Q1 2022 Exela Technologies Inc Earnings Call
[music].
Good day and welcome to the <unk> technologies first quarter 2022 earnings conference call. All participants will be in a listen only mode should you need assistance. Please secondly conference specialist by pressing Star then zero.
After todays presentation, there will be an opportunity to ask questions to join the question queue Press Star then one on a touchtone phone to withdraw yourself from the queue Press Star then two. Please also note. This event is being recorded and now I would like to turn the conference over to Mark Griffin. Please go ahead.
Thank you good.
Good morning, everyone and welcome to Excel at Technologies' first quarter 2022 earnings call.
I'm joined today by Park.
So as Chief Executive Officer Jimmy.
Yeah sure concept sure our Chief Financial Officer.
Following prepared remarks by par and Chicago will take your questions.
A reminder, during the Q&A session of today's call, we will not be able to take questions on the pending exchange due to legal restrictions commenting on securitization.
Okay.
Today's conference call is being broadcast live via webcast, which is available on the Investor relations page of themselves website.
<unk> Dot com a replay of this call will be available through May 17, 2022.
Information to access the replay is listed on today's press release, which is also available on the Investor Relations web page of itself.
Hotel's website.
During today's call Excel will make certain statements regarding our future events and financial performance that may be characterized as forward looking statements under the private Securities litigation.
95.
Guidance reflects management's current beliefs assumptions and expectations as of today May 10, 2022 and are subject to a number of factors, which may cause the actual results to differ materially from these statements.
We undertake no obligation to update any statements to reflect events that occur. After this call and actual results could differ materially from any forward looking statements.
More information please see the risk section.
<unk> sells most recently filed periodic hormone.
10-K, along with today's press release and other filings.
With the SEC copies are available at the SEC or on the Investor Relations page of <unk>.
That's right.
During today's website during today's call. Please 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.
So your 16, GAAP and non-GAAP results, we discuss 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 accessible on the Investor Relations page of our website.
With all the mandatory regulation FD disclosure by the way I'm pleased to channel the car what's wrong Secondly, Chairman Par Park. Please go ahead.
Good morning, and thanks to all of you who joined US on our first quarter 2022 call.
Some of you who don't know me my relationship with the seller goes back to 2007, when I acquired ladies on the platform company that became a seller in 2017.
As you know I recently stepped in as executive Chairman seems like us.
Only a few months, but seems like a year September 2020 one.
My clear mission.
When I joined was to Falcon, a focus on Florida objectives.
This is on slide three.
Invest for growth.
What does that mean.
Well typically we slow down investments when the business is not slowing down we.
We are expanding or increasing our investment because we see.
It's the right time to invest we see the signs of growth we.
We see.
Some of the early signs of wins I will discuss in a little couple of slides later.
The second.
Cash is king.
<unk> life is and that would be more important we've got a lot of debt.
With all of your help.
We were able to raise.
Over half a billion dollars last year, and we raised $119 million in the last quarter.
When I took this position.
I outlined the objectives.
To shed that to reduce debt.
And.
Refinance the debt in such that the maturities would be extended the.
The materials, we have accomplished that.
Now our objective is to build more cash and liquidity.
So that we could.
We are strong financially strong.
Company for our investors, our clients and our employees.
My next important.
Equally important.
Well.
I noticed the team that built the business.
We're still running it but we are growing many times more.
So we invested.
And.
Bringing on new talent, which I look forward to sharing with you in a couple of days.
As a reference.
You know we were $150 million company in 2007.
And we clocked in last year 1 billion 167.
Niches.
Almost.
Eight times growth.
And.
Yeah.
I am honored that.
We have the same team that built the business is still driving it.
However, the business has expanded.
I've got an older.
And there's a need for additional leaders to expand our depth.
Not only for today, but also for tomorrow.
I believe in a hybrid business model.
Which to me means.
You have a card business, that's vibrant growing and union management for that.
And then you also need to build for tomorrow sort of like startups.
You gave opportunity your business leaders who want to.
The.
Inspired to build and expand our business in areas, where we're not present.
And great examples of that include.
Our small medium business.
Channel that we created our intelligent document processing business.
Which is one accolades.
And more recently Uber ization of workforce.
Among many such examples.
Our mission.
Actually as you might imagine instead.
It's a distributed power to the business theaters aligned that goes with them with the companies.
And incentivize the theaters for success.
Well sure this leadership expanded leadership.
