Q4 2023 Upland Software Inc Earnings Call
Operator: Thank you for standing by, and welcome to the Upland Software 4th Quarter 2023 Earnings Call. At this time, all participants are in listen-only mode.
Thank you for standing by and welcome to the upload software fourth quarter of 2023 earnings call. At this time, all participants are a listen only mode.
Operator: Later, we will conduct a question and answer session, and instructions for that will be given at that time. The conference call will be recorded and simultaneously webcast at investors.uplandsoftware.com, and a replay will be available there for 12 months. By now, everyone should have access to the fourth quarter 2023 earnings release, which was distributed today at 4 p.m. Eastern Time. If you've not received the release, it's available on Upland's website. I'd now like to turn the call over to Jack McDonald, Chairman and CEO of Upland Software. Please go ahead, sir.
Later, we will conduct a question and answer session and instructions for that will be given at that time.
This call will be recorded and simultaneously webcast invested that Lynn software dot com and the replay will be available there for 12 months.
By now everyone should have access to the fourth quarter.
23 earnings release, which will distribute it today at four P. M. Eastern time, if you have not received received the release is available on airplanes website.
I know I'd like to turn the call over to Jack Macdonald, Chairman and C. O C E O of uploading software. Please go ahead Sir.
Jack McDonald: All right, thank you. And welcome to our Q4 2023 earnings call. I'm joined today by Mike Hill, our CFO. On today's call, I will start with a Q4 review. And following that, Mike will provide some detail on the numbers and our guidance for 2024. After that, we will open the call up for Q&A. But before we get started, Mike, can you read the script for, Yes, thank you, Jack
Alright, Thank you and welcome to our queue for.
20 twenty-three earnings call I'm joined today by Mike He'll are CFO on today's call.
I will start with a Q for review and following that Michael provide some detail on the numbers and our guidance for 2024. After that we will open the call up for Q&A, but before we get started my can you read the safe Harbor statement.
Yes like Jack during today's call. We will include statements that are considered forward looking within the meanings of the securities laws, a detailed discussion of the risks and uncertainties associated with such statements or is contained in our periodic reports filed with the SEC.
Michael Douglass Hill: During today's call, we will include statements that are considered forward-looking within the meaning of the securities laws. A detailed discussion of the risks and uncertainties associated with such statements is contained in our periodic reports filed with the SEC. The forward-looking statements made today are based on our views and assumptions and on information currently available to Upland Management as of today. We do not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements. On this call, Upland will refer to non-GAAP financial measures that, when in combination with GAAP results, provide Upland Management with additional analytical tools to understand its operations. Upland has provided reconciliations of non-GAAP financial measures to the most comparable GAAP measures in our press release announcing our financial results, which is available on the Investor Relations section of our website. Please note that we're unable to reconcile any forward-looking non-GAAP financial measures to their directly comparable GAAP financial measures because the information which is needed to complete a reconciliation is unavailable at this time without a reasonable effort. And with that, I'll turn the call back over to Jack.
The forward looking statements made today are based on our views and assumptions and on information currently available to upload management as of today, we do not intend or undertake any duty to release publicly any updates and revisions to any forward looking statements on this call up one word refer to non-GAAP financial measures that went in combination with GAAP results.
Provide upland management with additional analytical tools and.
To understand its operations.
<unk> has provided reconciliations of non-GAAP financial measures to the most comparable GAAP measures in our press release announcing our financial results, which is available on the Investor Relations section of our website. Please note that were unable to reconcile any forward looking non-GAAP financial measures to their directly comparable GAAP financial .
[noise] measures because the information which is needed to complete a reconciliation is unavailable at this time without unreasonable effort and with that I'll turn the call back over to Jack Alright, Thanks, Mike the headlines we'd be in queue for our revenue and adjusted EBITDA guidance midpoint.
Jack McDonald: All right, thanks, Mike. The headlines, we beat in Q4 our revenue and adjusted EBITDA guidance midpoint. We welcomed 154 new customers to Upland in Q4, making that a total of 678 new customers in 2023. In the fourth quarter, that new customer addition included 15 new major customers.
We welcome to 150 for new customers to upland in queue for making that a total of 678, new customers in 2023 in the fourth quarter that new customer add included 15, new major customers on the product front very busy in queue for and of course, we've got a <unk>.
Jack McDonald: On the product front, we were very busy in Q4, and of course, we've got a number of initiatives underway on the AI front that are very exciting. And, of course, we saw some great recognition for our products in Q4. For example, Upland was recognized for the third year in a row as a gold medalist and leader in the 2023 Enterprise Content Management Data Quadrant Report from Software Reviews. That was for our Document Management and Workflow Automation product, which is called Filebound. The award is based on the combined knowledge of real users, and placement is based on overall satisfaction with product features, vendor experience, capabilities, and emotional sentiment.
Number of initiatives underway on the a I front that are very exciting and of course, we saw some great recognition of our products.
In Q4 of them was recognized for the third year in a row as a gold medalist and leader in the twenties twenty-three enterprise content management data quadrant report from software reviews. So that was four or document management and work flow automation product, which is called file bound. The award is based on the combined knowledge of real users.
