This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good morning and welcome to the Accela Technologies first quarter 2021 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 telephone keypad. 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 William Maina, Investor Relations. Please go ahead.
spk10: Thank you. Good morning, everyone, and welcome to the Accella Technologies first quarter 2021 conference call. I'm joined today by Ron Codburn, Accella's Chief Executive Officer, and Srikanth Surajar, our Chief Financial Officer. Following prepared remarks made by Ron and Srikanth, we'll 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. The replay of this call will be available through May 11th, 2021. Information to access the 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 categorized 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, May 4th, 2021, and are subject to a number of factors that may cause actual results to differ materially from those statements. We undertake no obligation to update any statements that 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 Excel's most recent 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 Excel's website. During today's call, we will refer to certain non-GAAP financial measures. We believe these non-GAAP measures provide additional information on how management views the operating performance of our business. Reconciliations between GAAP and non-GAAP results 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 available on the Investor Relations page of our website. With all the mandatory Reg FD disclosures out of the way, I'm pleased to turn the call over to our CEO, Ron Cogburn. Ron, please go ahead.
spk03: Good morning, and thanks, everyone, for joining us on our first quarter 2021 conference call. Today I would like to highlight a few key topics, which I hope everyone takes away from this call. To begin with, Excel is improving key performance metrics, especially our profitability, which grew considerably in Q1. Second, I will address Excel's participation in the digital transformation of our customers by building digital roads over broken processes, which drives growth in the B2B and B2C, leaving the existing networks behind. Next, we'll talk about new products and markets, which represent exciting growth opportunities for Accela. These include our Digital Asset Group, or DAG, our Accela Bills and Payments, or XBP, and Intelligent Data Processing, or IDP, solutions, along with the adoption of these solutions in the small and medium business markets. Next, we'll talk about our ongoing efforts driving operational leverage and margin improvement, strengthening our balance sheet and financial flexibility. And then we will also highlight the stability of our revenue base, growing pipeline, improving customer sentiment, all of which gives us increased confidence in our 2021 outlook. So let's begin today on slide number four. with an overview of our Q1 results and some recent business highlights. Revenue for the first quarter was in line with our expectations at $300 million. Variations from Q1 of last year were primarily due to the exit of non-strategic transition revenue, volume impacts from COVID-19, and our non-core asset sales. Our revenue base is stable and diversified from a customer- industry, and geography standpoint. Our backlog is substantial, and our pipeline growth remains strong, particularly for our DAG solutions, where we're seeing increased demand with new and existing customers. Through Q1 of 2021, our DAG business represented about 8% of our total revenue, including our SMB business. From a profitability perspective, we delivered strong margin improvements in the first quarter as well. Our Q1 gross margin was 22.5%, an increase of approximately 370 basis points sequentially, and 250 basis points year over year. Q1 adjusted EBITDA margin was 15.5%, an increase of 365 basis points from the last quarter, and 334 basis points year over year. This is noteworthy in this environment. We delivered multiple key new business wins and solution launches in the first quarter as well. With respect to the new business wins, our recent expansion into the small and medium business market showed strong growth in Q1 2021. SMB customers for our digital mailroom solution grew 117% sequentially in Q1, And our SMB dry sign users increased almost 170%. This is the kind of adoption we were looking for. Our pipeline continues to grow in this segment, and we have plans for further global expansion of this business. As we previously announced in early March, we also delivered our first cloud-hosted deployment of PCH Global with a major U.S. insurer. Under this $90 million 10-year licensing agreement, Accela has deployed its PCH global digital exchange platform to execute the end-to-end processing of complex healthcare claims for this large customer. Now, regarding the new products and recent solution launches, I was happy to announce the global expansion of our Exchange for Bills and Payments, or XBP, into the Americas, continental Europe, and the Asia markets. Now, we discussed our XBP platform at length during our recent Cal and Fireside chat. The legacy billing processes for both payers and receivers today is fraught with inefficient manual processes that are inherently expensive, risky, and they don't give companies the full transparency into their corporate bills and payment processes. XBP enables billers to send bills to businesses and consumers electronically, offering transparency and simple reconciliation. It also allows payers to receive all their bills in one place with analytics, alerts, and more payment options. Our XBP solution is garnering accelerating interest across our existing and new customers, and I look forward to providing you with updates on future calls. And we're also excited about our recent rollout of our Intelligent Data Processing, or IDP, platform. Now IDP was designed to provide