchase that will provide returns commensurate with our other capital allocation alternatives.
Now turn the call over to John who will give you more insight into our product and customer win activities.
Thank you Scott.
On to slide five.
It's been an active quarter for the company. In addition to completing the spin and moving forward on their own.
Then significant wins for the business and I'm excited to share them.
First we are proud to announce that we have entered a partnership with cognizant <unk> L. L. C, who provides innovative health and safety solutions to government.
Acting as the technology subcontractor to cognizant.
Census will serve as the exclusive supplier of cloud fax technology to the enterprise cloud fax project, otherwise known as <unk>.
As announced in cognizant tastes December 15th press release.
FX will be implemented across the department of Veterans Affairs enterprise by far the largest health system in North America.
We are currently working through the process of achieving federal risk and authorization management program certification known as fed ramp requirement for this project.
While our major technology effort once complete in early Q4, we will be the only cloud fax solution, but this certification putting consensus in a strong position for future government opportunities.
Rollout is expected to begin in mid to late Q4, and given the number of medical centers and care sites involved will likely continue rolling out into 2023 and 2024.
This agreement is the largest cloud fax order in our history, including under J. Two ownership. We are proud to have been selected for this project and look forward to delivering our innovative technology to help in the Va's modernization effort.
The other important news to share his closing the acquisition of summit Health care services and established an innovative health. It company located just outside of Boston.
While we had not anticipated much in the way of M&A activity at this early point of the consensus story.
Summit opportunity was a virtually perfect fit in every respect first.
Summit product suite is a precise fit with our existing product roadmap getting consensus a full H L seven and fast healthcare Internet resources or fire communication capability with existing integrations to every major hospital, EHR vendor and a particularly strong position.
In the Med Tech space.
Second we know that any overly heavy lift in integrating the organizations was a nonstarter and found the cultural fit.
Quality of people and the technical environment to be extremely compatible.
Third we required that the transaction also improve our market position to further penetrate cloud fax and digital signature into our largest target industries and I'm proud to say that we already have our first integrated <unk> solution at St Rose Hospital in California.
Finally, the economics made sense and we forecast the acquisition to be additive to both the top and bottom line in 2022.
We needed to be certain that all four requirements product advancement cultural fit market position and economics were present in order to make this transaction work and I am happy to say that they all did work.
In addition to the HL seven and fire integrations.
<unk> technology suite includes an innovative care continuity application that allows for patient medical record access even when a customer's EHR environment may be experiencing problems.
And a powerful RPI or robotic process automation tool that automates and streamline health care workflows for effortless document and data routing within an organization.
Finally, with the addition of the summit team consensus has a thriving and highly skilled professional services capability for implementation for managed services and for workflow reengineering that creates a new revenue stream for the business.
Because of this new capability and services, we are weighing the potential for reporting backlog in future reports as it becomes a more significant item in our financials.
This is truly an acquisition that threaded the needle of a hefty set of requirements and brings incredible value to consensus.
On to slide six.
The corporate sales team had a solid fourth quarter that demonstrates the diversity of our revenue streams.
For example, we've.
<unk> been able to close a deal with one of the country's largest population health organizations.
Closed the deal with the second largest retail pharmacy in the U K with over 500 locations.
And closed the deal on the reset tail segment with.
The booking of Williams Sonoma as a new account.
We've also deepened our market reach by adding several important partners.
Channel partners are key route to market as they work with us to deliver consensus technology to captive customer set through integration and sales cooperation.
As we discussed on the previous slide we've partnered with <unk> and will provide the cloud fax technology for EC facts. We've also added Windstream ucas at top unified communication vendors with a solid footprint in health care organizations.
And Highland Corporation, a leading content service provider, who is on base platform integrated into thousands of EHR installations, with a particularly large epic presence.
The product team has been busy as well taking on the formidable fed ramp certification process. This is a major project that requires nearly a year of effort to complete but one that is necessary to meet the <unk> requirements.
We have dedicated a large team to this effort and engaged in the assistance of third party experts to help in the process.
