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spk00: Good day and welcome to Excel at Technologies, Inc. Fourth Quarter 2020 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Will Mena, Investor Relations. Please go ahead.
spk02: Thank you. Good morning, everyone, and welcome to the Accela Technologies fourth quarter and full year 2020 conference call. I'm joined today by Ron Cogburn, Accela's Chief Executive Officer and Shree Consort, our Chief Financial Officer. Following prepared remarks made by Ron and Srikanth will take your questions. Today's conference is being broadcast live via webcast, which is available on the Investor Relations page of Accela's website at accelatech.com. A replay of this call will be available through March 23, 2021. Information and access to replay is listed in today's press release, which is also available on the Investor Relations page of Accela's website. During today's call, Accela will make certain statements regarding future events and financial performance that may be characterized as forward-looking statements Under the Private Securities Litigation Reform Act of 1995, these statements reflect management's current beliefs, assumptions, and expectations as of today, March 16, 2021, and are subject to a number of factors that could cause actual results to differ materially from those statements. We undertake no obligation to update any statements to reflect the events that occur after this call, and actual results could differ materially from any forward-looking statements. For more information, please refer to the risk factors discussed in Accela's most recent filed periodic report on Form 10-K, along with today's press release and the company's other filings with the SEC. Copies are available from the SEC or the investor relations page of Accela's website. During today's call, we referred to certain non-GAAP financial measures. We believe these non-GAAP financial measures provide additional information on how management views the operating performance of our business. Reconciliations between GAAP and non-GAAP results we discuss on today's call can be found on the investor relations page of our website. Please note the presentation that accompanies this conference call is also accessible on the investor relations page of our website. I'd now like to turn the call over to Ron Cogburn, CEO. Ron, please go ahead.
spk10: Good morning and thanks everyone for joining us on our fourth quarter and full year 2020 call. We're going to provide a brief business update today and highlight a few of the key takeaways from 2020 and Excella Technologies overall. With the current climate and dynamic events in our world today, we are witnessing digital drive hypergrowth between B2B and B2C, which is leaving the traditional networks far behind. Excella is well positioned in this environment, leaning on our extensive investment in technology based on the business rules of our customers' processes and the industry guidelines. Excella Technologies is further enhanced by our multiple patents in process, robotics, and cognitive automation. With over 4,000 customers, including 60% of the Fortune 100, Accela's customers rely on our fully deployed technology stack across banking, insurance, healthcare, financial services, for payments and bills, and intelligent data processing and management and communications. Let's turn to slide number five. and we're going to discuss some of excella's 2020 financial highlights and our progress against our key initiatives so let's discuss revenue for a second excella exceeded our prior quarterly and annual revenue guidance in spite of the headwinds from covid19 variations in our full year 2020 revenue were primarily due to three factors the exit of about 147 million of non-strategic transition revenue, approximately $90 million of impact from COVID-19, and of course our non-core asset sales. Our digital asset group continues to scale, representing now 8% of our total revenue in 2020. We added $182 million of ACV in 2020, along with 14 new customers with TCV in excess of a million dollars each. In early 2021, our revenue has stabilized and we are seeing positive sentiment in our industry segments, except for public sector, which has lagged a little bit because of the switch of the new administration. We're very pleased to have recently announced a new 10-year, $90 million contract to provide a cloud-based automation service through our PCH global platform to a major U.S. insurer. Let's discuss our earnings for a second. Most of the variance between the 2020 adjusted EBITDA is due to lower revenue coupled with the biggest change being the professional fees and expenses. Accela plans to reduce those in 2021. Accela has $174 million of cost savings in our execution pipeline, with incremental cash realization of $38 million expected in 2021 due to the recently completed actions. With respect to key initiatives, in 2020, we completed non-core asset sales worth $50 million, and we continue to pursue additional sales of businesses that are not complementary to our long-term strategies. The remaining $100 to $150 million of non-core asset sales are in progress. Accela continues to eliminate the lagging trap costs from the non-strategic transition revenue roll-off, which we expect to exit by the end of this year. With respect to the balance sheet improvements, our liquidity was $108 million as of December 31, 2020. and 61 million dollars as of march 12 2021 including the outflow of our semi-annual interest payments on our bonds yesterday we announced an equity capital raise of 27 million dollars as part of our recent endeavors to expand our investor base and visibility into the equity capital markets after years of anonymity we intend to use those proceeds to to add to liquidity to the balance sheet to pursue cloud-hosted technology and BPO-type deals, as we just won, and prepare the company for growth and the return of the pre-COVID-19 volumes