On our websites and our social channels.
Shortly.
We noticed.
But we were missing some endpoints.
We were busy lids.
Doing things for the company.
First thing is capital structure.
We have not invested as much in the endpoints for example payment as a service.
And health care doesn't service, although we had invested in building platforms and thrived.
And those that space.
But these endpoints.
We needed to do some strategic strategic tuck ins, we were lucky to find you.
These valuable investment opportunities.
And this strategic and they will open doors for additional opportunities for that for us.
But also these companies.
Our position to grow on their own so will benefit both ways.
I'm a great believer in revisiting our strategy, especially in light of what we have been through.
And as we execute the four objectives I share with you today.
It's equally important that we Polish up and share with you our plans for the future.
Both of the long term and the short term.
Now, let's let's switch to slide number four.
As you may have read from today's release.
We delivered $279 million of revenue.
With an adjusted EBITDA of 36 million.
But I am very excited about is the 14th points they selected to share with you today, which really talks.
About the entire that can some of the performance of the company.
And these 14 bullets.
I'm humbled to have you back.
Our T V grew.
Your year over year by 130%.
And it's the highest in over the five quarters past five quarters.
We had we added.
41 enterprise logos. This does not include.
The many many more logos.
Adding in our SMB business.
Adding 41 enterprise mobile there is no easy task.
I will say.
I believe that.
It's probably not possible to repeat this for almost every quarter.
All across all sectors.
But we are seeing positive momentum.
In the business and we are grateful to our customers.
All around the world, giving us the opportunity to grow with that.
I would I had never expected with a company with 16500 people I would have to say this.
But we did not have enough people, even after investing in our bench.
So that we could to meet demand, we missed approximately 5 million of revenue.
Because we did not have enough people.
Who received clearances on time to perform they need to work.
It is somewhat disappointing, but the work we do is mission critical and requires.
Often clearance background checks and security clearance.
Which then.
Sometimes we had at odds with our desire to me that's the legs.
We are.
Planning to offset this particular impact in certain ways.
Yes, one of the ways you do that is that productivity improvement.
C N number four on the slide number four.
We improved our productivity by 2%.
With 400, less ftes or do you see your 2021.
We delivered same amount of revenue.
We invested in a bench.
Which is on an annualized basis.
That investment it'll cost us $18 million.
But it's important for us to meet our customer forecast.
And.
We previously shared our desire to migrate to a work from home work from anywhere.
Model.
And then Q1 about 50 plus percent of our Ftes full time employees.
We're already in that.
Alright.
We have to add.
But you have to add more people and demands the inflation the job markets.
The markets in it.
As the markets in India two of our big.
We have most of our employees are present are going through very constrained markets and and will increase as the rising.
So we have adopted the authorization amount of Ela I'll cover.
A couple of more slides.
The second important.
Third important.
Savings.
Because of the authorization and work from anywhere anytime.
Our rent annual rent reduction.
Is about 20% off our total rental expense, which was about $6 2 million. We also have some dark facilities.
Which cost us another $2 million. So if we are successful that's another area for additional savings.
We also executed.
Some of the cost measurements.
Both.
And I talked about rent, but in addition to rent and adding technology and optimizing our business such that we could save another $5 5 million Bucks in full 2023.
I also want to clarify that the Anvil brand production I talked about for 2022 will be fully benefits for the full year benefits will be in 2020 three.
We also did some good work on the balance sheet.
We are.
We knew that we needed to work on our 2022 maturities.
So we added at the Waldorf or 51 million two existing 150 million emphasis.
We also added <unk>.
Under $50 million in P&C securitization facility.
Not closed yet, but we expect to close it in the next few weeks.
And.
The best part about this facility is 4%.
Interest rate, which will lead to six 6 million or so in annual interest savings.
However.
We also reduced debt by $35 7 million.
By adding this facility plus the reduction of debt.
Our total savings from interest now run at about 37 million, which includes the 10 million from the announcements today.
We raised 119 million.
The sale of common stock.
And we invested most of that in our business and to retire debt.
Liquidity as of March 31 was 20 March surplus 2022 was 71 million.
And it does not include.
The benefits are.
The revolver, we added in the 51 million revolver.
Maybe a small portion but not the entire as we'll make that was fully available to us during the course of this year.
Moving on to slide number.
Five.
Six I'm sorry.
I wanted to dig gives you a couple of insights.
Into our revenue on sales.
