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spk02: Good day and welcome to the Accela Technologies Inc. Third Quarter 2021 Financial Results Conference Call. All participants will be in a 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. Please note, this event is being recorded I would now like to turn the conference over to Mark Griffin with ICR. Please go ahead.
spk04: Mr. Griffin, perhaps your line is muted. We aren't able to hear you.
spk00: Yes, thank you. Good afternoon, everyone, and welcome to Accela Technologies' third quarter 2021 conference call. I'm joined today by Rod Cogburn, Excel's Chief Executive Officer, and Chakant Satur, our Chief Financial Officer. Following prepared marks made by Ron and Chakant, we will take your questions. As a reminder, during today's Q&A session on today's call, we will not be able to take questions on the pending exchange offer due to legal restrictions on commenting on securities issuances. Today's conference call is being broadcast live via webcast, which is available on the investor relations page of Excel's website at ExcelTech.com. A replay of today's call will be available through November 12, 2021. Information to access the replay is listed on today's press release, which is also available on the Investor Relations page of Accel's website. During today's call, Accel 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, November 5, 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 to reflect these 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 recently filed periodic form on 10 along with today's press release and 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 referred 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 discussed on today's call can be found on the Investor Relations page of our website. Please note the presentation that accompanies these conference calls is also available on the investor relations page of the website. With all of the mandatory regulation FD disclosure out of the way, I'm pleased to turn the call over to our CEO, Ron Codford. Ron?
spk03: Good afternoon, and thanks, everyone, for joining us on our third quarter 2021 conference call. We are focused on executing our strategy to speed up capital deployment, debt reduction, cash flow improvement, and investing in our business for stabilizing performance and growth. The fundamentals of our business are strong, and we are pleased with the continued exceptional growth of our digital solutions for the SMB market, where we see opportunity for further geographic expansion. We expect further improvements within our underlying business that will lead to additional improvements in the margins and cash flow in 2022. Now I'd like to take a moment and point out a couple of highlights for you to remember today. First, an enhanced cash flow position. We have the initiatives in place to achieve $50 million in cash flow improvements in 2022. This is a $25 million improvement from our previous cash flow estimates. That's quite an accomplishment. These improvements are currently underway in Q4 based on previously announced plans to deploy over $400 million of capital. And second, we're executing plans to reduce our debt by approximately 25% to $1 billion from $1.355 billion. So with that, let's begin on slide number four with an overview of Accello's investment highlights. For those who are new to Accela Technologies, Accela is a global leader in business process management solutions. Our total addressable market is extremely large at $207 billion and growing. Moreover, there are incremental growth opportunities in digital asset groups, or what we call DAG as we refer to it, included in the SMB market which we entered in late 2020. We are well positioned in the market with a strong competitive moat supported by a our extensive investments in technology, and the numerous patents that we hold. Our customer base, which is over 4,000, spans across 14 industry verticals, including 60% of the Fortune 100. We service a large and diverse group of customers from the SMB to some of the largest blue-chip companies in the world where we have long-tenured relationships. And finally, with decades of industry experience, we believe we have the right management teams, in place to capitalize on the significant opportunities we see ahead. Slide 5 Revenue for the third quarter was $279 million, down from the same period a year ago. The most significant variations in revenue occurred in our public sector, which were mainly driven by the delays in the funding approvals for the agencies that we serve as well as the continued COVID-19 impact. We generated EBITDA of $49.1 million in Q3, an increase of 30% or $11.4 million year-over-year. We generated adjusted EBITDA of $36 million in Q3, which is down 25% year-over-year. Also, we