Of particular, our particular instance, a fed ramp will be the fed ramp high the most secure cloud environment in the market. It's important to understand that this investment is exciting not only because of the immediate opportunity for E. C facts, but also because of the position that we will hold for additional opportunities.
Future.
We remain on target to have our formal release of clarity in Q1 with a major release announcement coming at the upcoming Health Information Management system Society show in Orlando in mid March.
Clarity performs AI powered data extraction and is the foundation for our data transformation capability.
This technology called natural language processing core MLP has the capability of eliminating the need to re key faxed information infrastructure databases and gives consensus the ability to transform facts data into HL, seven and fire compliant messages.
Any of you attending HIMSS can see the magic in real time as we feature a live demonstration at the interoperability showcase.
Our team has pushed the ball forward on Jay Simons, our blockchain back digital signature offering.
Customers can now order a bundled J syn <unk> subscription.
Can integrate J signed through an enterprise API.
And have access to a robust administrative dashboard for managing their subscription and end user activity.
These capabilities are aimed at the corporate marketplace and we have some exciting opportunities in process in that segment for Jason.
Finally, we have completed the rigorous service organization control or shock to type two certification.
This in addition to the hi, crush certification and the upcoming completion of fed ramp security demonstrates that the consensus product offerings are the most secure most protected and most well defended in the industry.
Now, let's move on to slide eight to discuss segment revenue results.
Our corporate revenue delivered double digit growth continuing to show strength in both new revenue and baseline performance.
We did have one final account cleanup associated with our system migration project and while that impacted the pure number of accounts in this segment the revenue impact was negligible.
The ongoing trend is that we are landing bigger deals and seeing strong growth in the base the combination of which produces a very nice improvement in ARPA.
The number of new accounts added was better than in Q4.
In Q4 of 'twenty.
And the execution of our corporate sales team is producing impressive results.
The churn percentage was impacted by that account cleanup I mentioned and on a normalized basis is a nearly flat one five years to 7%.
On slide nine.
We see the small office home office results for the quarter with revenue virtually flat year over year once accounting for approximately $400000 in FX headwinds.
In reviewing the year over year results.
It is important to note that 2020 is a tough comparison due to the migration to home offices that we saw throughout the pandemic here.
The overall number of accounts dipped from pandemic high of one point <unk> seven 2 million. However, the offset in ARPA netted out to an on par revenue result.
A key driver of the account level revenue was increased billable usage, where subscribers were sending pages in excess of their planned limits demonstrating a solid customer engagement with the service.
Churn for the period was slightly up from last year, but not out of line with our historical range and in fact, it was nearly flat to what we saw in Q1 2021.
We continue to expect the revenue performance of our Soho segment to hold steady while this quarter's results are in line with that expectation.
Now, let me hand, it over to Jim Malone, our CFO for a deeper look at the financial results.
Jim.
Thank you John and Scott for that generous introduction.
Hello, It's good to meet you on this call and I look forward to meeting you in person.
Thank you for your interest in consensus.
We will continue to provide you timely and meaningful information for you to support your expectations of the company.
I'm relatively new to consensus I joined the company in mid January as Chief Financial Officer.
An exciting time for the company as it begins to absorb the advantages of being spun from GE to.
While only here for a short time are genuine genuinely appreciate the opportunity to be a member of the consensus team.
Let's move on and I will provide comments about the recent financial performance of the company.
We have completed our first quarter as an independent company.
In the press release, and our Powerpoint deck, we have highlighted our 2021 fourth quarter and full year performance using a pro forma presentations.
Moving to slide 11.
2000 2021.
Pro forma Q4 financial results.
<unk> 2021 fourth quarter revenue of $89 million, which includes a full quarter as we assume the spin was executed on day, one of the quarter exceed.
We exceeded the prior year revenue of $85 6 million by $3 4 million.
Staying on slide 11 are moving to adjusted EBITDA and EPS, Let me start by saying that the adjustments noted in the foot.
I would note affecting pro forma adjusted EBITDA.
For both periods presented are intended to provide a meaningful comparison of quarter results year over year.
2021 fourth quarter results of <unk>.
51.3 exceeded the comparable period in 2025.