in 2021. Our liquidity levels, now get this, our liquidity levels are now higher than they were three years ago at December 31, 2017. After including the $53 million capacity, under the existing securitization facility that remains undrawn, but is subject to the loan and security agreement dated December 10th of 2020. With all such initiatives, including the in-progress asset sale, our goal is to take our surplus cash and opportunistically take advantage and reduce our debt service. We are creating value for our investors to become neutral to cash flow generating company on a levered basis in the near future. As a reminder, in Q4, we entered into a $145 million five-year term loan to refinance our existing AR securitization facility. And last but not least, we engaged UBS to pursue alternatives to strengthen the balance sheet. So overall, it has been a very busy year for Acela. I want to thank our entire team around the world for their dedication to our customers and excellent success, especially in this challenging year. We have a lot of work to do, but I'm encouraged for the strong progress that we're making and confident that we have the right strategy in place for continued improvement in 2021. Now let's look at slide number five. With a proven track record and global presence in more than 50 countries, let me highlight the current and the emerging solutions that we offer. Around the treasury functions, you have liquidity solutions, such as procure to pay, order to cash, and expense management. We have payment technologies and services like XBP, which we talked about at the fireside chat with the calendar analysts and some of their guests. My favorite, human capital management, This is our own platform we developed to replace Workday. We had up to 10,000 employees on Workday at one point. Of course, healthcare, both payer and provider. Then work from anywhere technologies and services, which we developed last year as a result of the pandemic. All this sits on a foundation of information management and communications. We see good opportunities with existing and new customers for each of these solutions in 2020 and beyond. Now let's look at slide number six. We highlight the opportunity landscape before us because it is very significant and it's very diversified. Now here's a fact. Banking and financial services, along with health care and commercial, represent Accela's largest industry segments by revenue, and they comprise $142 billion of this mammoth $207 billion total addressable market. We've only just scratched the surface penetrating about 1% of our growing addressable market. Let's turn to slide number seven. Diversification in revenue and industry served is a significant strength of Excella. With most of our revenue in the US, we are well positioned to ride the tailwinds of the economic recovery post the pandemic. With low customer concentration and focus on the industries that have the strongest Projected CAGRs, like the banking, financial service, insurance, and healthcare, our digital foundations are well positioned for growth. Now let's turn to slide number eight. Accela is an integral part of the essential critical supply chain infrastructure across the U.S. and Europe. Accela's services and products enhance or facilitate better efficiency, touching everything from communications to commercial facilities. providing critical essential services in finance, energy, government, healthcare, and information technology. Our digital foundation and our resilient business model was really tested during the global pandemic, and while we executed well and we earned the respect of our customers who view us as partners, we've also learned many valuable lessons that will serve us well in the near term. Now let's look at slide number nine. Excellus technology and services touch the majority of the population in the US. Just think about that for a second. As well as over 80% of all non-card network payments made in Ireland, 100% of the gyro payments made in Sweden, and significant volumes of payments made in the UK as well. I'm going to call out three statistics to take away from this slide. all U.S. taxpayers who file non-electronic taxes or paper taxes, and the subsequent payments made by or to the IRS are processed through Accela's remittance technology platform. Second, with over 200 million subscribers in health care and 20 million veterans, we process over 700,000 claims a day. Third, Accela processes over a trillion dollars in deposits each year.
spk01: Now let's look at slide number 10 for a moment.
spk10: One of the secrets to Accella's ability to navigate through the pandemic well has been our long-tenured customers. With an average tenure of 15 years, we have partnered through many economic cycles, like the one we're in now, and renewals continually expanding our wallet share with these customers. You know, these logos would include the top banks, insurance companies, healthcare, and governmental agencies. Let's look at slide number 11. The ability to remain a trusted partner and to expand the wallet share with the customers for more than a decade is enabled by the solution set in our continuous innovation. We are building digital roads between our customers' old legacy platforms and the emerging standards to address their needs in the future and allow our customers to embrace a digital world. This is the foundation Accela was built upon, which will enable us to capitalize on significant untapped potential within our existing customer base and a large addressable market. Let's look at slide 12. Another proof point of our strong client partnership, as well as our resilient model through the COVID-19, can be found on slide 12. Despite the macro pressures of the pandemic, our new business wins as a percentage of our total revenue in 2020 remained in line with our historical trends at about 27%. Now, if you look at the bottom half of the slide, you'll see that the new business won