customers with an easy to implement, highly scalable, secure cloud-based environment to run their critical business processes. Our IDP platform leverages artificial intelligence, deep learning architecture, And Excel has a vast library of knowledge from customer and industry rules across existing and future processes to generate continuously improved results for our customers. Next is our RPA, our robotic process automation. It's another digital solution we're excited to talk about. We invite you to join us for another Fireside Chat with D.A. Davidson on May 20th. But we'll go into further detail on the use cases and how these bots are working hard for our customers. Now, turning to our operational leverage improvement initiatives, we have a couple of important highlights to mention here. In the first quarter, we completed 25% of our multi-year plan to reduce our facilities footprint, rationalizing our footprint. Also, our initiatives to increase automation in our organization enable us to continue optimizing our workforce. Our total employees as of March 31, 2021 were 18,400 as compared to 19,000 on December 31, 2020. Finally, with respect to our balance sheet, we remain focused on strengthening our financial flexibility and liquidity positions. As a reminder, in mid-March, we raised $26.8 million in gross proceeds via an equity offering. Now let's turn to slide number five. Now many of you will be familiar with this slide from our last earnings call, but I think it's important and it gets to the heart of our strong market position and illustrates the significant addressable market opportunity that we have for our BPM and digital solutions. You know, with over 30 years of experience, we serve 4,000 plus customers globally, including 60% of the Fortune 100. Excel has customers across verticals such as banking, insurance, commercial, healthcare, and public sector rely on a fully deployed technology stack, 140 plus delivery centers, and over 18,000 employees to execute mission-critical business processes. Now, our solutions are integral parts of our customers' day-to-day operations, and they include liquidity solutions, payment and technology solutions, my favorite, human capital management, which we replaced Workday, work-from-anywhere technologies, and of course, information management and communication. We believe we've only just scratched the surface in terms of a significant market opportunity with our current customer base. Now let's turn to slide number six. I'll note that we have deep, valuable, and long-tenured relationship with our customers, including many of the world's largest enterprises. Our largest customers have been with Accela an average of 15 years. With low customer concentration and a focus on the industries that have the strongest projected CAGRs like banking, financial services, insurance, and healthcare, we're well positioned for growth. Furthermore, with most of our revenue in the U.S. and in Europe, we're strategically positioned to benefit from the economic recovery post-COVID-19. Accela's digital foundation and our engineering heritage powers our long-tenured customer relationship, and this is what enables us to continue to innovate and launch new disruptive solutions that further widen our competitive moat. Let's turn to slide number seven. You heard me mention at the beginning of the call Excella's expansion into the SMB segment. While we have significant white space opportunity available with our large enterprise customers, we see strong potential for our leading solutions for small and medium businesses. SMB today is an untapped market for Excella, and we believe it represents a significant future opportunity. Here are some stats and some recent stats that really give us confidence in our offerings. As shown on the left side of the page, we've seen a very strong growth in the number of new SMB customers, which I mentioned earlier in the call. For our digital mailroom, as I mentioned, it's up 117% quarter over quarter. Dry sign is up 170% quarter over quarter, driven by by an increase in demand for the work-from-anywhere solutions that we offer. With the success we've achieved within this space so far, we plan to bring more subscription-based business process-as-a-service, or BPaaS, solutions, software-as-a-service, or SaaS, to the SMB market across Americas, Europe, and Asia. Now, software licenses and subscriptions for our digital platform strengthen our backlog and improve our profitability. Our enterprise customer contracts tend to be 5 to 10 years with renewals, annual maintenance, and support services. They also generate higher gross margins as well. Now, our SMB customers are a little different. Their contracts tend to be per user per month, and are cloud-hosted solutions with features and flexibility ideal for that marketplace. So in closing, Accela remains well-positioned in today's environment. The global trend toward digital transformation to grow market share, increase productivity, and reduce costs through modernization and automation of a business process is generating strong tailwinds for our sector. Our extensive investment in technology enables us to build longstanding, trusted relationships with our customers. Our multiple patents and process and new digital solutions deepens and widens our competitive mode as well. As we execute against our strategy and benefit from the normalization of volumes and customer renewal weights toward pre-COVID levels, we anticipate improving performance throughout 2021. We will continue to execute on our cost efficiency and operational improvement plans to drive future margin expansion while continuing to focus on strengthening our balance sheet and financial flexibility. Based on our Q1 results and the momentum we're seeing in our business, we're reiterating our prior 2021 guidance. With this, I'll turn the call over to Srikanth Sorcher, our CFO, to run through the numbers in more detail. Shreya Khan.