And placement is based on overall satisfaction with product features vendor experience capabilities and emotional sentiment.
Jack McDonald: In addition to that, Upland RO Innovation launched a new Customer Reference Activity Hub to help sales, marketing, and customer success teams find and engage with their most influential customer references so they can boost brand awareness and generate more business in December. We hosted a webinar on content search intelligence featuring and covering how Azure AI Search, when seamlessly integrated with BA Insights' cutting-edge technology, can revolutionize how organizations access, manage, and derive insights from their data. Again, just one of many exciting AI initiatives that we've got underway across a half dozen or so products or more. And also, in the fourth quarter, we earned 44 badges in G2's Winter 2024 market reports, and that was across a variety of products. These included our knowledge management solutions, Upland RightAnswers and Upland Panviva, along with Upland Qubidian, our proposal management software, and our digital marketing products, Upland Adestra and Upland SecondStreet. And rankings in those G2 reports, of course, are based on independent data provided by real software buyers.
In addition to that <unk> innovation has launched a new customer reference activity hub to help sales marketing and customer success teams find and engage with their most influential customer references so they can boost brand awareness and generate more business.
In December.
We hosted a webinar on content search intelligence featuring in covering how is your AI surge when seamlessly integrated with B, a insights cutting edge technology Ah can revolutionize, how oregon organizations access manage and derive insights from their data.
Again, just one of many exciting AI initiatives that we've got underway across a half dozen or so products are more and then also in the fourth quarter. We earned 44 badges N G two's winter of 2024 Mark.
<unk> reports and that was across a variety of products. These included our knowledge management solutions up and write answers and upland Pan Viva along with upland Covidien, our proposal management software and our digital marketing products upland a desk draw and.
Upland second street and rankings on those G. Two reports of course are based on independent data provided by real software buyers overall, we continue to make progress on our go to market growth plan and we remain focused on building, great software and delivering value for customers we.
Michael Douglass Hill: Overall, we continue to make progress on our go-to-market growth plan, and we remain focused on building great software and delivering value for customers. We feel encouraged by the progress we've made to date on our growth plan. We are processing out the Sunset assets as planned and clearing the way for core growth. And our goal, Mike's going to cover 2024 guidance in a few minutes, but our goal is to exit 2024 at a core organic growth rate of around 3%. Now our guide will be more conservative than that, probably closer to a 1% exit, but the goal is to get to a 3% exit. And we've spent a year building and investing and are encouraged by the progress we've seen to date and view this year as our year to turn the business back to positive core organic growth and exit with positive core organic growth. So more to come on that later, and now, let me turn the call over to Mike. Yeah, thank you, Jack.
Feel encouraged by the <unk> the progress we've made to date.
On the <unk> plan, we are processing out the sunset assets as planned and clearing the way for core Grove.
Our goal Mexican cover 2024 guidance in a few minutes, but.
But our goal is to exit 2024 at a core organic growth rate of around three per cent now our guide will be more conservative than that and probably closer to one per cent exit but the goal is to get two or three per cent exit again, we've spent a year building in investing.
And are encouraged by the progress we've seen to date and view this year as our year to turn the business back to positive core organic growth and exit with positive core organic growth. So more to come on that later and let me now turn the call.
Michael Douglass Hill: I'll cover the financial results for the fourth quarter of 2023 and, as Jack said, our outlook for the first quarter and full year 2024. These results and our outlook for 2024 reflect another year of significant incremental sales, marketing, and product investments, as well as the planned runoff of the Sunset Assets revenue. Total revenue for the fourth quarter was $72.2 million, representing a decrease of 8% year-over-year. Recurring revenue from subscription and support decreased 8% year-over-year to $68.2 million, and perpetual license revenue decreased to $1.8 million in the fourth quarter.
Over to Mike Yeah. Thank you Jack I'll cover the financial results for the fourth quarter of 2023 and.
Jack said, our outlook for the first quarter and full year of 2024.
These results and our outlook for 2024 reflect another year of significant incremental sales marketing and product investments as well as the plan to run off of the sunset assets revenue.
Total revenue for the fourth quarter was 72.2 million, representing a decrease of 8% year over year recurring revenue from subscription support decreased 8% year over year to 68.2 million perpetual license revenue decreased to 1.8 million in the fourth quarter down from one down from.
Michael Douglass Hill: Down from one, down from, That actually increased from $1.6 million in the fourth quarter of 2022. Professional services revenue was $2.2 million for the quarter, a 26% year-over-year decline. These revenue declines are consistent with the planned runoff of the Sunset Assets revenue. Overall gross margin was 67% during the fourth quarter, and our product gross margin was 68% or 72% when adding back depreciation and amortization, which we refer to as cash gross margin. Operating expenses, excluding acquisition-related expenses, depreciation, amortization, and stock-based compensation, were $38.4 million for the quarter, or 53% of total revenue, all generally as expected.
Or actually increased from 1.6 million in the fourth quarter of 2022 <unk>.
Professional services revenue was $2.2 million for the quarter.
26% year over year decline. These revenue declines are consistent with the plan to run off of the sunset assets revenue.