and the renewals in Q4 represented a high point for the year, reflecting the positive momentum in our business, which I referenced earlier. Now let's turn to slide number 13. Xcela has come through the headwinds of this global pandemic storm a stronger company, demonstrating our agile business model. We were able to mitigate gross margin impacts in contrast to the flex in revenue as our customers began to pivot to digital or work from anywhere models. Even as we experienced a slight dip in productivity levels from a global perspective, we were able to move over 10,000 employees to our Work From Anywhere platforms, continuing to meet customers' expectations all along the way. Now, one of the benefits from this showed us that with 10,000 folks working from home, did we need all the sticks and bricks in real estate? The answer is we see about 35% of our real estate that we'll be able to rationalize and to step out of this coming year. Let's take a look at slide number 14. Now, Accello's digital foundation powers continuity and long tenure with the customers. Just like I mentioned a while ago, the top 15 have an average tenure of 15 years. Here's a fact. The more a customer utilizes our technology, the longer the tenure. Now, this partnership that started with data aggregation has evolved into information management and workflow automation that enables the customer to move to our end-to-end solutions, which is what we call digital now. This evolution continues, and more recently, we've launched our front-end software, including B2B and B2C in SAS. Get this, our revenue from these license and subscription platforms, digital platforms, reached over $100 million in 2020, which strengthened the relationship with our customer, expanded higher gross margins, and strengthened the backlog on the revenue because these type of contracts tend to be five to 10-year contracts, which is what we saw with our new win. And they include the renewals, the annual maintenance, and the support services. So in summary, we met our Q4 and 2020 revenue guidance. Our positive momentum in 2021 is bolstered by the gradual improvement from the impacts of the COVID-19 pandemic and the growth of our emerging solutions, such as we delivered by the Digital Asset Group. We have been successful with our strategy to exit non-core, low-margin transition revenue and remain on track to exit trap costs associated with that business. We have executed against over $170 million of recurring cost savings. Finally, we've continued to make progress on strengthening our balance sheet and our financial flexibility, and we remain focused on continuous improvement. Looking ahead, we are excited about the opportunities we see for profitable growth driven by our technology-led business process automation solutions in the available TAM. With that, I'd like to turn the call over to Srikanth Sorcher, our CFO, to discuss the numbers in more detail. Shreya Khan.
spk05: Thank you, Ron. Good morning, and thank you all for joining us. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filings and in the appendix of the presentation. Let's start on slide 16, which we believe provides a good snapshot of our business model and hopefully provides you with some increased insights into our business. Starting from the left, ITPS, which is our largest reporting segment at just over a billion dollars in revenue, includes finance and accounting solutions, remittance, mortgage processing, our tax business, KYC AML, print and mail, et cetera. Of this, $104 million is comprised of our digital asset group revenue. The remaining approximately $900 million is broken into two groups, plus the UCS, or United Communication Services, representing about $350 million of 2020 revenue. This business does bulk printing of bills. The remaining portion of ITPS represents approximately $550 million of revenue and includes bulk processing and reconciliation of bills to be ingested in customer ERP systems and then processing of payments, as well as on-site business from our legacy Novitex group. The average gross margin of ITPS is about 19% and growing. The revenue model on this segment is primarily transaction-based pricing as well as annual licensing and fixed management fees, with contracts averaging three years. Next, on our healthcare solution segment, services include PCH, which is our cloud-based claims processing gateway, paper claim processing, and non-paper claim works like adjudication or enrollment, coding, and other provider services. This segment generated $219 million in revenues and gross margin of about 27% in 2020. The revenue model on this segment is similar to the revenue model on ITPS, which is primarily transaction-based pricing as well as annual licensing with contracts averaging three years. Of the $219 million, about $65 million is provider and $155 million is payer business. Lastly, Our legal and loss prevention services segment includes legal claim settlements, notification services, and revenue recovery services. With approximately 68 million in 2020 revenue, or about 5% of our total revenue, gross margin in this business averages about 29% on a time and material basis. Shifting to slide 17, let's review our fourth quarter 2020 results. Revenue for the fourth quarter totaled 314.1 million, an increase of 2.9% sequentially, and a decline of 20.2% year-over-year. As Ron mentioned, we exceeded our prior guidance for the fourth quarter. On a constant currency basis, Q4 revenue was $310 million, representing a decline of 21.2%. Moving to our segments, revenue for our ITPS segment was $243.5 million, a decrease of 20.6% year-over-year, from 306.7 million in the fourth quarter of 2019. Our healthcare solution segment revenue totaled 51.6 million, a decrease of 26% year-over-year from 69.8 million in the year-ago period. Our legal and loss prevention segment revenue was 18.9 million, a decrease of 10.7%. Our year-over-year revenue performance mainly reflects are