spk04: Thank you, Ron. Good morning, everybody. In my prepared remarks, I will take you through our consolidated results and segment revenue and discuss guidance for the full year. We are happy to report sequential and year-over-year gross margin and adjusted EBITDA margin growth this quarter. As we have done in the past, we are reporting both GAAP and non-GAAP numbers. The reconciliations are in our filing and in the appendix of the presentation. Let's start on slide eight and review our first quarter 2021 results. Revenue for the first quarter totaled $300.1 million, a decrease of 17.9% year-over-year on a reported basis, 19.3% in constant currency. A look at our segment revenue. Revenue for our ITPS segment was $231.9 million, a decrease of 18.4%, from 284.1 million in the first quarter of 2020. This decline is primarily driven by the transition revenue and COVID-related volumes. Our healthcare solution segment revenue totaled 51.1 million, a decrease of 20.2% from 64 million in the year-ago period. This decline was primarily driven by COVID volumes. Our legal and loss prevention segment revenue was 17.1 million, essentially flat year-over-year. Despite the 65 million year-over-year decline in our QN revenue, our gross profit only declined by approximately 5 million, reflecting our ongoing focus on operational improvement and efficiencies. Our gross profit margin for the first quarter increased 370 basis points sequentially and 250 basis points year-over-year to 22.5%, primarily due to better cost and capacity management and the reduction of stranded costs attributable to the transition revenue. Our gross profits were lowered by approximately $5 million due to a non-cash restructuring charge reserved in France for operational improvements. The benefit of our ongoing actions to reduce our cost structure nearly offset the full impact from lower revenue. Going down the income statement, SG&A expenses for Q1 totaled $41.9 million, down 16.9% year-over-year, and down 8.7% sequentially, representing 14% of sales. We delivered lower year-over-year in sequential SG&E despite the higher professional fees and advisory costs in Q1 of 2021, which we expect will decline in subsequent quarters this year. Shifting to EBITDA and adjusted EBITDA, in Q1, we delivered EBITDA of 23.5 million compared to 54.6 million in the prior year period. As a reminder, EBITDA for our prior year quarter Q1 of 2020 included a gain of $35.3 million recognized from the sale of sources to redax LLC. Adjusted EBITDA for the first quarter was $46.5 million, up 4.7% from $44.4 million in the prior year period. Our adjusted EBITDA margin for the first quarter was 15.5%, up 366 basis points from the prior quarter and 334 basis points from 12.1% in the first quarter of 2020. Our Q1 margin expansion benefits from cost efficiencies, which I just mentioned, including our deployment of Work From Anywhere solutions, which has helped reduce our real estate facility costs as part of our multi-year facilities plan, and cloud deployments, which are benefiting our IT infrastructure expenses. Moving to slide nine and focusing on our profit and operating metric performance, as I mentioned earlier, our gross profit and EBITDA margins were up substantially in Q1 versus Q4 of 2020, driven by business mix and effective cost management. Also importantly, our O and R charges continue to decline in Q1, and we are currently at an approximately 20 million run rate for 2021, compared with 46 million for full year 2020. Our adjusted EBITDA less capex for Q1 2021 was $38.8 million, representing 12.9% of revenue and 590 basis points improvement from Q4 of 2020. Let's touch briefly on our balance sheet and liquidity. In March, we raised approximately $26.8 million via an equity offering before deducting placement and other offering expenses. Our global liquidity for our credit agreement was $62 million, as of March 31st, 2021, consisting of $22 million of cash and an additional $20 million of availability under global credit facilities, and an additional $53 million undrawn on our committed securitization facilities in the U.S. Our total net debt as of March 31st, 2021 was $1.48 billion. We believe we are well positioned to further strengthen the balance sheet as we prepare for the return of COVID volumes