$5 million.
Utilizing an actual share count of $20 million for both 2020.
In 2021, EPS year over year for the comparable period increased to $1 46, representing an improvement of 10, a seven 4%.
We met the high end of our Q4 revenue guidance and exceeded the high end of our Q4 guidance for both adjusted EBITDA and EPS.
Compared to the current annual analyst expectations, the company exceeded revenue adjusted EBITDA and EPS targets.
Moving to slide 12, full year, 2020, and 2021 viewer consensus.
Pro forma view of consents quote the pro forma view of what consensus would have reported if it was an independent company beginning in 2020.
Again, we have provided in the footnotes and explanation former adjustments affecting our results.
Solid revenue.
Solid adjusted EBITDA and solid EPS performance, we will be carrying this momentum into 2022.
Moving to slide 14, let's move to guidance for full year 2022.
Organic revenue at the midpoint of guidance is expected to be 6% while growth on organic plus the summit acquisition is expected to increase two 8%.
The corresponding adjusted EBITDA margin.
For organic and organic plus acquisitions is forecasted to be 54, 4% and 53, 7% percent respectfully.
EBITDA margins in 2022 expected to be lower compared with the prior year, reflecting investments primarily in R&D head count.
This investment is right sizing the function to accommodate growth.
Initiatives.
Combining the summit acquisition the margin decreases slightly as we pulled summit into our operations.
The expected 2020 share count is $25 million and a tax rate range of 19, 5% to 21, 5%.
Capital expenditures are expected to between to be between 30 million to $33 million.
Let's move on to slide 15 to understand what this means for guidance.
At the midpoint, our guidance of revenues $380 million with adjusted EBITDA.
<unk> $204 million and $5 44, respectively.
At the high mid and low range, our adjusted EBIT margin of $53.
7% was held constant.
Thank you that concludes my formal comments I will now return the podium to the operator, who will let you know the protocol for asking questions.
Thank you.
We will now be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you May press star two.
I would like to remove yourself from the queue.
For participants using speaker equipment it may.
<unk> be necessary to pick up your handset before pressing the star teams.
One moment, please while we begin.
And the first question today is coming from John <unk> from CJS Securities.
John Your line is live please go ahead.
Hey, good afternoon, everyone. Thank you for taking my question and congratulations on the first public quarter as a consensus.
We appreciate that question.
Yes.
It's good to hear you guys.
My first question is about the VA contracts I'm wondering what kind of size that could grow to over 'twenty. Three 'twenty. Four you mentioned as the biggest new history. So I'm just trying to get a sense of scale here.
And if the margins involved there are kind of in line with your corporate average.
Yes. This is <unk>.
Nevertheless, we're very excited about this contract the <unk> program.
It's something that we have high hopes for the VA has over.
I think it's 171 medical centers over 1100 sites of care.
It is certainly something that could.
Kind of get get into the area of $10 million plus as you get down the line on an annual basis.
Margin wise, we're very comfortable with this.
Our position and this is the technology vendor is not face forward to the VA, but but the delivery mechanism.
And we think it's the best position for US in this particular case to be in because that technology then.
Great potentially be leveraged into other government entities.
Given the fed ramp certification.
And the only thing I would add to that John is.
As you know in any large corporate deployment at <unk>.
Much much less or much more so this kind of situation.
The rollout will be the key that influences how much revenue drops in to say 'twenty three 'twenty four and beyond.
But I agree with John there should be a $10 million plus relationship at the point, where we've got substantial rollout throughout the VA system.
Got it. Thank you for that color. That's much appreciate it and then second I was wondering if you could talk a little bit more about summit.
You paid I'm not sure if thats finalized yet.
But kind of wondering what the strategy is going forward with M&A.
The only thing you're going to do for a while or is there more are there more targets out there that you dose thing at this moment.
Alright, So give me a sense, we paid about little under two times revenue for the company.
As you can see by the way we've broken out our guidance, we don't quite a full year. This year 11 months, we're expecting about $7 million revenue contribution.
From now that is after a deferred haircut on some revenue.