pruning certain customer contracts and statements of work which are not a strategic fit to XLS vision, which we refer to as transition revenue. Second, negative volume impacts due to COVID-19 pandemic. And third, revenue contribution from our strategic sale of non-core assets. When excluding pass-through postage and postage handling revenue with either zero or nominal margin, our total revenue was $260 million, up 2.2% sequentially, and down 19.6% year over year. Our gross profit margin for the fourth quarter was down 120 basis points year over year to 18.8%, primarily due to non-cash charges related to a facility exit as part of our savings initiative, partially offset by better cost and capacity management and reduction of stranded costs attributable to transition revenue. Q4 gross profit margin declined sequentially due to non-cash charges due to facility exit business exchange, year-end accrual of paid time off charges related to carryover of vacation time, and benefits in Q3 related to CARES Act credits. SG&A expenses for Q4 totaled $45.9 million, down 7.6% year-over-year, and represented 14.6% of sales. Shifting to EBITDA and adjusted EBITDA, in Q4 of 2020, we had an EBITDA loss of $8.6 million compared to a loss of $234.5 million in the prior year period. Adjusted EBITDA for the fourth quarter was $37.2 million, down from $53 million in the prior year period, primarily reflecting lower gross profit and partially offset by continued cost-saving realization and lower ONR charges. Our adjusted EBITDA margin for the fourth quarter of 2020 was 11.8%, and excluding pass-through revenues, adjusted EBITDA margin was 14.3%. Now let's turn to summary of our fiscal year 2020 results on slide 18. For the full year 2020, revenue totaled $1.29 billion, down 17.3% in reported and 17.5% in constant currency, primarily driven by the same factors impacting Q4, namely, pruning of transition revenue representing approximately $147 million, COVID-related impacts to volumes of approximately $75 million and revenue contribution from strategic sales of non-core assets. From a segment perspective, ITPS revenue totaled $1.01 billion in the year, a decline of 18.6%. Healthcare solutions revenue was $219 million, down 14.7%, and LLPS revenue totaled $68.4 million. Excluding pass-through revenue with zero or nominal margin, and the low margin client exit, our fiscal 2020 revenue totaled $1.06 billion, a decline of 17.3%. We successfully eliminated approximately $147 million of transition revenue by the end of 2020 and expect to complete this process during the first quarter of 2021. We also continue to expect to remove the stranded costs associated with the transition revenue by the end of 2021 and we'll continue to see a delayed positive impact on our gross margins from declining transition revenue as costs take a bit more time to exit the business. Gross margin was 20.8% in 2020, down approximately 80 basis points compared to 2019, impacted by the top-line performance and the non-cash facility exit charges in Q4 that I just mentioned, partially offset by our ongoing transformation and cost-saving initiative, including the elimination of trap costs. A key call-out here is that despite a $270 million decline in our 2020 total revenue, our gross profit in 2020 declined by only $69 million, reflecting our focus in cost containment and exiting non-core low-margin business. SG&A for 2019 totaled $186.1 million, down 6.4% year-over-year, and represented 14.4% of revenue. reflecting savings realization partially offset by higher professional and advisory fees. Operating loss was $16.4 million in 2020 compared with operating loss of $321.5 million in 2019. The improvement in our operating loss was mainly attributable to no non-cash goodwill and trade name impairment charges in 2020 compared with the $349.6 million of such costs recognized in 2019 as well as lower SG&E and DNA expenses. EBITDA for 2020 was 102.9 million. Adjusted EBITDA for the full year 2020 total 173.4 million compared to the 254.8 million in 2019. Adjusted EBITDA margin in 2020 was 13.4%. Our adjusted EBITDA margin excluding pass-through revenue and low margin client exit was 16.3% in 2020. Now let's touch upon our balance sheet and liquidity. As discussed in the past, the company had originally targeted 150 to 200 million of sale proceeds from certain non-core assets. Since then, we have completed divestitures of 50 million to date as part of the announced plan. The remaining 100 to 150 million asset sales remain in progress. We'll continue to explore and implement additional actions to improve our liquidity. This includes our plan to complete additional asset sales as targeted, accelerating the alignment of our business to a traditionally working capital-light model and executing against our planned cost savings initiatives, including cutting stranded expenses associated with our transition revenue. As Ron mentioned, we recently announced an equity offering to add another $27 million to the balance sheet to further boost liquidity to pursue cloud-hosted technology and BPO-type deals to prepare the company for growth and the return of $20 COVID volumes in 2021. Our global liquidity was $108 million as of December 21st, 2020, and $61 million as of March 12th, 2021, after including the outflow of our semi-annual interest payment on our bonds. We believe this is sufficient liquidity even after making the $15 million interest coupon for the senior secured notes. In Q4, we entered into $145 million five-year term loan to refinance our existing AR securitization facility. Our total net debt as of December 31, 2020, was $1.4 billion, as determined in accordance with the company's credit agreement. Moving to slide 19. With revenue visibility typically at 90% due to our recurring revenue model, 2020 renewals experienced the advent of the pandemic. With a strong backlog and our ability to retain our customers by meeting stringent SLAs, we serve as a trusted partner in our company's digital journey. We believe our renewal rates will rebound to 90% in 2021. On slide 20, we provide an update on our operating leverage improvement and cost savings plan. We currently have in-progress initiatives representing $174 million of run rate savings. 