and growth in the DAG-SMB space. This past Monday, We filed an S3 to provide the company extra financial flexibility. Our strategic objective remains, one, achieving higher gross margins by strategically focusing on high-quality revenue that includes return of COVID volumes and continued strong growth in DAG S&B markets. Two, strengthen the balance sheet with the ultimate objective to reduce our cost of capital and enhance financial flexibility on a levered basis. Turning to a review of our 2021 outlook, as Ron mentioned, we are reaffirming our prior guidance ranges. For the full year 2021, we continue to 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-19 volumes, renewal rates to return to historical levels pre-COVID-19, and continued momentum in winning new businesses. We expect gross margin in 2021 to be between 23% and 25%, reflecting improved operating leverage, resulting from the normalization of volumes to pre-COVID-19 levels and increased productivity of existing employee base and higher utilization of production infrastructure. We expect adjusted EBITDA margin to be in the 16% to 17% range, 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. We expect capex levels of approximately 1% of revenue in line with historical levels and working capital in line with historical levels and recent trends. Turning to slide 10, I will leave you with three takeaways from today's presentation. First, are rising performance reflected in the sequential growth in profits and operating metrics with improving operating leverage. Second, recently launched SMB business showing robust growth in Q1 of 2021 with substantial backlog in growing pipeline. And third, plans to continue to strengthen balance sheet as previously announced are in progress. I'd like to thank you all very much for joining us on the call today. With that, operator, please open the call for questions.
spk06: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster.
spk05: And our first question will come from Jerry Wong of Carlyle.
spk06: Please go ahead.
spk02: Hey, guys. Thanks for the questions. Just had a few here. Shrikant, I think you mentioned a few quarters ago that, you know, in the ITPS, there's the low margin revenues streams there, call it $150 million. And most of that, if not all of it, will be exited, at least on the revenue line, by the first quarter of 21. Is that still the expectation currently?
spk04: That is correct, Jerry. Q1 of 2021 marks almost one full cycle of the transition revenue. We are trended internally as we look at it, we are trended at 147 million of exits. So it's in line with the 150 that we had expected.
spk02: Okay, great. And then, you know, if I look at the three line items, healthcare, ITPS, and RUST, If I were to just look at your guidance for the year, even looking at the low end of guidance, you should at least see some uptake or at least flattening on the ITPS line. Is that something you see kind of going forward in the next few quarters, at least on ITPS?
spk04: I would say so. Again, as you saw on our guidance and our discussions today, There are assumptions built into it, COVID volumes coming back up. A couple of additional color if you would want. Healthcare solutions, for example, quarter over quarter remain flat, which is in a way good because traditionally Q4 tends to be a higher quarter for healthcare solutions. The fact that Q1 of this year was flat with Q4 bodes well for us. We expect to see the volumes to continue to pick back up. LLPS, we have said that a few different times in the past. project-driven, so anything could happen. So the rest of the growth is going to be picked up from ITPS. And the DAG and all of the SMBs that we're focusing on, we expect growth to come in that area as well as from payments and a few different business protocols within ITPS.
spk02: Great. I appreciate all that color, Shakan. In the quarter, it looks like you're – moving on to cash flows and working capital sources and uses, it looks like AR and AP kind of moved a little bit outside of where you were in the last quarter or two. And, you know, I think per your guidance, you're expecting it to be, you know, call it 1% or so of growth or, you know, right around that area. Do you expect that AR, AP to renormalize over the next few quarters?