Our goal is obviously to grow profitable revenue.
But a couple of very important.
Business highlights, our SMB business growth customer growth rate, 39% quarter over quarter.
They continue to grow at an amazing rate dry side, 200%.
But these are still tiny businesses.
And our current business.
That.
Now we talk about in a health care segments, our I T. P S.
Our exchange for billing and payment business.
Or our legal business.
Fact that we want 78 million, which is all about 130% increase year over year.
We also succeeded in them.
Turning 93%.
Oh.
There are no rate if you remember we had the river renewal rates have fallen.
Until the eighties.
Over the last couple of years, when we were struggling with call it.
But it's very nice to see that we have been rewarded with all the SLA and the work they did for our customers.
They are back up towards 92%.
I'm also very happy to report.
The health care solutions is on track to grow over 7% year over year.
We have suffered with some of the constraints I mentioned about with people that business suffered.
In this last quarter when some of those and we are hopeful the bench and the efforts. We are taking will allow us to not only improve its profits.
But also attain this very good growth rate.
The other part of our business, which is I P. P S.
If some of them just for restaurants I T O P. S business is 847 million in total AUM.
Over the last trailing 12 months.
The biggest chunk of that business is.
Akshay for bills and payments business.
And we are seeing very good traction.
Hey, good pipeline, we reported some several wins in the last couple of months and we are hopeful and excited that this pipeline that we're building out is going to also show growth.
Why are we excited about this is that in the previous years, because the number of payments that decline.
We saw a decline in this business. So the fact that we are seeing pipeline in mens gives us great confidence as we look towards 2022 and beyond.
We are also happy to report we are beginning to see our customers, especially in the onsite space beginning to ask for.
Plans are plans and their plans as they as their employees to come to work and as they come to work we see our sales momentum also will rise.
That space, which has also gotten hit during the Covid.
So three big.
However.
Our public sector business is still lagging.
We have not succeeded even though we have a lot of backlog that we have not succeeded.
Even with bench in attaining.
The full revenue potential of that business.
So that's another thing we plan to do fix.
With the help of.
The government agencies, we work for them.
And the business needs to run that business to see if we can get that business with the backlog it has to start contributing.
At a level that it can.
Produce higher much higher profits than it has done in the last several quarters.
Moving to slide number six seven.
This is a very important slide.
From the operations from the operating perspective for the company.
I talked about the bench.
I talked about the maybe I didn't talk about the attrition, but our attrition is two 2%.
Average per watt per month.
That's a lot.
But where the job market as it is it's hard for us to retain all the talent we need to retain.
Together with the attrition.
And the amount of work or budget plans.
Plants that we have we need to add approximately 5000 people.
And.
Most of our employees or the majority of our employees are in America, our second largest segment or.
Geography, where our employees live is India.
And third is Europe .
And where we are seeing problems in the U S and India.
Our plan.
But you talked about briefly in the previous quarters is to change, how and where our employees and how they work.
We call it the authorization.
All of our captive delivery Ftes and part time employees.
And the ratio for part time employees to full time employees is lenient eight part time employees that work approximately one hour a day worse is it full time.
The biggest benefit for this for us would be will be able to.
Obtained SLA and maintain escalades.
Which is service level agreements with our customers.
We will be able to.
We'll be able to expand our workforce. So we can deliver the work off of approximately 5000 people.
To do this we have about 11000 people today enrolled in our authorization platform, we need to grow that to about 25000 because.
Because we don't plan to have 100 person dependency on this.
Which means.
Some ratio between Uber Ization and ER.
Full time employees.
Somewhere between 25 other people in our full time employees roles and about 25 to the people working part time for us.
The result.
Our delivery organization costs well.
It will be lower by approximately 10%.
I'm not going to break it out for you today, but at some point in time in the near future, we'll break that out because this is a very.
Important.
Competitive.
Change in how we are positioned in the market a majority of our competition doesn't do it this way.
And we believe we can achieve their border with our cloud hosted platforms.
And.
And live up to.
Live up to the SLA for customers as well as achieve better profits.
Let's move to slide number eight.
I'll briefly touch upon this I've discussed this in my previous two minutes.
Because the W. P.
We are continuing to lower our dependency on real estate.
And.
20% of our 'twenty 'twenty screen real estate expense will decline, which is about $30 million today.
If you exclude doctor synergies.
Which together.
License up to about $8 $3 million up savings.