delivered continued margin improvement in the third quarter, Our Q3 gross margin was 24.2%, an increase of approximately 90 basis points year over year. COVID-19 and the resulting safety measures have had a continuing impact on our onsite business as well as some of our operating centers. We've been impacted by lower usage in the onsite services as well as lower utilization in some of the operating centers. than we originally forecasted, which ultimately affects our margins. Since the beginning of 2021, we have raised total gross proceeds of $276 million through our equity offerings. These transactions, combined with our strategy to reduce costs and increase efficiencies, have enabled us to reach a total liquidity of $227 million as of November 2, 2021. exceeding our total liquidity target range of $125 to $150 million, which we discussed in late November. In addition, our efforts provided us with the capital to repurchase a portion of our outstanding debt. Our net debt as of September 30th stood at $1.247 billion, a $190 million reduction year-to-date. Now let's turn to slide number six and talk about some of the key performance metrics. Our strategy has evolved to scale up our cloud usage. Many of our platforms, including intelligent data processing and our work from anywhere initiatives, are driving fast adoption of the cloud. We expect materially all customers and employees will be using the cloud by the end of 2022. This is up from 30% in Q4 of this year. Quarterly revenue challenges due to COVID-19 aside, we are seeing solid momentum throughout our business highlighted by strong renewal rates, expansion activity, and an increasing pipeline of new activity. Now, with regard to COVID-19, with those impacts, we've seen delays in the following areas. Delays in the plans to return to the office by our on-site customers, which in turn impacting our on-site revenue, which is part of the ITPS segment. Continuous government restrictions across countries during Q3 have led to delays in project executions and thereby revenue delays. And then lastly, the hiring market at large is challenging in that there's just not as many candidates for open positions as there were before. And this last one here is a market-wide phenomenon. Overall, we have a high customer satisfaction level that can be seen in our renewal and expansion rates. Our renewal rates continue to improve and were up quarter over quarter and year over year. In terms of contract expansions, those were up 16.9% sequentially, 21% year over year. Our new offerings are resonating in the market with a pipeline that is up 4.6% sequentially, and 10.5% year-over-year. Additionally, we've entered into a new strategic partnership with one of the largest technology companies in the world to pursue new business opportunities. This is part of our strategy to expand our reach and sell of our platforms and services. We look forward to sharing more on that partnership in due time. Now let's turn to slide number seven. I'd like to update you on the progress of our small and medium business efforts, or the SMB efforts, which are part of our digital asset group, or DAG. The stats you see on this slide really give us confidence in the success of our current SMB offerings, which are leveraging our enterprise customer platforms. Since our entrance into this segment in late 2020, we have seen consistent, strong growth in the number of new SMB customers for our digital mailroom, or DMR, and our new users for DrySign solutions. In the third quarter, our DMR SMB customers grew 71% sequentially, and our DrySign users were up 47% from Q2 of 2021. With the launch of DMR in France and Germany, as well as the recent launch of DrySign in the Philippines and UK, we expect our strong momentum will continue. With the success that we have achieved in the SMB space so far with our DMR and dry sand solutions, we plan to add additional solutions to the SMB market, and we're very close to launching our remote online notarization platform, which will help us accelerate the conversion of the SMBs onto our DMR platform and expand our value proposition to a much broader audience. So in closing, Accella remains well positioned in today's environment. We enhanced our liquidity position through a fortified balance sheet that included equity raises, debt repurchase, and debt refinancing. Our strengthened financial position along with our continued operational improvements position Accella to capitalize on our growing global TAM. Moreover, we have the technology, Extensive history, powerhouse employee base, and the strength of our new financial position that provide us confidence in our strategy for what we plan in 2022. Now, I'll turn the call over to Sriyakant Sorture, our CFO, to run through the numbers and our guidance in more detail. Sriyakant?