Overall gross margin was 67 per cent during the fourth quarter and our product gross margin was 68% or 72% when adding back depreciation amortization, which we referred to as cash gross margin.
Operating expenses, excluding acquisition related expenses, depreciation amortization, Stock-based com, where 38.4 million for the quarter or 40 or 53 per cent of total revenue. All generally as expected also acquisition related expenses were approximately point $5 million in the fourth quarter.
Michael Douglass Hill: Also, acquisition-related expenses were approximately $0.5 million in the fourth quarter, which should represent the last of our restructuring costs from those acquisitions that we did last year; those are the acquisitions in 2022. Acquisition-related expenses should remain insignificant going forward until our acquisition activity picks back up in the future. Our fourth-quarter 2023 adjusted EBITDA was $14.1 million, or 19% of total revenue, down from $24.3 million, or 31% of total revenue, for the fourth quarter of 2022. This adjusted EBITDA decline is generally as expected, considering our growth investments and our decision regarding the Sunset Assets, as described earlier. For cash flow for the fourth quarter of 2023, GAAP operating cash flow was $8.8 million, and free cash flow was $8.6 million, bringing our full-year 2023 free cash flow to $48.7 million, which was in line with our expectations.
Quarter, which should represent the last of our restructuring costs from those acquisitions that we did last year.
Those are the acquisitions in 2022 acquisitions related expenses should remain insignificant going forward until our acquisition activity picks back up in the future or.
Fourth quarter of 2023, adjusted EBITDA was 14.1 million or 19 per cent of total revenue down from $24.3 million or 31% of total revenue for the fourth quarter of 2022. This.
This adjusted EBITDA decline is generally is expected considering our growth investments in our decision regarding the sunset assets as described earlier.
Cash flow for the fourth quarter of 2023 gap operating cash flow was 8.8 million in free cash flow was $8.6 million, bringing our full year 2023 free cash flow to 48.7 million, which was in line with our expectations now as a reminder, or a full year 2023 free cash flow was benefited by the.
Michael Douglass Hill: Now, as a reminder, our full-year 2023 free cash flow was benefited by the liquidation of half of our interest rate swaps in Q3, adding 20.5 million of additional free cash flow in 2023. This one-time event is just a one-time event unless we decide to liquidate more swaps in the future. Our ongoing free cash flow generation is in addition to our existing liquidity of approximately $297 million, comprised of the approximate $237 million of cash on our balance sheet as of December 31, 2023, plus our $60 million Enduron revolver. As of December 31, 2023, we had outstanding net debt of approximately $245 million after factoring in the cash on our balance sheet.
Liquidation of half of our interest rate swaps in Q3, adding $25 million of additional free cash flow in 2023. This one time event is just a one time event, unless we decided to liquidate more swaps in the future.
Our ongoing free cash flow generation is in addition to our existing liquidity of approximately 297 million comprised of the approximate $237 million of cash on our balance sheet as of December 31st 2023, plus or 60 million dollar undrawn revolver.
As of December 31, 2023, we had outstanding net debt of approximately $245 million after factoring in the cash on our balance sheet as of December 31, 2000 twenty-three. Our gross that was approximately 482 million of which approximately 259 million is still fully hedged effectively locking our inch.
Michael Douglass Hill: As of December 31, 2023, our gross debt was approximately $482 million, of which approximately $259 million is still fully hedged, effectively locking our interest rate at 5.4% on that portion of our debt through the full maturity of our term debt, which is August of 2026. The remaining approximately $224 million of term debt now floats at an interest rate of SOFR plus 385 basis points, which was about 9.2% at December 31, 2023. I will also note that we used $10.8 million of cash to buy back approximately 2.5 million shares of common stock during the quarter ending December 31, 2023, under our limited stock repurchase program that began in early September of 2023. This brings the cumulative total of our stock buybacks through December 31, 2023, to $14.2 million.
Just right at five 4% on that portion of our debt through the full maturity of our term debt, which is August of 2026 <unk>.
The remaining approximately 224 million of term debt now floats at an interest rate of sofa, plus 385 basis points, which was about 9.2% at December 31 2023.
I will also note that we used $10.8 million of cash to buy back stock approximately 202.5 million shares of common stock during the quarter ended December 31st 2023 under our limited stock repurchase program that began in early September of 2023. This brings the.
Cumulative total of our stock buybacks through December 31st of 2000 $23 million to $14.2 million and as a reminder, our stock buyback plan is for a potential total of $25 million shoot it fully execute.
No no for guidance to the following guidance reflects another Europe <unk> significant incremental sales marketing and product investments that we're making is part of our comprehensive growth plan as well as the effects of decreasing revenue and expenses related to the sunset assets.