38 million of the 174 million is expected to be realized in 2021 due to recently completed actions. The breakdown of the 174 million initiatives are as follows. 136 million attributable to the headcount rationalization and increased automation, 13 million to vendor consolidation and efficiencies, and 25 million to lease improvements. These cost improvements combined with the continued exit of stranded costs associated with transition revenue will help drive our gross margin and EBITDA margin improvement in 2021 and beyond. I would now like to close by discussing our 2021 guidance, which is detailed on slide 21. For the full year 2021, we expect total revenue to be in the range of 1.25 billion to 1.39 billion. Our current estimates assume the normalization of pre-COVID volumes, renewal rates to return to historical levels pre-COVID, and continued momentum in winning new business. We currently expect gross margin in 2021 to be between 23% and 25%, reflecting improved operating leverage resulting from the normalization of volumes to pre-COVID levels and increased productivity of existing employee base and higher utilization of production infrastructure. We expect adjusted EBITDA margin to be between 16% and 17%, reflecting higher gross margin as well as improved operating leverage resulting from the scaling of revenue with minimal additions to production infrastructure and reduction in professional and legal expenses due to normalization of capital structure. Finally, we expect CapEx levels of approximately 1% of revenue in line with historical levels and working capital to be in line with historical levels and recent trends. I'd like to thank you very much for your time today. With that, operator, please open the call for questions.
spk00: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Trent Porter with Nuveen. Please go ahead.
spk07: Hi, guys. Thank you for taking the question. I guess I wanted to start with three, and then I'll get back in queue. The first one, I think ONR for the year was 45, 46 million. So how should we be thinking about ONR next year? Does it continue to decline? My next question is, I wanted to better understand the sequential EBITDA margin, adjusted EBITDA margin variance. You talked about professional fees and other non-cash, but it looks like other non-cash was added back. So are we just talking about professional fees that were not added back? And then my final question, I just wanted to clarify that the $178 million of cost savings in progress If I look at your 16% to 17% EBITDA margin guidance for 2021, am I thinking correctly that that reflects $38 million of that $178 million being achieved in 2021? And then if I could just tack on, are we done with the transition revenue going forward? That's it for me.
spk05: Hey, Trent. First of all, good morning and thanks for the questions. Good to be talking to you again. First, ONR charges. We expect ONR charges in 2021 to be lesser than 2020. We are not guided to a specific number, but as you can see, with the guidance that we've given out for adjusted EBITDA margins to improve to 16% to 17% levels, the assumption slash factor in there is for lesser ONR, which is, in other words to say, savings will convert to actual cash EBITDA. So Answer is lower ONR charges than 2020, in 2021. Second, your question on sequential adjusted EBITDA between Q3 and Q4, lower by $11.5 million net-net. That's an impact of the changes to gross profit in Q3 versus Q4. Even though revenues were higher sequentially Q3 to Q4, as I discussed on my prepared remarks, we had one-timers or exceptions in our gross margin for Q4, namely the non-cash accelerated depreciation for exit of a lease facility, approximately $3.7 million impact there. And then second is the revenue mix. We have an impact of revenue mix. A share of lower margin revenue in Q4, which is related to the seasonality, that impacted the gross margins. The third one There was a higher year-end accrual for PTO for carryover or vacation time. Interestingly enough, in a COVID world, you tend to see a lot of employees not use their PTO hours, and therefore the carryover impacted us, even as compared to the last year. These were the three or four elements that impacted the gross profit margins, Q3 to Q4. We expected to rebound in Q1. Thank you very much.
spk08: No problem.
spk05: You had two more. The 178, you read that right. As you can imagine, these are identified savings initiatives from identification to execution to flow-through. So as you rightly interpreted, 38 million of those were already executed and we'll see the flow-through in 2021. The timing of the rest will depend on how quickly we pull it together and execute and see the flow-through come through. So that's the right way to look at it. And fourth one, Trent, you asked me... I think just the transition revenue. I think we're done asking that stuff. Yeah, transition revenue, we are done with the bulk of it. At the beginning of last year, we had said approximately $150 million. As you probably heard from Ron and my remarks, right now we are tracking to $147 million. There's going to be some more tail-off in Q1. But from a transition perspective, it's still in that ballpark range. Maybe another 510, maybe it's along those lines, 150 to 160 still. So in Q1, we should be done with the transition revenue.
spk07: Okay. I think you'll probably slap me down for asking this one, but the UVS engagement, certainly your posture doesn't sound like you're targeting a distressed exchange. And you've already talked about the asset sales. So I don't want to put words on your mouth. Are you able to say anything else about sort of where you're going with this?