spk06: Thank you, Ron, and thanks to everyone for joining us this afternoon. I'll cover our consolidated results and segment revenue, provide an update on our balance sheet and liquidity position, and discuss the updated outlook for the full year 2021. Overall, this quarter, we are happy to report the strong progress on strengthening our balance sheet and solidifying our financial position. 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 10. and review our third quarter 2021 results. Revenue for the third quarter totaled $279.2 million, a decrease of 4.7% sequentially and 8.5% year-over-year. Moving on to our financial metrics, our third quarter 2021 gross profit margin of 24.2% is an increase of 90 basis points year-over-year as a result of better cost and capacity management offsetting the impact from lower revenue. For context, our cost of revenue year-over-year decreased by $22.5 million compared to the corresponding revenue decrease of $26.1 million. Our Q3 sequential results are not comparable due to a few different factors, the seasonality impact, particularly in the EMEA region being a driver, and continued lower volumes and underutilization of resources as a result of COVID-19. Sequentially, our gross profit decreased by approximately $16.4 million or 447 basis points from Q2, primarily due to the impact from revenue decrease and certain one-time impact in Q2 that did not repeat in Q3. For example, the favorable $3.5 million gain from derecognition of an operating lease liability due to production facility lease terminations. Reported SG&A expense in Q3 totaled $43.2 million, up 1% year-over-year, representing 15.5% of revenue. SG&A for Q3 of 2021 included a one-time charge of $3.8 million on our LLPS segment. Net of the one-time charge of SG&A would have been $39.8 million and would represent 8% decrease year-over-year. Turning to EBITDA and adjusted EBITDA, In Q3 of 2021, we generated an EBITDA of 49.1 million compared to 37.7 million in the prior year period. This included a gain of early extinguishment of debt of 28.1 million for the three months ended September 30, 2021. Adjusted EBITDA for the third quarter was 36.4 million, down 25.3% year-over-year and 28.5% sequentially. Our adjusted EBITDA margin for the third quarter of 2021 was 13%, down 292 basis points year-over-year and 435 basis points sequentially from Q2. Capital expenditure in Q3 was $3.6 million, or 1.3% of sales, in line with our expectations. Finally, our liquidity for our credit agreement was $227 million as of November 2, 2021, and includes $24 million as add-backs for fees paid for advisory and professional services. A detailed view of our third quarter as well as our year-to-date September 30, 2021 results can be found on slide 14 for your reference. Turning now to slide 11 to discuss our revenue by segment. Revenue for our ITPS segment was $208.3 million, a decrease of $9 million or 4.1% sequentially from Q2. The decline was primarily driven by continued COVID-19 impact as delays in our customers' return-to-office plans are affecting our on-site business, in addition to seasonality. As indicated by Ron on slide 5, variations in our public sector revenue due to delays in funding approvals impacted our expected Q3 revenue in this segment. Our IDPS segment remains challenged from lower volumes due to COVID-19, and we continue to believe We are well positioned to see volumes and revenue improve in this segment once COVID-19 impact subsides. Healthcare solution segment revenue decreased by 2.2 million sequentially, primarily driven by lower seasonable volumes on our payer business. LLPS segment revenue decreased by 2.6 million due to certain one-time projects that were completed in Q2. Overall, our current revenue base is stable and diversified from a customer industry and geographic standpoint. Our backlog is substantial and our pipeline growth remains strong. This gives us confidence as we look beyond 2021 into 2022. Turning to slide 12, the breadth and diversification of our revenue and industries served is a significant strength for Accela. Two key points that I'd like to make with this page. First, we have long-tenured and trusted partnerships providing critical solutions to thousands of customers that cut across every major industry vertical. This enables both stability with our existing customers and gives us tremendous points of reference with prospective customers. Second, with low customer concentration, deep vertical expertise in industries that have the strongest projected growth, like banking, financial services, insurance, healthcare, and tech, we are well positioned for growth, especially as the global economy continues to recover post-pandemic. Our high-margin DAG business represents 8% of the total revenue. Moving on to slide 13, I'd like to discuss updates to our balance sheet initiative and our strategic deleveraging, which will improve our annual cash flow by 15 