Michael Douglass Hill: And as a reminder, our stock buyback plan is for a potential total of $25 million should it fully expire, for guidance. The following guidance reflects another year of significant incremental sales, marketing, and product investments that we are making as part of our comprehensive growth plan, as well as the effects of decreasing revenue and expenses related to the Sunset Asset. I will note that, as usual, our forward guidance assumes no M&A activity, so our forward guidance will, of course, be adjusted upon future acquisitions. For the fourth quarter ending March 31, 2024, Upland expects reported total revenue to be between $65 and $71 million, including subscription and support revenue between $62.5 and $67.5 million, for a decline in total revenue of 12% at the midpoint from the quarter ending March 31, 2023. For the first quarter 2024, adjusted EBITDA is expected to be between 11.3 and 14.3 million, for an adjusted EBITDA margin of 19% at the mid
I will note that as usual or forward guidance assumes no M&A activity. So our forward guidance will of course be adjusted upon future acquisitions.
For the fourth quarter, ending March 31st 2024 up unexpected reported total revenue to be between 65 and $71 million, including subscription and support revenue between 62.5 and $67.5 million for a decline in total revenue of 12% at the mid point from the <unk>.
Quarter ended March 31, 2023.
For the <unk> for the first.
First quarter of 2024, adjusted EBITDA is expected to be between 11.3 and $14.3 million.
For an adjusted EBITDA margin of 19% at the midpoint.
Adjusted EBITDA guidance at the mid point as a decrease of 27% from the quarter ended March 31st 2023.
For the full year ending December 31st 2024.
<unk> expects reported total revenue to be between 259, and 283 million, including subscription and support revenue between 247, and 267 million for a decline in total revenue of 9% at the mid point from the year ended December 31st 2023.
Full year 2024, adjusted EBITDA is expected to be between 49, and 61 million for an adjusted EBITDA margin of 20 per cent at the mid point. This adjusted EBITDA Guide at the midpoint is a decrease of 15% from the year ended December 31 2023.
Michael Douglass Hill: This adjusted EBITDA guidance at the midpoint is a decrease of 27% from the quarter ended March 31st, 2023, for the full year ending December 31st, 2024. Upland expects reported total revenue to be between $259 million and $283 million, including subscription and support revenue between $247 million and $267 million, for a decline in total revenue of 9 percent at the midpoint from the year ended December 31, 2023.
So with that I'll pass the call back over to Jack.
Alright, Thanks, Mike we are now ready to open the call up for Q&A.
At this time I would like to remind everyone in order to ask the question Press Star.
Number one on your telephone keypad.
We will pass for just a moment <unk>.
Our first question comes on the line.
Ah Scott there would need them income Scott as long as your voice.
Hi, Jacking, Mike Thanks for taking my questions here today.
So I got a couple of them <unk>.
<unk> I guess in your.
You know kind of new go to market strategy. What you guys have been working on starting rollout where do you think you are in the process because you feel pretty confident about exiting this year with core revenue growth of I believe you said.
Jack McDonald: Full year 2024 adjusted EBITDA is expected to be between $49 and $61 million for an adjusted EBITDA margin of 20% at the midpoint. This adjusted EBITDA guide at the midpoint is a decrease of 15% from the year ended December 31st, 2023. So with that, I'll pass the call back over. All right. Thanks, Mike. We are now ready to open the call up for Q&A. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad.
Target of three per cent trying to understand where you are in that process and your visibility to try that.
Segment is you get through the year.
[noise] yeah. So we're starting we'd been added now a little over a year.
We've.
Made significant improvements on the product development and innovation side and we're starting to see those pay off course, the build out of our center of excellence in India over 130 people, there now and growing and it is enabling us within our cost envelope to innovate across our product portfolio.
Operator: We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Scott Berg with Needham & Co. Scott, the floor is yours. Hi, Jack and Mike.
And again I think we're starting to see some green shoots from that.
The 44 winter badges from G two and some of the other analyst.
Jack McDonald: Thanks for taking my questions here today. So I have a couple of them, you know, Jack. I guess in your, you know, kind of new go-to-market strategy, what you guys have been working on, is starting to roll out. Where do you think you are in the process of that? Because you feel pretty confident about exiting this year with core revenue growth of, I believe you said, a target of 3%. But trying to understand where you are in that process and your visibility to drive growth in that core segment as you get through the year. Yeah, so, we're starting. We've been at it now for a little over a year. We've made significant improvements on the product development and innovation side, and we're starting to see those pay off. Of course, the build-out of our Center of Excellence in India, over 130 people there now and growing, and it is enabling us within our cost envelope to innovate across our product portfolio. And again, I think we're starting to see some green shoots from that.
Awards that we've received I think are indications that that.
Is beginning to bear.
Bear fruit I look at it where we are in terms of our investments to build otter digital marketing capability.
Again, we've made real progress there I can look at a number of K P is internally around organic search around pipeline build where we are really starting to see a significant improvements.
In performance.
On the sales side more generally we filled out the sales team sales process sales tool sales hygiene.
Different organization culturally today than it was a year ago in terms of really building a true.
Sales culture.
Most recently, we hired a new Chief revenue Officer, Mac Wrestling, who was the an executive at in for where he ran a 700 million dollar business actually was a colleague, adding four with Oliver Yates Who's our had a sale so.
At bringing some of that team back together.
Jack McDonald: The 44 winner badges from G2 and some of the other analyst awards that we've received, I think, are indications that that is beginning to bear fruit. I look at where we are in terms of our investments to build modern digital marketing capability, and again, we've made real progress there.