spk04: Yes, so I'm sure maybe I'm not getting the question right, but the 1% is obviously our CapEx estimates, right, Jerry? So from a working capital perspective, you're thinking about it the right way in the sense we have swings on the odd and even quarters. We'll continue to expect that. Obviously, as we convert cash, as you saw between Q4 and Q1, we had additional margins and cash generation That will help us either to get to a neutral or a cash positive situation from an operational perspective eventually.
spk02: Okay. Yep. Great. Thanks. And just last one for me. I think you mentioned the S3, the $500 million mixed shelf that was filed. Can you provide any additional color there in terms of timing or quantum or use of proceeds?
spk04: Oh, yeah. It's really, if you think about it, we already had the self-registration in the past. This was to give us extra flexibility. No specific usage here, Mark, right now, but we're going to be very strategic about it from a use of funds perspective. It's mainly for general corporate purposes, importantly to invest to fuel growth in profitable revenue in the near term, right? But also you could look at it and And we have two or three other areas that we would like to focus on strengthening the balance sheet, reducing our cost of capital, and as I said, to improve our liquidity.
spk02: And just on the liquidity piece of it, can you say how much liquidity you currently have? Maybe at the end of April or early May?
spk04: Right. So what I would like to do is a two-point answer. One, the liquidity at the end of April is better than March. And from a business perspective, every month of the quarter, in particular, March was definitely much better in terms of volumes and returns compared to Jan and Feb. We have seen a good trend in April. So our liquidity end of April is better than what it was in March, number one. Number two, I think... We've been disclosing our liquidity in our Qs and Ks and presentations, so you have a good feel for at various points in time what those were. Lastly, you know, as I said, we are looking at hitting all of the parameters, profitable growth, margin improvement, et cetera. So rather than give you a number, a point in time and get locked in, I think we are happy to see the cash conversion or the better margin improvements in the business. Okay. Thank you. Yeah.
spk05: Thanks, Jerry.
spk06: As a reminder, in the interest of time, we ask that you please limit yourself to one question and one follow-up. And the next question will come from David Foropoulos of Unum. Please go ahead.
spk01: Hey, thanks for the call, guys. One question, my primary one is, there wasn't any mention in the release of the prepared marks regarding asset sales like we've seen over the last four or five quarters. I just was curious if this was still in your plans. Has there been any change to further divestitures? Thank you. Hey, good morning, David. Thanks for the question.
spk04: No change in plans as such, but we most certainly want to be very strategic about it. It depends on the valuations. I think on the last earnings call, I kind of mentioned the two asset sales that we did We're relatively smaller. The next one that we want to do is probably which one will be much bigger, potentially bigger, and also make a strategic fit, right? So depending on the valuation, depending on where we land, we are still looking at it.
spk01: So you're still in the process here, and those parameters, I believe, 125 to 150 million of proceeds are still in your side here? That is correct, yes. Okay, okay, great. Secondly, the cash burn, I know this is a cash burn quarter, the cadence here. It looks like, and I think you cited earlier, your AR and maybe some of those items were a little bit, you know, you ate a little bit more cash on those. But was there any one time, I just usually just don't burn this much cash on a quarter. I'm wondering if I was, you know, to look at this and walk through it exactly. What would be the outliers this quarter that made it a little bit higher? Was it simply working capital issues with the AR and such, or are there some one-timers I'm missing?
spk04: No, actually, I wouldn't even assign it really to one-timers. The way I look at it, you rightly pointed out, it's working capital swings. What is probably a little bit more pronounced in Q4 versus Q1 is that Q1 revenue was sequentially down by $14 million, but our AR went up by $10 million, which is an indicator of, A, the collections in Q4 were pretty robust, pretty good. And conversely, in Q1, collections were lighter. So we have that lever to pull, right?
spk01: So not too, yeah. So a little bit back in loaded Q1, if things got better as the quarter went on. That makes sense. Okay. And then secondly, you said the cadence of your healthcare volumes is improving. So we would expect, I mean, better margin business. That's a tell when going into the, I guess, with more discretionary procedures going on. That's definitely a benefit for you guys.