spk05: Yeah, I can give you a high-level overview. But more importantly, I think where we want to probably call out is since end of 2019 and right throughout 2020, we've been fairly consistent with what our goal is, right? It's being focused on liquidity and improving our liquidity and cash flows as part of our capital allocation policy. We have stated this multiple times in the recent past. We want to get to a stage where cash flow neutral or cash flow positive in the near term. How do we do this? Gross margin improvements, business mix and profitable revenue growth, right? That's what the transition revenue exit is all about. That's starting to show itself in a positive way for us. We'll have to reap all of the benefits in 2021. And lastly, navigating all of the COVID headwinds that we have, right? With that as the backdrop, be it from a liquidity perspective, be it our stated objective of additional financing sources or non-core asset sales or all of that has come to fruition in certain ways. UBS engagement was to explore additional strategic ways to strengthen our balance sheet. We have a couple of work streams with them that are open, and when there's progress or when there's significant milestones, we'll certainly share future updates.
spk00: As a reminder, if you would like to ask a question, please press start and 1. Also, please limit yourself to one question and one follow-up. Our next question comes from David Faropoulos with Unum. Please go ahead.
spk11: Yeah. Good morning, gentlemen. Thanks for the call. I guess my one question is just a follow-up from the last question. If you just kind of wanted to bridge the, you know, I know there's some one-timers, but you pulled some one-timers out. So apparently there were some one-time benefits in Q3's EBITDA margin or EBITDA number. And there was some headwinds. Can you give us any clarity a little bit better on if we want to look at that Q3 to Q4, apples to apples, how do we think about that on the EBITDA line, our gross margin, our gross profit margin, whatever is easier for you?
spk05: Sure. Thanks, David. Sure. Let's see. I'm trying to articulate a better answer for you.
spk11: There's a 420 basis point decline in EBITDA margin quarter over quarter despite having higher revs. I mean, is there any way you can bridge that 420 basis point? That's just a question.
spk05: Yeah. So the four items that I probably discussed, three or four items that I discussed, that's the exact bridge for the 4.55% or 450 basis points, right? We have not broken out the details other than I can give you the indication that the non-cash facility exit depreciation, X-rated depreciation we took was for $3.7 million. The two other things that I touched upon, the year and PTO accrual, that and the CARES Act credit that we benefited in Q3 and not repeated in Q4, these three are the main items. And then, as I said, business mix, there was an element of lower margin pickup in Q4 revenues than we had anticipated. So together, these four items are what make up for the 4.5 swing in gross margins.
spk11: And those aren't included, those items aren't included in the non-cash other charges you added back to adjusted EBITDA? I guess that's my question, too. I'm part of that. You see what I'm saying? Is that not added back in that $31.4 million? Yeah.
spk05: Obviously, the facility exit, yes, but we cannot add back whether it's the CARES Act credit that then comes through. Yeah, you cannot add back those, right, the PTO approvals. These are items that you cannot add back.
spk11: Okay, great, great. And that was another question I had, too, is I know you had some liquidity benefits last year from the CARES Act. I think it was, I don't know, $25 million, $30 million of liquidity benefits. Can you talk about the potential impact on cash flows? I think you have to pay that back over a period of time. Is that something that's going to hit you in 2021 in terms of cash flows? Or can any color there be appreciated?
spk05: Sure. You know, this is something that you'll find a very pointed disclosure in 10-K, specific to the deferral of the CARES Act. It's $14 million, so in theory, not in theory, we need to be paying back approximately $7 million each in 2021 and 2022. Again, that's a high-level answer, David. More specific disclosures than 10-K that will follow.
spk00: Our next question comes from Alan Caddo with Beach Point Capital. Please go ahead.
spk12: Hi. Thanks for taking my question. First, can you just repeat the breakdown of ITPS you gave at the beginning? I just want to make sure I have that down right.
spk05: Sure. You want that in terms of the revenue split that I talked about, Alan? Yeah. Yeah. Let's talk about 2020. ITPS, approximately $1 billion in annual revenue for 2020. $104 million of that is the digital assets group-based revenue, digital revenue. The rest 900, we talked about 350 or 360 of United Communication Services, bulk print, you could call it print and mail. And the rest 550 comprises of our F&A and our onsite services.
spk01: For the payment processing, invoice processing.
spk05: Yes, payment processing, remittance, all of our BPO business, that's a wider bucket. The third bucket is the wider bucket for the 550.
spk12: Got it. Got it. And then on the EBITDA reconciliation for the fourth quarter, I saw the other charges was listed as, I think the other caller alluded to, about 31 million. You know what the breakdown is of cash and non-cash within that?