Probably a few hundred thousand dollars, so as we roll into 'twenty three without.
Any.
Nomadic growth or cross selling business that will pick up and should be registering north of 80 plus million dollars.
So we think that.
It's going to be good.
In terms of all the things we mentioned certainly I think I'd start with people.
We then bring in the fact that it's got a good customer base for us to access for them to further access and great complementary technology and scale.
I think that's where your question was going to meet our financial returns and is a lower margin business. So youll notice. We gave you two EBITDA margins 54 or is EBITDA margin exclusive of solid and theyre going to clock in at around 20% EBITDA margin assured in part because of the deferred revenue haircut so that 500.
Brand or so drops right to the bottom line.
Thanks.
As I said in my opening remarks, you should not be expecting we're going to profit deal every quarter or to this Mike quite frankly would be the only deal we do this.
And I think thats perfectly fine.
As I mentioned, we have a lot on our plate, we got to get clarity release as John said.
You will see a big flash around it our teams are going to start selling that we're still working on a variety of the API.
Released later this year early next year has been dumped harmony and then as I say it theres always opportunities between the science technology and portfolio of customers and what we have so.
I would not expect anything more this year in terms of M&A.
You never know.
Got it thanks, Scott and congrats on the strong start.
I'll back in queue. Thank you I appreciate it.
Yes.
Thank you.
Your next question is coming from Ian Zaffino from Oppenheimer.
Ian Your line is live please go ahead.
Hey, Good afternoon, guys. This is <unk> on for Ian Thanks for taking the question and core of the business updates.
Just first on the overall revenue mix given the growth rates of the two segments. How should we think about when the corporate vertical where overtake the Soho vertical.
Just given the recent activity should we expect this to come sooner maybe than originally anticipated.
Sort of outlay, so were the main drivers of that shift.
Yes. So there's two things that are going to influence that one is just the natural trajectory of the business and as you may have seen in the slide deck.
We are seeing some FX currency headwinds.
Q4 is about 400 Grand we're seeing it in 'twenty two at least estimated based on the basket of currencies of close to one $5 million and thats substantially effects somehow.
Retard its role or kept it down.
It does not affect to any meaningful degree corporate so.
Both stronger growth in corporate as you know in Soho, the FX differential, but then on top of that.
<unk> revenue is all corporate so we are seeing an acceleration of that tipping point to be probably in the next fiscal quarter Q2 could even happen late Q1.
This quarter over quarter with currently and so yes that crossover was expected to be late this year, it's going to be now in the first half of this year, probably no later than Q2.
Okay, great. Thank you.
And then just regarding the cognizant that in VA contract.
Could you provide some more details on the overall agreement.
Is it sort of similar to other enterprise service agreements.
And then just additionally, how the option agreement came out that'd be super helpful. Thanks.
Sure.
The opportunity really came about in the way I think these things normally knew from the.
Government point of view that put out.
Request for bidders.
Cosmic <unk> is the prime and I want to be a little careful here to observe the protocol because the prime.
The prime contractor is really the one with the relationship with the VA.
In order to fulfill a bit though cognizant today.
Was looking for specific partners to be able to.
Deliver the cloud fax technology that was required by the bit.
We were their partner in submitting that with <unk> being the prime us things up.
And that was ultimately.
Selected.
By the VA.
The <unk> relationship.
The Santa Ana I'd refer you to their press release of December 15.
For more details around.
The agreement itself.
Okay very helpful. Thanks, very much Ross.
Okay.
Thank you.
The next question is a follow up from John Tim One thing.
John Your line is live please go ahead.
Hi, I was just wondering about your buyback plans I know you said you'd be opportunistic about it but.
As we know Jake.
David hold a lot of your shares and is looking to sell them within a certain timeframe. So I'm wondering if that will be a source of of.
On the shares that you could buyback.
No. These are independent of each other so.
One as we stated in the as I stated in the opening remarks.
We are a strong free cash flow company and so part of it is a capital allocation strategy independent the ownership of the underlying equity and certainly if we're not going to do a lot of M&A that gives us a lot of firepower to look at our equity subject to attractive prices where returns make sense.