So we are aggressively focus on driving that out of our operating business.
Slide number nine please.
Many of these things I've covered before in the previous few minutes, but I'll I'll point out some of the important ones.
Why are we doing all these things is to prepare for <unk>.
Refinancing our long term debt.
There's no surprise that that cost is very high 11, 5% blended coupon is 11, 1%.
But I'm excited about the P&C securitization facility because it sets a benchmark of 4%.
That is the lowest cost of debt in our group.
And that's.
I don't think that's what's possible for a larger long term facilities.
But they do are no call feature for those facilities does expire at the end of this year.
So our goal is to continue to work hard at.
And continue to.
Drive cost get down cost of that down.
Better performance and get prepared for.
Refinancing before 2026 maturity date.
Our liquidity when we talked about liquidity about 71 million and I mentioned, the 51 million at Wildwood that we added.
Primarily we added it for repurchase of 2023 loans. However, it's available to us to use.
For general corporate purposes as well.
So we will continue to build up more dry powder as to fund our business, but also to take up any.
Looming majority that's 2023.
We do you will see some additional debt.
Synergies.
So we have more dry powder there.
They will be not on the long term nature, but more to focus on.
2023 maturities.
But that.
I will turn the.
But back over to Syria soccer, our Chief Financial Officer.
And he will.
Color.
Deeper dive into the revenue and the EBITDA and the income statements.
Yeah.
Thank you Paul.
Thanks to everyone for joining us this morning.
I'll cover our consolidated results and segment revenue for our first quarter 2022 performance and provide an update on our growth and balance sheet initiatives.
As you have done in the past, we are reporting both GAAP and non-GAAP numbers reconciliations or in our filings and in the appendix of the presentation.
Let me touch upon some highlights of our first quarter 2022 financial performance.
As Bob mentioned, we had a strong first quarter D. C V sales attainment over 130% increase year over year.
And on a reported basis revenue was $279 4 million. It was down six 9% year over year. However, on a constant currency basis. It was $283 1 million down five six year over year.
Gross margins were impacted due to lower volumes and rising costs, including investment in bench costs for some of our business units.
And asset was touched upon adjusted EBITDA of $36 1 million or 12, 9%.
Let me turn over to slide 10, and discuss our Q1 2022 Robyn.
You can follow along on our slides you'll find a revenue bridge for the changes to revenue compared to the year ago period.
The puts and takes are important because excluding currency stopping in fact, COVID-19 and transition impact on our revenue.
Our revenue grew $10 3 million from increased volume.
Within <unk> segment.
Experiencing volume and revenue growth on our X P. P M.
Volumes from our health care customers and projects on LLP are also experiencing growth.
All of these are positive.
And as far briefly touched upon we continue to be impacted by Covid and other transition makes it within our onsite.
Integration services and public sector business on our right to be a segment.
We are encouraged by our new wins, but also expect our investment in bench to convert to billable revenue as customer demand picks up.
Turning to slide 11, and discuss our first quarter 2020 to resolve.
Again revenue for the first quarter totaled $279 4 million.
Breaking it out by our segment revenue revenue for our <unk> segment was 205 million a decrease of 11, 6% from $231 9 billion in the fourth quarter of 2021.
This decline as I briefly mentioned.
Predominantly on the IEPS.
Coming from continued softness on all delaying the return to pre Covid volumes on some of our businesses with an idea here along with transition revenue impact Q1 was also impacted by staffing impact and.
And in addition to the adverse impact of $3 7 million attributable to the currency changes as compared to the fourth quarter of 2021.
Our healthcare solutions segment revenue totaled $56 6 million, an increase of 10, 8% from $51 1 billion in the year ago period.
Revenue from the wider business was up 18, 5% year over year, primarily driven by higher volumes and expansion with existing client relationships.
Payer business experienced higher volumes as compared to prior year and was up by seven 1% year over year.
Our legal and loss prevention segment revenue was $17 8 million or four 1% increase year over year, driven by higher project revenues.
Overall, our current revenue base continues to be stable with a diversified customer base and a substantial backlog.
Turning over to the gross profit our gross profit came in at $55 9 million down $11 6 million or 17, 2% year over year.
Cost of revenue declined by a net $9 1 million for the comparative period.
However, our gross profit would have been higher by approximately $4 5 million for the bench cost that we carry in the quarter.
As indicated we are also experiencing rising personal cost this year compared to the last I'll say as a result of tight job market and cost inflation.