spk05: Yes. This Hold on. Sorry, let me think about it. There's a number of non-cash. Alan, I'm just jogging my mind just to see if it would be an MNPI, if it's something that we have given in the past or not. I'll give a couple of pointers. That includes the $3.7 million of accelerated depreciation that I talked about. It includes a litigation reserve we have for approximately $9.6 million or so
spk01: And it includes, I would say, a large portion of it is non-cash.
spk00: Our next question comes from Jerry Wayne with Carlyle. Please go ahead.
spk06: Hey, Chakan. Thanks for the questions. Just wanted to triple check on the ITPS. low margin exit. You mentioned that there was 147 that will be taken out in the year. Should I think about that as call it 37 or 38 in the fourth quarter and then maybe another 37 or 38 in the first quarter of 21?
spk05: Transition revenue. Okay. First of all, Jerry, thanks for the question. Come again on the comparatives, Q4 to Q4. Did you mean Q4 to Q4? Did you mean sequential?
spk06: Yeah, just, you know, the 147 breakdown, you know, I'm thinking about it as, you know, call it a quarter, a quarter, a quarter, a quarter, like a fourth, a fourth, a fourth, a fourth. So about call it $37, $38 million a quarter of that revenue. So I just want to look at, you know, fourth quarter 19 to fourth quarter 20. And I just want to see how much of it is the COVID-19 impact versus, you know, the impact of you exiting these lower costs or lower margin contracts.
spk05: Got it. Got it. Quarter to quarter, the $79.5 million. Overall, I'm talking about overall. I'm not focusing just on ITPS. $79.5 million. Transition impact is approximately $35 million, Jerry. And COVID impact is $20 million. And then, you know, asset sale on another 10 or so million.
spk06: Okay, got it. And then you expect another, call it, 30, 35 or so in the first quarter?
spk05: Yeah, that's why I had to follow up for you, right? So the way you look at it, sequentially, Q3 to Q4, transition revenue impact is under 5 million, right? Because you've already taken, we're comparing it year over year. So we have had approximately 30 million million compared to respective priority of quarters, but sequential quarters, it's not 30 million, right? It's not 30 million incremental. On that point, Jerry, if you're looking at Q4 to Q1, transition revenue will not be at 35 levels. It'll be high single digits or low teams.
spk06: Okay, okay. And then healthcare, I would have expected more of a pop in the fourth quarter. Was that just timing related or could you provide a little bit more color there on healthcare?
spk05: Yeah, absolutely. Ron briefly touched upon it when he talked about the change in administration or the public sector softness that we saw in Q4. One of our larger customers, we received a lesser volume than we had anticipated. I don't know if we can assign it to COVID. It could be the change in administration or some other factor, but that's the key driver for the softness in healthcare volumes, Q3 versus Q4.
spk00: Our next question comes from Alex Stevenson with GLG. Please go ahead.
spk09: Hi, thank you very much for the question. Could you please break down the liquidity? At the end of December, it was $107.8 million. How much of that is cash? How much of that is undrawn facilities? And what's your sort of available facilities you have in place? You sort of refied the... AR facility and paid back the $83 million out of the $140 million you loaned. So just wondering the capacity of that that you have left. And lastly on that, what are the conditions for you to receive the remaining $53 million from, again, that December loan of $145 million? Thank you.
spk05: Sure. Thanks, Alex. Since you asked specifically for December 31st, the breakdown is $63 million in cash balance, available borrowings of $26 million, and then the 108 buildup is we are allowed to add back certain fees. This definition is as per the Third Amendment to their credit agreement. We are allowed to add back the agent's certain fees. That's $19 million. That's there in the last slide of the presentation. The breakup is there. That's what makes it $108 million, $63 million plus $26 million plus $19 million. To your follow-up on the AR and availability, just a quick pointer, the original AR facility worked on a different kind of a borrowing-based schema where we could have availability under the facility, but the latest December facility AR securitization is in the term loan type of facility, so whatever we have drawn is what we have. No additional availability there. And then for the last question that you had, the $53 million committed and undrawn under the existing securitization facility, the terms, the conditions of the terms are listed out in the LSA. Feel free to check out our 8K. You'll have more details on what those conditions are.
spk09: Sure, thanks. The available 26 million you mentioned, is that part of the AR facility?
spk05: Not in the United States. It's part of a global availability in some of our other facilities internationally.
spk00: Our next question comes from Tom Radionov with CORE. Please go ahead.
spk08: Hey guys, thanks for taking my questions. Just a quick follow-up on liquidity and then one on ITPS. On liquidity, I'm looking at the 60.7 number on the last page of the presentation. The number is of March 12th. I just wanted to make sure, one, that does include, just reading the footnote, that does include $20 million add-back. So should I be taking that 60.7 and sort of Thinking about it, it's 40.7 before the proceeds from the equity. And then related to that also, when doing that calc, do I need to be backing out the 35 million liquidity block that I think you put in place when you did the last amendment to the interim loan card agreement?