More to the point, though.
The way the Ziff Davis holds the equity in consensus we cannot be directly participatory in terms of going to them and offering to buy some of their shares.
There are as you remember from the spin John a lot of elements of the spin pre and post deal with tax issues and tax matters and so one of the things that is really in their court to decide when and how they want to monetize some or all of that equity.
And then depending on certain decisions they make.
And then we can possibly step in and either help them facilitate that or whatever will come on board.
But we cannot go to them nor can they come to us to try to facilitate a direct purchase <unk> sale.
Got it that's helpful. Scott and then second.
I was just wondering.
Regarding the Soho segment flat against a tough comp year over year I understand that as we go forward are you expecting slightly more growth as you have the tougher comps.
I know your ambition is to actually grow that segment compared to what its done previously just help me understand the strategy there.
Yes, I think look I think intermediate to longer term, yes, there are some tougher comps.
Bulk backward looking in the first couple of quarters.
Happy to say that as we sit here in real time.
To stable from where we ended the year.
It's not atypical that there are account cleanup in the fourth fiscal quarter, we experienced some of that.
I also think we experienced in the fourth quarter, maybe some.
Cancellations is.
The COVID-19 moves from a pandemic to an endemic or.
Rejiggering, how they work with.
Either a big positive for us historically, nor is it a big negative to the extent, there's any reversal I think theres some of that.
And we're in the early early stages of Jay Stein.
Rolling out to that base and developing a strategy and plan of how Jay Stein can be contributory to the overall Soho Chad. So I think this year, we've got challenges would be FX because so it does have a big chunk of business that is outside of the United States.
We could be wrong on the FX.
As you May recall, we look at a basket of currencies, we look to third parties based upon their expectation. It's obviously very volatile right now because even with people bought three weeks ago is changing given world events. So we will see obviously over the course of the year how accurate.
Those predictions are in terms of the FX that we may get tailwind that we don't currently anticipate firstly, if we could get further headwinds. So I do think that at least on our own thinking on our own budgeting. We felt it was prudent to bring the FX component.
At least as we understand it right now recognizing that.
So kind of a volatile world that has implications to the debt markets the equity markets for exports.
Got it and maybe just to follow up on that do you have an exposure to the areas that are that are volatile right now in eastern Europe .
<unk> that are out there.
Generally speaking, though we do have some contracts and relationships that are in the Ukraine, but.
Yes.
We're keeping in contact with the people at least as of yesterday thankfully there remains safe.
And amazingly they were still working on behalf of the contractor that we contract with.
So we're monitoring that situation, but.
But we don't have any business in terms of revenue relationships that would exist in that region of the world.
Yes.
Got it thank you.
Thank you.
Your next question is coming from Greg Burns from Sidoti.
Greg Your line is live please go ahead.
Hi, so in relation to the corporate business is there anything you could share in terms of the.
Interoperability solutions.
So it's kind of penetration you're seeing any kind of metrics that you can help us with understanding.
The growth in penetration of those new solutions.
Yes, Greg this is John Thanks for the question.
Very excited about that set of solutions there.
Probably a couple of things in and as you know since we have a very large.
Baseline of facts customers and our revenue is on a recurring basis. Obviously the revenue that we have and that we're reporting on is overwhelmingly facts. What we're finding though is as if you as you think about new sales and bookings.
In the corporate segment for 2021, we actually booked about 17% of our new sales where consensus unite interoperability product, which is a very strong showing in its first full year in terms of market acceptance and bookings and I can also say that.
As we as we look at that.
Solutions suite.
The concept and I mentioned it in my remarks of backlog starts to come into play as the summit technology sale.
Included in implementation that takes some time.
And which revenue is recognized and summit right now is running somewhere north of $2 $5 million of backlog that we will need to be worked through from the professional services group to recognize and I think going forward.
We're going to be able to see more and more of that kind of.
Financial metric being important for us as an organization.
And really when you think of the summit suite.
Thats a set of pure play interoperability products that really are going to make a difference in the marketplace for us and for our position.
Okay great.
Then in terms of the VA contract does that EC facts.