And I feel very good about where we are as we move into 2024 here and as I say you. This is the year when we make the turn to positive core organic growth with that target of exiting the year at 3% again, we're gonna guide more.
Conservatively than that but I feel good about the progress and encouraged by the progress.
Jack McDonald: I can look at a number of KPIs internally around organic search, around pipeline build, where we are really starting to see significant improvements in performance. On the sales side, more generally, we've built out the sales team, the sales process, sales tools, and sales hygiene. It's a different organization culturally today than it was a year ago in terms of really building a true sales culture. Most recently, we hired a new chief revenue officer, Matt Breslin, who was an executive at Infor where he ran a $700 million business. He actually was a colleague at Infor with Oliver Yates, who's our head of sales, so bringing some of that team back together. I feel very good about where we are as we move into 2024.
We've made today.
[noise] got it helpful. Thank you Jack you know my <unk> at the guidance here for the year.
<unk> revenue it looks like it's gonna be down a few million dollars quarter over quarter. If you <unk>. Your guidance suggests that your private grabbed news probably flattish.
At that level for the rest of the year, maybe five to just modestly down from there I guess, when we think of the.
Non core versus the core revenues I assume some of the items that your son setting is what's impacting the Q1 number to be lower than Q4, but how do we think of I don't know the curve of the nine curb versus or nine core versus the core going through the end of this year, one wall that 90 co revenues to be out of the model and then <unk>.
Jack McDonald: As I say, this is the year when we make the turn to positive core organic growth with that target of exiting the year at 3%. Again, we're going to guide more conservatively than that, but I feel good about the progress. I'm encouraged by the progress we've made to date. Got it. Helpful. Thank you, Jack.
When we get to see truly what the actual references revenues are doing things.
Yeah, Sir Thanks, Scott so.
The the fact like Jack just described we're turning from our core standpoint were returning from a little negative negative 1% core organic growth rate in queue for to positive here in 2024 at least by the exit and hopefully you know three per cent target.
Michael Douglass Hill: You know, Mike, as I look at the guidance here for the year, product revenue looks like it's going to be down a few million dollars quarter over quarter from Q4 to Q1, and your guidance suggests that your product revenue is probably flat-ish at that level for the rest of the year, maybe flat to just modestly down from there. I guess when we think of non-core versus core revenues. I assume some of the items that you're sunsetting are what's impacting the Q1 number to be lower than Q4. But how do we think of, I don't know, the curve of the non-core versus the core going through the end of this year?
Core growth by the exit so.
Core is is sort of you know, making the the trough turn their if you will.
The sunset assets.
Is probably going to be you know a little less than 30 million of revenue here in 2024 related to the sunset assets that are you know.
Going to continue to sort of.
Run off if you will over the next couple three years. So again those will be a bit of a drag but it but the main point here is that the core should be turning.
Michael Douglass Hill: When will the non-core revenues be out of the model? And then when will we get to see truly what the core revenues are doing? Yeah, so thanks, Scott. The fact, like Jack just described, we're turning from a core standpoint, we're turning from a little negative, negative 1% core organic growth rate in Q4 to positive here in 2024, at least by the exit, and hopefully, you know, 3% target core growth by the exit. So the core is sort of, you know, making the trough turn there, if you will.
Turning up here this year.
Great helpful. Thanks for taking my questions.
And next question comes from the line and T. J Hines what can the court.
<unk> Your line is open T J.
Hey, guys. This is Ryan on for D. J, Mike This one's probably for you. It's related to describe the question I was just kind of hoping you could maybe.
Me through your revenue guide for the full year coming up I.
So I guess, we're talking about like $27 million decline with the mid point what are your assumptions on I guess like natural churn the bookings as well as you know you kind of alluded to those sunset assets, but any color that would be really helpful.
Michael Douglass Hill: On the Sunset Assets, it's probably going to be a little less than $30 million of revenue here in 2024 related to the Sunset Assets that are going to continue to sort of, run off, if you will, over the next couple, three years. So again, those will be a bit of a drag. But the main point here is that the core should be turning up here this year.
Yeah no problem. So most of that decline is gonna be the sunset assets recurring revenue now we do have a little bit lower perpetual license revenue and PSL revenue, that's sort of adding to that and of course like we said or.
Operator: Great, and helpful. Thank you for taking my question. Your next question comes from the line of D.J. Hynes with Kandacord.
Our guide we think our guide is a little bit conservative there, so that really sort of.
Adds up to that $27 million, you know walk the.
Michael Douglass Hill: Your line is open, D.J. Hey guys, this is Ryan on for DJ. Mike, this one's probably for you. It's related to Scott's question. I was just kind of hoping you could maybe bridge me through your revenue guide for the full year coming up. Yes, I guess we're kind of at like $27 million, you know, decline at the midpoint. What are your assumptions on, I guess, like natural churn, new bookings, as well as, you kind of alluded to those sunset assets, but any color that would be really helpful. Yeah, no problem.
Headline is it's the sunset asset decline burning off.
Okay awesome. Thanks, I appreciate it.