Our gross profit margin for the first quarter was 20% up 90 basis points sequentially, but down 248 basis points year over here.
Adjusted EBITDA was $36 1 million down 22, 2% from $46 5 million in the prior year period.
And down eight 6% sequentially, primarily driven by lower gross profit changes in comparative periods.
Our adjusted EBITDA margin for the first quarter was 12, 9% down 50 basis points from the prior quarter and 256 basis points from 15, 5% in the first quarter of 'twenty or 'twenty one.
Let's turn to slide 12, and discuss our investments and continued deleveraging initiatives.
So do you think investments to grow our business are Paramount and we are excited about the launch of <unk>, Our new third party payment processor with the acquisition of all operating aspects of corridor.
Harmony channel full stack processing commerce and engagement platform Corridor Road universe integrated payment pay by link intelligent routing and digital wallet capabilities, enabling any size organization to transform the business into a seamless commerce solution to reach customers anywhere anytime.
Additionally, we continue to expand our health care solutions with investment in new Burdock.
Innovative healthcare platform that connects patients with available board certified doctors and specialists for in person and telemedicine appointment at the transfer price.
We continue our deleveraging initiatives and decrease our debt by $35 7 million in the first quarter.
With an estimated interest expense reduction of approximately 10 million annually, including the switchover to newly announced PNC facility.
We expect to either retire or refinance the B Riley facility.
72 million and the stub portion of senior secured notes and term loan a 111 billion.
On April 18, 2022, we launched our second tender offer we expect to exchange, we expect exchange to close on May 16th.
We're not providing a formal outlook for FY 2022 for modeling purposes, I indicated on our Q4 call. We suggest that investors use our historical 2021 metrics to forecast.
As macro conditions ease and inflationary pressure pressures normalized we'll consider providing more details on the outlook.
For reference last quarter and for the last year, we had indicated modeling assumptions of revenue greater than $1 1 billion gross profit margin greater than 23, 24% of revenue adjusted EBITDA margin greater than 15% of revenue capex levels of approximately one 5% of revenue.
And working capital trend in line with historic levels.
In closing, we would like to emphasize the objectives for 2022 that you've covered on the earlier slides.
Briefly.
Investing for business growth and talent.
Financial flexibility the cash and liquidity.
And third focus on strategic plans for 2022 and beyond.
Before I conclude my question just wanted to say a few words about Ron Cogburn, our CEO as you likely know this what this last quarter leading us.
I wanted to thank him for his many contributions to exelon his friendship and support these many years on behalf of all accelerators, we wish him great success in the future.
We look forward to updating you on our progress following the second quarter and with that Tom. Please open the line for Q&A.
Thank you well now begin the question and answer session to ask a question Press Star then one on your Touchtone phone.
If you're using a speaker phone it may be necessary to pick up your handset before pressing any keys to withdraw yourself from the question queue. Please press Star then two we also ask that in the interest of time at Cleveland Yourself to one question and one follow up.
We will pause momentarily to assemble our roster.
And our first question comes from Josh Seigler with Cantor Fitzgerald. Please go ahead.
Yes, hi, Thanks for taking my question today.
I know <unk> doesn't have any formal guidance, but as you outlined are for modeling purposes.
It implies some business acceleration as we progress through 'twenty acquaint to can you. Please walk us through specific areas of the business do you expect to improve both on the revenue side and the margin side in order to reach those numbers.
How did you do that let me take a first stab at it from a number perspective and park can add.
Color on the business as necessary, Josh I think during the call we touched upon earlier 11 specific items, including.
The key for Us in Q1, we are very encouraged to see the close of business, including the TCP events. These will start to be wording and as part of it and you get the X P. P. It's an area, where we are seeing traction in terms of new business spend so that's very encouraging that said to reemphasize on on the growth areas.
We are already seeing uptick in volumes in health care in special projects or projects on L. L. P S and from from SPP, But then I T. P. S.
Now what we need to see is the pre COVID-19 volumes returned up to a certain stage for public sector onsite and AR and the communication services businesses.
From a margin perspective, Josh.
Q1 for a lack of a better term had headwinds whether it's the input cost inflation are b bench costs that we incurred or invested in.
In the quarters that follow particularly with the bench cost we expect that to translate to billable revenue. So that's that's an uptick from a margin perspective that we can expect second.
A great length and details we covered our plants on both personal real estate and other savings.