Is that V a specific or is that.
More broader government based program, where maybe there's a lot of legacy fact servers sitting out there and now this is going to be kind of rolled out more broadly and give you a bigger opportunity out of it and how would you size kind of maybe the the government opportunity for this service.
Okay.
Being very conscious of the protocols involved because it's just.
With a small number of crimes debt service the government the VA as cognizant <unk> customer.
The technology vendor of the <unk> X platform.
That exclusive technology provider and the easy fix platform is being positioned in such a way that it can be marketed to other government entities.
Beyond the current customers so well.
Really consciously and thinking through it with our partner.
Created a platform that was capable of servicing not just.
The one customer, but we'd be open to other.
Other potential customers and there are a lot of rfps out there.
Okay great.
Okay.
The doing the acquisition of the buybacks and play how do you think about leverage going forward are you comfortable with the current leverage do you want to reduce it from here.
Where do you stand in terms of the balance sheet leverage.
So leverage is comparable at 200 X million of EBITDA and $100 million ish of free cash flow.
I think you may remember, we actually cannot.
Proactively delever until at least two years after the spin that's another.
Private letter ruling tax related issues dealing with the spin itself. So our debt is currently in two tranches $505 million of 6% notes that are callable two years. After the date of issuance. So that would be October 23, and then there is $500 million of six 5% notes that are non call five years.
So.
In two weeks well.
You are a fraction now we could think about either retiring or refinancing either all or less in all of the $305 million.
But we're not really going to be in a position to touch the 500 million tranche until we get to the fifth year post spin.
So we will see what are the capital opportunities that exists between now and October of 2003.
Then.
Depending on where market conditions are interest rates et cetera.
We will then decide what to do if anything with the $305 million of 6% notes, but we cannot take free cash flow and pay down debt as if these were bank one and by the way just to be clear.
If.
We were not constrained by the spin and the various tax elements around it we would not have financed consensus in this manner and part to address your question because it is a goal of ours, whether it's through the paydown of debt increase in EBITDA or a combination to get down to <unk> gross debt to EBITDA.
Months.
So.
We are.
About four times right now a little bit under.
Four times lever, obviously, if you take the cash into account on a net basis, we're about 353435.
But at some point, we'd like to be gross debt to whatever our then EBITDA is at around three times.
That will have to wait.
Alright, great. Thank you.
Thank you. Your next question is coming from Shyam Patil from GE. Tom Your line is live. Please go ahead.
Hi, guys. This is Jared on for Sean Thanks for taking the question and congrats on the solid quarter.
I appreciate they may ask you've talked about.
In the past you've talked about top line seasonality being tied to the number of business days in the quarter just as Youre looking out at 22 is there any reason that you think that that might differ for this year.
Then on EBITDA.
Is there anything to call out as Youre thinking about the pacing of EBITDA through the year, especially given head count additions and then I've got one more after if you don't mind.
Okay. So the business day with the exception of a leap year, which were not in this year.
The trend is always Q4 is challenged.
On a sequential basis vis vis Q3 by anywhere from two to four business days.
There is a little bit of modest relief that occurs in Q1, although quite frankly, it doesn't really kick in until February which is a short months and then March is really the strong month, but your key maximum business days in fiscal year of our Q2 and Q3 and then you'll get into some nuances when is.
When is Easter falling because good Friday has some implications.
This year Easter is in April so it's a Q2 event there are occasions, where they can sneak into Q1. So there are some things on the margin that can affect it but in general you look for Q2 and Q3 to be your strongest number of business days, which effects the selling cycle, but more importantly, the usage.
Surpluses are predominantly used on working business days.
Okay. Your second question was.
Great. Thank you.
Mr Kent.
So I know that you've provided the near term outlook of about 5% to 9% organic revenue growth on a year over year basis, but you've also spoken to a path to 10% plus over the longer run do you mind, just speaking to that path and what levers you might be able to call to get above 10% growth.
Sure I think there's a couple of things one is just the math.
But we have a corporate channel that we expect will grow in the double digit range. This year.