And next question comes from the line chest with quiet column Jan <unk>.
Great. Thanks, I appreciate it so just a couple guys maybe like with you first time the sales approach could you just spend a minute as I'm thinking through how what what the sales approach is here I know there have been periods were cross sell was a vision and there was opportunity potentially to cross sell from various products are you is this now purely.
Michael Douglass Hill: So most of that decline is going to be the Sunset assets, recurring revenue. Now we do have a little bit lower perpetual license revenue and PSO revenue that's sort of adding to that. And of course, like we said, our guide, we think our guide is a little bit conservative there. So that really sort of adds up to that 27 million, you know, walk.
<unk> a stand alone we're targeting each individual product and if so are all rep selling all products, just maybe a refresher on <unk> on the on the sales approach right now.
Yeah.
So on the this is Jack and on the sales approach Ah the motion is principally product based.
And.
We've got a field salesforce.
Jack McDonald: But the headline is, it's the Sunset asset decline burning off. Okay, awesome. Thanks, I appreciate it. Your next question comes from the line of Jeff with Craig Hollum. Jeff, the floor is yours.
We've also got an inside.
Sales capability that we stood up last year and again starting to see from that inside Salesforce. Some good early successes in terms of getting some nice size mid market deals done now we.
Jack McDonald: Great, thanks. I appreciate it. So, just a couple of guys, maybe, Mike, with you first on the sales approach. Could you just spend a minute, as I'm thinking through what the sales approach is here? I know there have been periods where cross-selling was a vision, and there were opportunities, potentially, to cross-sell from various products. Is this now purely a standalone, we're targeting each individual product, and if so, are all reps selling all products? Just maybe a refresher on the sales approach right now. Yeah.
Still will have a few.
Global account executives, who will go after larger cross sell opportunities and of course, we've seen some of those including some you know.
A million dollar plus Ah deals in queue for frankly that were brought home by those global account executives.
Jack McDonald: So on this is Jack, and on the sales approach, the motion is principally product based, and We've got a field sales force. We've also got an inside sales capability that we set up last year. And again, starting to see some good early successes in terms of getting some nice size mid-market deals done. Now, we still will have a few Global Account Executives who will go after larger cross-sell operators. Course, you know, we've seen some of those, including, you know, million-dollar-plus deals in Q4, frankly, that were brought home by those global account executives. And so that will continue to be a part of the model. So, again, it's inside and outside with a limited number of global account executives. And then, finally, in terms of mixing.
And so that will continue to be a part.
Of the model.
So again, it's inside and field with a limited number of global account executives.
And then finally in terms of mix.
This is a business that should run roughly 50 50 expansion in new.
It's been running higher expansion in lower new and so we want to bring that and expect through the course of this year to bring that back into kind of historical balance on a 50% expansion, 50% new mix.
Yeah, Okay. Appreciate it and and then the in terms of 24, what does that what's expectation around what kind of free cash flow that EBITA yields.
Yeah, Jeff we're targeting 20 to 25 million of free cash flow this year of 2024.
Jack McDonald: You know, this is a business that should run roughly 50-50 expansion and new. It's been running higher expansion and lower new, and so we want to bring that and expect through the course of this year to bring that back into kind of historical balance on a 50% expansion, 50% new mix. Yeah. Okay. Appreciate it.
Okay, Alright, and then just one last for me the yeah as we're looking at the organic or not organic I think he answered. The early question like most of the decline is I guess, the sunset assets coming out of <unk>.
You said 30 million that has to work off over over several years.
Michael Douglass Hill: And then Mike, in terms of 24, what's the expectation around what kind of free cash flow that EBITDA yields? Yeah, Jeff, we're targeting 20 to 25 million of free cash flow this year. Okay. All right. And then just one last question for me.
Refresh me on the Sunset. It is that the basket of products that is in the Sunset a basket was that a one and done you kind of picked a handful of products that for whatever reason needed to be Sunsetted and then it has an isn't expected to change or is it.
Operator: As we're looking at the organic and non-organic, I think you answered the early question, like most of the decline is, I guess, the sunset assets coming out of, I think you said 30 million that has to work off over several years. Just refresh me on the sunsetted assets. Is that the basket of products that is in the sunsetted basket, was that a one and done, you kind of picked a handful of products that for whatever reason needed to be sunsetted, and then it hasn't and isn't expected to change, or is there, any variability to what's in there? Just refresh me on how that works. Yeah, so when we took the investment from HGDC, we did a strategic review of our product portfolio to examine, you know, what were those products that we really wanted to put some wood behind the arrow on in terms of driving.
Is there any variability to what's in there just refresh me on how that works.
Yeah. So when we took the investment from Htpc, we did a strategic review of our product portfolio to examine what were those products that we really wanted to put some wood behind the arrow on in terms of driving growth and at that point and as a part.
That process, we identified the sunset assets.
We made.
A revision to that.
About a year after where there were a couple of assets frankly that we realized add some growth potential and there were others that we thought were better off being sunset. So.
It was a it was a one time and then with a revision to it it is not our plan to revisit that we view that as a process that we've completed now it's possible that it could come up again, but I don't anticipate anything near that kind of scale.