spk04: Exactly. But, you know, I want to be cautiously optimistic there, right? I think the good trend, as you look at years past, is Q4 healthcare tends to be better than Q1. Whereas this quarter over quarter, it was flat. That's very pleasing for us. But again, I want to be cautiously optimistic given everything going on. And, you know, hopefully late Q2 and onwards, we'll start to see some pre-COVID volumes come back up. All right, thanks for the call. No problem. Thank you, David.
spk06: Our next question comes from Alan Caddo of Beach Point Capital. Please go ahead.
spk07: Hi, thanks for taking my question. So first on the 66 million year-over-year declining revenue, could you help bridge that between transition slash exited revenue and then just COVID impact on a dollars basis?
spk04: Yes, high level, again, take this as a directional number. But, you know, transition impact, as we said, 150 run rate, approximately 37 or so a quarter. And I think for Q1 to Q1, that's in the same range, 35, 36 from a transition revenue impact perspective. COVID impact, you know, started late March. So two and a half months of COVID impact when you compare year over year, approximately 20 million. And then the other $10 million is from the contribution from the asset sales that we did. So in Q1 of last year, we had approximately $10 million from those two assets contributing to the revenue, which did not repeat in 2021. So that's the high-level breakup for the 65s. Got it.
spk07: And then I guess on the year-over-year decline, still being around 20% going from 4Q to 1Q, I guess like, With some of the reopening going on, I would have thought you'd see some minor sequential improvements. So what areas, I guess, within IT, P&S, and healthcare services are still kind of lagging and are still feeling a pretty severe COVID impact?
spk04: Yeah. One is, as I said, right, already, so you're specifically asking about IT, P&S, which are looking at it, right, healthcare and legal sequentially. Alan, you asked me sequential, right?
spk07: Yeah, just the year-over-year decline, going from 4Q to 1Q seems like it's pretty consistent, but I thought it would have improved on an easier comp.
spk04: Yeah, okay. Like I said, healthcare and legal, Q4 to Q1, sequentially relatively flat, drilling down into ITPS. Our payments business was actually flat Q4 to Q1. It is in the... digital assets group where in European region, we tend to have a one-time Q4 benefits from higher software sales, professional service group sales, and equipment sales. That obviously doesn't repeat in Q1. But what is good about this, Alan, is that not just the revenue decline is never good, but what I mean to say is In Q1, traditionally, every year, going from Q4 to Q1, while there's seasonality in Q4 that doesn't get repeated in Q1, we tend to see a lot of postage and pass-through in Q1 of every year. This year, it was not that pronounced. What this means is, while revenue was lower sequentially, it didn't really impact our margins. I think that's a positive takeaway. But long story short, payments within ITPS remained flat. We had some compression in the on-site and our United Communications Services businesses. Okay. Got it.
spk05: Thank you.
spk06: The next question comes from Omar Tawana of Imperial Capital. Please go ahead.
spk08: Hi, guys. I have two questions. First one is around liquidity. You mentioned that you have... a little over $50 million available from the undrawn part of the AR facility. My question is, is that available to you today?
spk04: Amir, good morning, and thanks for the question. It is available to us today, subject to conditions. If you have a follow-up, I can address it sort of jumping into a conclusion. So it's a short and sweet answer. It's available to us subject to conditions.
spk08: Okay. The other question I have is regarding the healthcare business. When you look at 2020 versus 2021, you know, how should we think about, you've given the overall revenue guidance, is the healthcare going to perform in line with those sort of year-over-year ranges, or should it perform better, or, you know, I'm just trying to get without getting any specific numbers, maybe directionally, if you can help us.
spk04: You know, I think, you know, again, if you look at our base assumptions, as long as the pre-COVID, or not as long as, as the pre-COVID volumes start to pick up, as our renewal rates return back to normalcy, and as we continue to win new business, we certainly see growth in the healthcare space. What is the unknown right now, and that's why we are cautiously optimistic about this, is that we don't know how things will pan out in the next two to four months, right? As inoculation happens, as things start to return back to normalcy, there's additional revenue or business to be picked up, but that's where we need to wait and watch in the near term to see how it will pan out.
spk08: Got it. And just broadly, EBITDA margins for the healthcare business? Where are they roughly?