Savings related initiatives that will get us to a higher margins in the following quarters. So is that helpful. Josh.
Yes, it's very helpful. Thank you and for my follow up I'd Love some more color on the significant 41, new enterprise logos is this a reflection of a healthier balance sheet and are those conversations going better than they were a year ago for example.
Sure maybe I can take this one sure.
Sure.
Josh for sure.
A reflection.
A healthier balance sheet.
Also.
Our teams we have expanded our depth.
And taken advantage off.
Opening up the COVID-19 to reach out and start discussing about our strength in technology and analytics.
And.
So that's you know it's not one thing in many things combine but most certainly balance sheet.
Change has been very productive.
To add to your first question.
Why we are so exuberant.
Is.
Reason for our health care business being.
No.
Third to our expectation.
Is that we have the business, we just don't have enough people in the right spot.
Same problem with our public sector business, we already have the backlog. We just don't have the approvals to deliver at just at the amount of volume that we can deliver when.
When you combine that with P. C D wins.
It gives us a very good indication of how many people we need to act.
And I mentioned about 5000 people, including attrition.
Which at $69000 69 K per employee.
Give you an indication of.
Where we're trending.
The fact that some of the business has more technology component and less people come from it.
It means our margins are going to rise as our volumes in this X P. P space why you know health care space right that are driven.
Instead of traditional <unk>.
People technology to higher technology component, we're going to benefit.
Yeah.
Thank you.
Thank you very much for the color.
The next question comes from Zach Cummins with B Riley FBR. Please go ahead.
Yeah. Thanks for taking my questions and congrats on the strong contracting activity here in the first quarter.
I just wanted to ask around the free cash flow number here in Q1, I mean can you talk about some of the maybe one time impacts that that impacted that number here in Q1 in <unk>.
And should we be expecting some improvement from here as we continue to build through the coming quarters.
Possible Jack Thanks for the question.
Specific to the cash flows in particular, if let's say the operating activities. One timers I would call out is the 40 million payment to the for the appraisal action settlement and I called that out because it's a quarter, where traditionally the even quarter, we incur the trip.
One interest payment we didn't have that because we settled that in Q4 as part of the exchange offer. So we should have seen a positive you don't see that mainly because of that $40 million one timer.
And then on the financing section obviously.
You will see all of the ins and outs happy to discuss mortgage we'd like to get into the specifics, but really high level to call out is the 40.
40 million payment on the cash flow that's exceptional.
Understood that's helpful and in terms of a plans to pay down debt over the next 15 months.
I mean, maybe either you or par could speak to the means that you have available to you whether that'd be additional debt capacity or or additional equity that you could use to pay down the debt.
Debt maturities here over the next 15 months, just kind of curious of how you would weigh using debt versus equity to accomplish that goal here.
And in the coming quarters.
So maybe I can take that.
Okay.
Okay.
The our goal is to find a balance between debt and equity we've used equity heavily in the last year as well as this quarter will continue to rely upon equity.
But because nothing through balance sheet and the refinancings that we have done we have put in place structures that allow us to add capacity to our existing debt facilities you saw that with our.
A change that we made to our dear that'd be writing facility.
You saw the change that we made to our AG Angelo Gordons facility, where we switched to P&C loan that interest, but we plan to add additional similar capacity.
Not large facilities, but small facilities, maybe $50 million to $100 million. So the weekend.
Manage movements between equity and debt more efficiently to prepare for.
Take out of the visa checkout about the.
Maturities in 2023.
And.
Prepare for with performance.
The financing of the overall 2026.
I hope that answers your question.
Absolutely. Thanks for taking my questions and best of luck here with the rest of Q2.
Thank you thanks Zack.
Again, that's star then one if you'd like to join the question queue and the next question comes from Randall Klein with Avenue capital. Please go ahead.
Hey, guys. Thanks for taking the call actually the basically lots of colors more or less touched on my primary questions. So I'll try to kind of stealing anything else on the first one I was going to focus on the fact that you know Q1 versus Q4 gross margin went up a little bit SG&A came down a little bit, but obviously sales was the big issue.
And I know you weren't going to give formal guidance, but you did just give some I guess you'd call it formal or modeling guidance, which was helpful. Based upon what you. Just said then what I'm reading into my question was how do you see sales kind of 2022 versus 2021, given you were down in the first quarter I guess, what I'm hearing is you're hoping it's flat to up but correct me if I'm wrong.