Operator: And at that point, and as a part of that process, we identified the Sunset assets. We made a revision to that about a year later, where there were a couple of assets, frankly, that we realized had some growth potential, and there were others that we thought were better off being Sunset. So it was a one-time thing, and then with a revision to it, it is not our plan to revisit that. We view that as a process that we've completed now. It's possible that it could come up again, but I don't anticipate anything near that kind of scale happening. Okay, great, thank you. Our next question comes from the line of Jake with William Blair. Jake, the floor is yours.
Happening again.
Okay, great. Thank you.
Our next question comes from the line and shake with William <unk> take the floor is yours.
Alright, Thanks for taking my question good to hear that the three per cent organic growth expectation accident.
Just curious how much of that growth is related to political messaging business just given it's an election year and then if you take a step back how should we be thinking about this business. When you come out of this transition uhm is there a certain kind of grow within the margin profile that that you're spiering too.
Jack McDonald: Hey, thanks for taking the questions. It was good to hear the 3% organic growth expectation for exiting this year. Just curious, how much of that growth is related to your political messaging business, just given it's an election year? And then, Jack, if you take a step back, how should we be thinking about this business when you come out of this transition? Is there a certain kind of growth and margin profile that you're aspiring to? And then I have one follow-up question.
And then I have one follow up.
So.
We're not expect that target core organic growth rate does not count any.
Election year a bump.
None of that in there.
In terms of.
What our longer term target is for the business is permitted single digits for organic growth.
And we know that once we get through 2024 and get the core organic growth motions working that we will turn our sites to some significant margin expansion beginning in 2025.
Jack McDonald: Alright, so, uh... We're not expecting that the target core organic growth rate does not count any election yearbo. None of that in there. In terms of what our longer-term target is for the business, for mid, single-digit core organic growth. And we know that once we get through 2024 and get the core organic growth motions working, we will turn our sights to some significant margin expansion beginning in 2022. The hindsight at that point will show which go-to-market investments and motions are yielding the highest return, so we'll be able to continue those and adjust spending on less efficient go-to-market motions. We've also put in place, as a part of this growth plan, a couple of levers that we think will help us drive growth. The ability to use organic search to drive a pipeline, right? That involves some investment up front, but then you create a flywheel that enables you to generate at-bats for the sales team. And of course, in addition to that, on the innovation side...
Well, we'll have.
The hindsight at that point.
Which go to market investments and emotions are yielding the highest return.
Be able to continue those and adjust spending on less efficient go to market. The emotions. We've also put in place is a part of this growth plan a couple of levers that we think will help us drive.
Growth through time, while reducing costs. So one of those for example is the digital.
Marketing capability and the.
The ability to use organic starts to drive pipeline right that involves some investment upfront, but then you create a flywheel.
That enables you to generate at-bats for the sales team through time.
With increasing cost efficiency.
And of course in addition to that on the innovation side.
The center of excellence in India.
There are other offshore initiatives give us the ability to Ah.
Jack McDonald: The Center of Excellence in India and our other offshore initiatives give us the ability to really have the right hybrid mix and development capability that can deliver innovation and growth within a cost envelope that fits margin expansion, so we can get a headcount arbitrage and manage our costs effectively, driving margin through. So again, coming out of this as we move into 2025 and beyond, targeting mid-single-digit, Core Organic Growth, and then targeting through time a justity-to-dom margin between 30 and 35 percent, driven by, again, those efficient motions in the growth model. We are also using AI to manage costs in various parts of our business.
Really have the right hybrid mix it development capability that can deliver innovation and growth.
Within a cost envelope that fits margin expansion, so where we can get a head count arbitrage and manage our cost effectively and drive margin through time, so again coming out of her dad's as we move into 2025 and beyond targeting these.
Single digits core.
Core organic growth.
And then targeting through time.
A adjusted EBITDA margins between 30, and 35% driven.
Driven by again, those efficient motions and the growth model also using AI.
To manage costs in various parts of our business and then finally, we're gonna look this year to turn acquisitions back on something we didn't do last year as we were focused on our internal go to market.
Jack McDonald: And then finally, we're going to look this year to turn acquisitions back on, something we didn't do last year as we were focused on our internal go-to-market plan. And as we do that, we'll get some operating leverage, which will drive growth. And again, you know, we're talking about one, maybe two deals for this year that we'd like to get done, but then again, over time, we would see that ramping up, and that will also help to drive. Okay, very helpful.
Plans and as we do that we'll get some operating leverage which will drive.
Arjun expansion <unk>.
Again, we're talking about one.
One maybe two deals for this year, if we'd like to get done, but then again through time, we would see that ramping up and that will also also helped to drive March and expansion.
Okay very helpful. And then yeah do you you kind of preempted. The next question there in terms of just how you're thinking about capital allocation sounds like you're you're turning back on me the acquisition motion and looking for a couple of acquisitions. This year, but how are you thinking about the balance between M&A potential.