spk05: Yeah, you know, you're thinking about it the right way. Additional pointers for you being back out the 20, you get a 41, but feel free to factor in the 27 million that is coming in in the next year or two. So that's a pointer. Coming back to your backing out the 20 and then looking at, okay, are we there for the 35? That is where the 20 million ad backs comes into play. The credit agreement liquidity includes the ad back. So if that helps, you have to look at it that way.
spk08: Got it. Okay. That's helpful. And then just a quick follow-up on ITPS, just trying to subparse that number or that revenue breakdown in a slightly different way. The 350, I think, United Communications part of the business, should I think of that? Is that basically the legacy Novitex, the print and mailroom business, or is that? legacy Navitek somewhere else, one, and then two, and I appreciate the color on this, within the rest, within the bulk payment processing business, what portion of that is processing and what's been the volume decline trend versus have you been able to do from a price perspective? a barrier to sort of offset some of the volume declines.
spk05: Okay, let me, there were two or three questions within that. Let me answer one by one. So, Tom, even before I do that, just so that I am clear, the breakup for ITPS and all of these segments was to help everyone get a better understanding of the revenue mix because that's something that we often get asked. I do not want the interpretation that this is a segment-based or business unit-based revenue that we track or have a certain color to it. There's constraints within which I can tell you how much and what. With that as the backdrop, as you rightly pointed out, the Novitex side of the house, we call that Enterprise Solutions, by the way, it has two key components. One is the on-site business or the on-site services we provide to our customers. The other one is the, again, bulk print of mails or the UCS component. So the 350 UCS component does have legacy Novitex within it. And then on the other 550, that includes the on-site side of the Novitex component. And coming to the payment, I think that's where, as I indicated, that 550 bucket includes our remittance, it includes our BPA business, it includes on-site, it includes a few different elements to it, So each one of these has its own revenue model associated with it. So giving any further breakup would only make it kind of muddled. With that, the last one of your question, which is to do with the pricing element or what you asked about volumes, I was not really able to grasp it well. But what I can say is payment volumes, we are seeing it come back up, not obviously to the pre-COVID levels, But as we said in our last earnings call as well, in Q3, Q4, we are seeing payment volumes rebound.
spk00: Our next question comes from Amir Tawana with Imperial Capital. Please go ahead.
spk03: Hi, guys. My question is, in trying to figure out your free cash flow break, even if I were to do some generic math here, the guidance, adjusted EBITDA guidance seems like 200 to 235-ish million. At which point do you think you can get to that free cash break-even if it's within that range?
spk05: Sure. Sorry, I didn't catch your name. What was it?
spk03: Amir.
spk05: Amir. Hey, Amir. Good talking to you. Amir, you probably looked at the guidance, low-end, high-end. You probably looked at adjusted EBITDA percentages we have given and probably looked at our debt service and backed it out. And if that's the basis for your question, my answer is twofold. Number one, if you take the low end of the revenue, low end of the adjusted EBITDA margins, and look at the debt service and our capex, et cetera, you potentially could come up with a math where there's a 10 to 20 million of cash burned, so to speak, right? ONR is something that you need to factor for appropriately, something that, you know, it's not 45 million, that's for sure, not at 20-20 levels. That said, we wouldn't want to look at it at the low end at all, right? Not just the low end. Two-part answer to this. We are not looking at worst-case scenario, number one. Number two, even if you go to the midpoint, I think it is cash positive, cash neutral slash cash positive. That's number one. Number two, and very importantly, as we have, at least from a management perspective, over the last three to four quarters, what's been important and pleasing is we've been able to course correct. We are more focused on day-to-day slash weekly slash monthly focus on what are the levers that we can pull, right? So long-term, you can look at it and kind of interpret based on the guidance that at the low end, at the worst-case scenario, there's a cash gap, but at this point in time, I don't think we're focused at looking at it in that way.
spk03: Got it. Thank you very much.
spk05: Yeah, no problem, Amir.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Ronald Cogburn for any closing remarks.
spk10: Thanks, and we really appreciate the questions today and everybody participating. And I want to leave you with this thought. Many of you saw the recent $90 million win, and this is for the first cloud-based platform ever. We, as Accela, are witnessing a strategic shift in our business mix, and this is going to contribute to our profitability. But some interesting things about that win that you probably maybe don't recall, but this deals with a cloud-based platform that we've had for years, one of our platforms, PCH Global. And the deal is 10 years, and it's $90 million. Stay tuned and look for more of these kinds of announcements in the near future. Thanks, everybody, for joining our call, and we'll see you next quarter.
spk01: Thank you.
spk00: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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