spk04: Yeah, you know, from a segment perspective, we only look at it at a gross margin levels because of the shared services and corporate costs that is on SG&L. So gross margins, we expect it to be in line with historical trends. And as you saw in our guidance, we expect our gross margin pickup from prior years to land at 23% to 25%, right? So we'll continue to be in the range of growth that we had projected.
spk08: Thank you very much. That's all I have.
spk05: Most welcome.
spk06: The next question comes from Jeff Hutz of J.P. Morgan. Please go ahead.
spk09: Hi, thanks for taking the question. One quick one on slide eight, just about one of the add-backs that you have in your EBITDA line. You have non-cash and other of 13.1. Could you just maybe detail how much of that is non-cash or what exactly those charges were for?
spk04: Yeah, sure. We usually have the details listed in our facts sheet. For this quarter, we have still not put it out. As we file the QV, we'll put it out. But to address your question, Jeff, typically these non-cash charges are if there are impairments to Goodwill or other intangible assets, which is not there in Q1, things like non-cash equity, a loss on sale of assets, those are the non-cash elements. Then the other charges include potentially employee severance, dark facilities, and things like that, customer exit costs and things like that. I will preempt and kind of tell you, you'll see a higher number there this quarter, mainly because I mentioned in the prepared remarks, we took a non-cash charge for our restructuring in France, restructuring a couple of facilities. That is part of the non-cash add-back, which is driving the higher number in Q1.
spk09: Great, that's helpful. And one follow-up, if I may, totally different question. Some of the new segments and kind of the newer products that you're going after, you list them there on slide seven, but can you tell us what revenue, like DrySign or the HCM stuff or the XBP products are generating? Can you give any color on the size? You gave some growth rates, but it's hard to tell. Yeah, absolutely.
spk04: Yeah, no problem, Jeff. I will provide you that answer, and then maybe Ron can add more color from a business perspective. Jeff, at this point in time, it's almost too early to talk about a revenue number because it's not very meaningful right now. What we are excited about is the number of customers are getting onboarded into some of our products, the DMRs and dry signs. particularly for our digital products that we have. That's exciting. And at this point in time, we're more focused on building up these customers. If you've followed us, if you know us from the past, we have always focused on our top customers, our enterprise customers, which we'll continue to do. The SMBs provides us a new opportunity to grow our revenue where a lot of these products, it's easy to deploy, regular revenue stream. And then importantly, we have more products lined up, right? So simple answer to your question would be it's not meaningful revenue right now, but it's something that in the pipeline that it'll grow. We hope to grow it in a bigger way. That said, Ron, if you want to give a little bit more color on the products or if you want to add some color, feel free to do so.
spk03: Oh, thanks, Shrikant. I was feeling left out there. Jeff, what's interesting about these products? is that we are always users of our own solutions and services. I've heard some people use the phrase, you eat our own dog food. But at the end of the day, I have been a user of the DMR solution and DrySign for well over a year. So I can tell you with confidence that as we rolled this out, we did sort of a soft rollout, we are thrilled today. with the adoption rate that we're seeing among that customer set. If it's per user, per click, per instance, it's a much different approach. For us, that's really exciting because we had not opened up that channel within our business. When we look at that and we look at the other things that we can offer on a subscription basis, We're very hopeful about where this is going to take us. And in future quarters, we can give more detail around the revenue. But right now, we're off to a great start.
spk05: Thanks for that, Collar. Thank you.
spk06: This concludes our question and answer session. I would now like to turn the conference back over to Ronald Cogburn for any closing remarks.
spk03: Thanks, Operator. You know, as always, we're very appreciative for everyone that joined the call today, and we really enjoy addressing any questions you have. And you know, always, you can reach out to us directly if you have questions that we did not answer, you didn't get a chance to ask. But let me remind you, as I did during the prepared remarks, we have got another Fireside Chat coming up with D.A. Davidson on May 20th. and it's around our RPA solution, robotic process automation, which is part of the overall growth or approach with the digital assets. So please make plans to join us, and thanks, everyone, and we'll see you next quarter.
spk06: Conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Disclaimer