Jack McDonald: And then, yeah, you kind of preempted the next question there in terms of just how you're thinking about capital allocation. Sounds like you're turning back on the acquisition motion and looking for a couple acquisitions this year. But how are you thinking about the balance between M&A, potential share buybacks, and then just the potential for debt paydown? Just curious how you're thinking about the capital allocation between those three buckets. Yeah, so as Mike mentioned, the $25 million buyback is underway, and we are a good part of the way, more than half of the way through that. So we anticipate that continuing and, you know, filling the full buyback allocation of $25 million. So that, I think, is sort of step one.
<unk> potential share buybacks and then just the potential for for that pay down just curious how you're thinking about the the capital allocation between those three buckets.
Yeah, So as Mike mentioned, the $25 million buyback is underway and we are.
A good part of the way more than half of the way through that so we anticipate that continuing and you know feeling the full buyback allocation of $25 million. So that I think is sort of step one on the acquisition side again I think.
Jack McDonald: On the acquisition side, again, I think, you know, we're looking at one, maybe two, but, you know, kind of. The internal plan is around one, but if the right opportunities present themselves, maybe that would be great. And we've been in the market and actively looking at deals all year round, and of course, we've got the capital we need to go after those deals that we control.
We're looking at one maybe two but you know.
Kind of.
Internal plan is around one, but if the right opportunities present themselves maybe that becomes two deals this year.
And we've been in the market and actively looking at deals all all year round and of course, we've got the capital we need.
To go after those deals that we control.
Jack McDonald: The timing, but we are remaining patient for the right assets that are strategic and are available at the right price. And again, I also wanted to really spend time with the team focused on making the investments I've described earlier and getting this business ready for core organic growth, and then we'll start feathering. Thanks for taking the questions. Your final question comes from the line of Alex with Raymond James. Alex, the floor is yours. Thanks for taking the question. This is John on behalf of Alex. Jack, I think in the past you've mentioned bundling solutions and focusing on groups and bundles of solutions.
The timing.
But we are remaining patient for the right assets that are strategic and are available at the right price.
And again I also wanted to really spend.
Time with the team focused on making the investments I've described earlier.
And getting us ready for core organic growth and I'm gonna suck feathering in some acquisitions on top of that.
Thanks for telling me questions.
Your final question comes from Atlanta is Alex Raymond James.
Excellent choice.
Hi, Thanks for taking the question. This is John on for Alex Jack I think in the past you've mentioned bundling solutions and focusing on groups in bundles of solutions. So can you give us an update on what's successes you've seen there so far and if there is any learnings that you have so far as you put more more muscle behind the go to market motion.
Jack McDonald: So can you give us an update on what successes you've seen there so far and if there are any learnings that you have so far as you put more muscle behind the go-to-market motion in 2024? And then I have a quick follow-up. Yeah, the learnings there are that the most effective motion for us is going to be product-centric. And it is, of course, further penetration of the existing customer base, frankly, through straightforward expansion, and then a new logo motion that is driven. 80% by point product sale and maybe 20% by cross-sell. And that is consistent with what I was speaking of earlier in response to Jeff's question, you know, regarding the composition. So we anticipate continuing to have a limited number of global account executives that are driving more of that cross-sell motion. But in general, and for the vast majority of it, 80%, you're gonna be looking at products. Point products.
2024, and then I have a quick follow up.
Yeah, the the learnings there are that.
The most effective motion for us is gonna be product centric.
And it is of course further penetration of the existing customer base.
Frankly through straightforward expansion.
And then a new logo motion.
That is driven.
80% by.
Product sale it may be 20% by cross cell and that is consistent with.
But I was speaking of earlier in response to Jeff's question.
Regarding the composition of the sales for us. So we anticipate continuing to have a limited number of global account executives that are driving.
More of that cross sell.
Motion, but in general.
For the vast majority of at 80% you're gonna be looking at a product point products.
Jack McDonald: Okay, thanks. That was helpful. And then Mike, how are you thinking of the free cash flow contribution from the sunset assets here over the next two years? I appreciate you giving us the color for this year.
Sales.
Okay. Thanks, that's that's helpful and then Mike How're, you could get the free cash flow contribution from the Sunset assets here over the next two years I. Appreciate you gave us a color for this year, but how do you think about that over the next two years.
Michael Douglass Hill: But how do you think about that over the next two years? Yeah, well, by definition, the Sunset assets are low margin, low free cash flow contributing. So sort of not quite neutral, but pretty close.
Yeah, well by definition, the sunset assets are low margin low free cash flow contributing so sort of not quite neutral, but pretty close so just not much impact on the.
Michael Douglass Hill: So just not much impact on the, you know, on the free cash flow there for those. Okay, thank you very much. I would now like to turn the call over to Jack McDonald, Chairman and Chief Executive Officer. Okay, well, thank you for joining us today, and we will see everyone on the next earnings call. Ladies and gentlemen, that concludes today's call. You may now disconnect.
You know on the on the free cash flow there for those.
Okay. Thank you very much.
I would now like to turn the call over to check the Donald Chairman and Chief Executive Officer.
Okay, well, thank you for joining today and we will see everyone on the next earnings call.
And gentlemen that concludes today's call me now disconnect.
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