million. Since we first announced our deleveraging strategy, we have raised 276 million from equity offerings through end of September and repurchased 95 million of outstanding debt. As we execute our multi-step strategy, we expect to reduce our interest and loan amortization by $37.5 million on an annual basis. The remaining cash flow improvement of $12.5 million will come from reducing our facility and other lease expense. Our plan is to lower our debt by 25% to $1 billion from $1.355 billion for a financially stronger company as we prepare for 2022. As part of our plan to deploy over 400 million of capitals we have commenced an exchange offer for first priority secured notes and senior secured term loans, both of which are due in 2023. As we head into 2022, our next strategic focus will be on investing for growth, and we have made a number of assignments in our focus areas across the business, bringing on seasoned individuals who will help us grow our business. Turning to slide 14, we covered the quarterly results in detail on slide 10, On this slide, therefore, I will highlight year-over-year nine-month gross profit and margin performance. Our gross margin for year-to-date 2021 was 25.1 percent, an increase of 364 basis points over prior year. For CONTACT, we have an increase in gross profit of $9 million for the comparative period on a revenue decrease of $106 million. This was possible due to operating leverage improvement increased efficiencies through the implementation of automation tools and leveraging the success of our work-from-anywhere model. Looking ahead, we expect to drive additional operating leverage from higher utilization as our revenue growth improves. Finally, I would now like to provide an update to our 2021 outlook. As discussed earlier, due to variations and unpredictable public sector revenue, as well as continued COVID-19 impact, we are updating our revenue guidance for full year 2021 to be in the range of 1.16 billion to 1.18 billion on a reported revenue basis. We are reaffirming all other guidance for the full year, namely gross margin for 2021 to be between 23 and 25%, adjusted EBITDA margin to be between 16 and 17%, CapEx levels of approximately 1% of revenue. Turning to slide 15, you will see the takeaways from today's presentation on here, I close by reiterating that we'll continue to focus on improving our balance sheet and liquidity while making the right investments to deliver improved performance and operating cash flows to achieve both our short-term and long-term financial goals of growth, margin, and free cash flow. We look forward to continuing this progress in the fourth quarter and beyond. Thank you all very much for joining us on the call today. With that, operator, please open the call for questions.
spk02: Thank you. As a reminder, during the Q&A session of today's call, we please ask that you limit yourself to one question and one follow-up. Additionally, we will not be able to take questions on the pending exchange offer due to legal restrictions on commenting on securities issuance. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. And the first question will be from Josh Sigler with Cantor Fitzgerald. Please go ahead.
spk09: Hi, good afternoon. Thanks for taking my question. So my first one is on the government business that didn't come in. That to us sounds like it was a timing issue. So can you provide some additional color on this component? Do you still expect this business to be recognized in 4Q or perhaps 2022? And what potential impact do you think it can have?
spk06: Josh, first of all, thank you for the question. I will lead with it and Ron can give additional details. You're right. It is timing at this point in time. We expected, as you probably heard on the Q2 conference call, we expected the project to ramp up late Q3 that did not happen due to the debt ceiling or the funding approvals not procured by the government, and therefore this is getting pushed out. From a timing perspective, we are waiting to see how this will unfold. It most likely could be a 2022 type of an event, but still unknown. Ron, you want to add the specifics behind this?
spk03: Yeah, so this is Ron speaking. So yeah, to Trikon's point, in dealing with some of these federal agencies, and we work with some of the largest, the struggle that Congress has, we see this, I guess, once every four years on debt ceiling, has caused everybody to tap the brakes with commitments to move forward with either projects or continued growth in certain statements of work. So While we proposed on this new statement of work, which was substantial for us, about ready to pull the trigger, the agency paused for a moment as they were restricted through this, I guess, the exercise that Congress is putting them through. So we're very hopeful that we'll see this come back to life here by the end of the year. If not, then 2022 would be a very good spot for it to kick off.