Long.
And then I didn't think you were going to touch on margins, but again, it sounds like you're hoping and expecting margins directionally to improve both on the gross margin and EBITA line any color on the SG&A would also be helpful and I've got a follow up.
Sure Randall first of all again, thanks for your question as well.
For the first one let's say for the revenue flat to up is its right. That's why we retained our Q4.
Functions are we talked about retaining the 2021 modeling assumptions.
Regarding gross margins as you rightly pointed out you start off the year with 20%. Some one timers just as we discussed on the call, but maybe I'd point out to you. If you look at the trailing 12 months, including Q1 of this year, we are still at the 23% margins. So it is.
Is something that's achievable and what would be I outlined on the deck various initiatives right automation savings, where our focus is on from a cost perspective all of that that is what it is still factoring in.
Jenny I think this quarter is a good baseline we've started seeing reduction in the professional fees that we pay since the AR balance sheet initiatives are on the wane.
I would probably use a baseline of 40 million for SG&A on a steady state business anywhere from 39 to 40 million on a steady state.
Got it okay. That's that's very helpful. I appreciate the extra color on that and my second was gonna be about kind of the refinancing of the 'twenty threes I think you've kind of covered that already it sounds like basically you've got you know between the 51 revolver, the PNC and maybe some incremental facilities on top of that and hopefully or potentially tapping.
At some point that more than takes care of the 'twenty three maturity. So I'll skip that question unless you have any more color on that and flip to.
You know you're not the only company out there with problems with inflation and people shortages. So you know I mean, I guess, that's the key issue.
A key issue for you to actually attain your revenue stability and growth.
Talked about a lot today, but any other kind of thoughts on how you go about hum.
Successfully mandating that hurts no known to have an easier time with it and so just kind of curious on how you guys are going to be able to manage both the inflation side. So these consolidated gross margins and have the people. So you can get the revenues.
Yeah sure I, probably like part got Ya man, but but before that like real quick.
Randall since you specifically said about PNC just wanted to clarify right. It's a securitization facility, we certainly have available, but it's not a revolver type again.
We can talk about it specifically later, but just wanted to clarify because you know I don't want to miss or presentation or misinterpreted that's fine Yep Yep.
Oh, sorry go ahead bill.
Before I talk about the.
The people and the inflation and how we manage it.
Our health care business.
Is good we are expecting it to grow by over 7% year over year much higher margin business.
Our FPP business.
Is also much higher margin business are also expected to grow.
And the drags.
The public sector, where we have backlog.
And if we can manage the people.
Being approved.
That business will grow but more importantly, it will start to contribute profits.
So we are we are seeing.
The signs are.
Growth in higher margin growth revenue.
And challenge being people. So 5000 people how do we add those I don't think we can add 5000 people successfully in the U S markets and at the same time deliver a revenue which is why we can.
Created this authorization model, where we can induct people.
Rich security.
Protecting the data for our clients.
In countries, where there is high unemployment rates or people cannot get to delivery or location.
That platform.
Had very.
Very small number of people last year.
And.
Earlier this month, we clause crossed 11000 people.
We still are not using them fully but our plan to use them.
Scale that up to 25000 people.
We will give us ample capacity to continue to ramp up with no bench cost because we pay for these part time people when they work.
And this gives us the balance.
Tween fulltime employees that we're hiring.
Of 1900 job openings today.
Or this month.
And.
And we are continuously adding to this authorization platform.
And we are opening up into new countries, which will you know it's good for.
US to deliver our revenue, but it's also good for the communities where there are no jobs that we are creating jobs.
So very.
It's a very competitive shift to this model and we already are.
I don't know of any other company, who is managing transitioning this way.
In our peer group I believe we have the first.
And we continue to.
Grow this model and go after business that currently we don't have.
From <unk>.
Existing clients that they've given to our competitors. So I'm very excited about not only.
Winning new business delivering current business, but also preparing for 2023.
The platform, that's going to be very helpful for us to win more.
Thank you got it yeah. That's fair that's actually very helpful. Thank you, Oh, Oh, I'll stop there and what fast jump jump in thanks.
Thanks, Ryan Thank you.
Yeah.
We have no further questions. This concludes our question and answer session and I'll turn the conference back over to management for any closing remarks.
I want to thank all of our shareholders and stakeholders and lenders.
For your support and I look forward to.
Our next call with you.
Sometime in early August thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.