You saw what it did in 2021, so as it overtakes as the earlier question was raised as it overtakes the Soho channel.
Which even if it kicks into a growth mode is going to be a modest growth.
You have the larger channel growing faster that works to your advantage now I understand without any other accelerant you might have to run that out several years to get to that 10%.
But.
One of the things that gives us optimism is.
The new products and services that are on the slate for this year, which will have a partial impact this year a full impact next year and of course, the benefit of the summit revenue.
Products and services.
Which eventually will become part of our organic base of revenue so.
It's not something that we are budgeting or tending to achieve in the next year or two but it is an affirmative goal of ours as we think about how we go and access.
More customer wins and more revenue per customer to get to that double digit organic growth.
Great day in the third.
No.
Thank you.
Thank you.
Your next question is coming from Joe Goodwin from JMP Securities. Joe. Your line is live. Please go ahead.
Alright, great. Thank you so much for taking my question.
Actually kind of double clicking on the previous question there I mean, what in 'twenty, three and 'twenty four just thinking about your new interoperability products.
Some of that you just acquired I mean, what would be a success in your mind Scott.
Revenue base.
Well I think look we've got to get to it will be double digit millions of revenue.
So 10, plus and then getting into probably the following year.
30, 40% growth on top of that number is in 'twenty three.
Understood Okay.
And then.
And then on your just your your R&D expense can you give us a sense of just kind of how we should expect that to step up through 2022 and on that.
If you're if you're spending.
Low double digits or so.
And R&D I mean.
How is that how much of that is focus on the new product initiatives.
You are developing.
And is that going to be able to compete with some of the more pure play healthcare interoperability vendors that are they're receiving venture funding I guess, how are you thinking about that when youre going to market.
So I don't think we're seeing a quiet in the manner of Youre thinking about it so.
We have a lot of the initiatives some are internal but don't affect product.
Our R&D centric service they have to deal with internal systems issues.
Quite frankly, we were going to deal with at J, two independent of the spin just a matter of the pacing and the timing I would actually like those projects accelerated we have the ability now to hire to accomplish those and yes. There is a huge team that is involved in growing to address the new products the fed ramp product.
The other.
While their interoperability solutions that we have talked about to date, but including things we haven't yet.
So we have we have a pace of hiring that actually works out R&D over about <unk>.
27 months. So we began literally so in October of last year and the program runs through the end of 'twenty three may dip into early 'twenty four.
And I would say that yes.
Reasonably ratable in terms of the way, we intend to hire.
The reality of course will be how.
How can we hire or what is the pace, we get higher in a tight labor market.
So the budgets got one set of assumptions in it.
I'll, let you be the reality. This is one of the reasons to the why an acquisition like summit was important.
As I led with and as John mentioned people are really important and theyre not all technical people, we're getting salespeople and marketing people.
It's really important in this environment I wouldn't put a high value on the talent acquisition in the context of <unk>.
Looking at M&A.
But I think you should assume I think there was an earlier question, but I didnt fully address sort of that type of margins or 53, seven including summit for the year, how does the margins sort of.
Lay out I think over the four quarters that was the application it does tie to this RMB.
<unk> indirectly as well so you should expect a somewhat lower margin than the average for the year in Q1.
There will be a build over the four quarters as revenue comes in to absorb the new hires that we hired in Q4 and that we are hiring currently in Q1.
Trying to get as much done as soon as we can in terms of hiring but realistically it is going to split out.
Thank you.
Thank you and there are no further questions in queue. At this time I would now like to pass the floor back to the consensus management team for closing remarks.
Great well, we thank all of you for joining us today on our first two.
<unk> earnings call.
Look forward to speaking to you in the future.
We will be at a couple of conferences this month of March.
The JMP conference, we'll be at virtually there will be a fireside chat next week and we'll be at facility conference also virtually a little bit later in March and then look for releases regarding other conferences that we'll be attending either virtually or in person over the course of the year.
In terms of our next earnings release, you should expect it to be sometime in may and so as we get closer we will put out the date for that release.
And we'll look forward to talking to you about Q1 results and giving you an update on all these good things that are going on.
Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.
You for your participation.