spk09: Great, appreciate the color there. And then switching gears a little bit, you guys have made significant progress on your capital structure this year. What, in your opinion, is the next step to take with the balance sheet? Obviously, you have a lot of moving pieces here, but what's the next incremental impact here? And how do you think the current steps you've taken will impact your future cash flow? Thank you very much.
spk06: Yeah, Josh, I think it's crisply laid out, deploying $400 million of capital A, to reduce debt 25% levels to get to the $1 billion range, and more importantly, also secure the interest costs and armored savings targeted at $37.5 million right now, in addition to deploying the capital to reduce some operational costs like the lease and other equipment costs. So in total, we are targeting the $15 million improvement to cash flow. We are deploying the capital. Okay.
spk11: Thank you, guys. Thanks.
spk02: And the next question will come from Zach Cummins from B Reilly Securities. Please go ahead. Hi.
spk10: Yeah, thanks for taking my questions. I'm just tailing off into the healthcare services segment. I mean, kind of surprising to see that decline on a sequential basis. Can you give me some more insight into what drove that sequential decline and then kind of your confidence in being able to consistently grow in that segment going forward?
spk06: Actually, Q3 tends to be a soft quarter for healthcare, so to speak. And then again, Q4, it picks back up. In Q1 and Q2, healthcare revenues tend to be down. higher as well. And then in Q4, because as the year-end enrollments as well as annual exams go through, we'll see more revenue. So on that count, not entirely surprising that we had a seasonality impact on the payer business. So the 2 million delta, while we expected more to come through, 2 million delta doesn't concern us as much from a seasonality perspective.
spk11: Understood.
spk10: And just on the $227 million liquidity number that you reported, can you give me the breakdown there in terms of the different components there just to get a better sense of the actual cash that you have?
spk06: Sure, Josh. In line with a couple of other earlier reporting, it remains the same. Approximately $24 million of the ad backs and approximately $22 to $24 million of availability in our facilities. So if you back that out, the rest is cash.
spk11: Understood. I'll jump back into the queue. Thank you. Thanks.
spk02: Thank you. And the next question will come from Alex Graff from Cowan. Please go ahead.
spk08: Thank you. Good afternoon. Just a quick one on the updated guidance. Can you maybe help break that down a little bit? You know, what's really driving that? You know, certainly some of it is from the public sector contract you mentioned. Can you maybe help us understand how much of that is or how much of the takedown guidance is also tied to any transitional revenue?
spk06: Sure. Maybe I'll give a very high-level answer, and then we can drill down to the specific as much as you need. You know, first of all, we are in the midst of working on multiple trends and options, right? That's been the focus, and the improvements we have made overall from all the way to late 2019 to now reflects where we are focused from a strategy perspective and how we have executed. That said, one pointer is on competitive purposes, right? 150 million, we talked about 150 million of transition revenue. We talked about last year impacted by approximately 90 million of COVID revenue. And then there was asset sales impact of almost 30 million. So we're talking about 270 million or so of revenue, which we knew were impacted year over year. That as the backdrop, I'll point out, even before talking about the revenue guidance takedown, I'll point out that the two things, at least from our perspective internally, what we are focused on is that the base revenue is stable, number one. Number two, all of our sales metrics are looking up. And you saw that slide on this quarter where we have higher percentages from the perspective of The pipeline growing, the renewals growing, and expanding with existing customers, right? All of that said, delayed sales cycle and ramp may impact when you look at it from a quarter-to-quarter perspective, but it's all about timing. So our focus is going to be on margin and cash flows. I just want to reiterate that. That said, lastly, as we talked about, when we – looked at the guidance, particularly from movement or changes or unpredictability of the public sector revenue and the impact that we as a business had on COVID, continued impact, we decided to take it down and be conservative with the number.
spk08: I see. Okay. I guess so in terms of going back to kind of what year over year was, that 150 of transitional revenue, is there any additional transitional revenue baked into this particular guidance number, or should we still think about that transitional revenue as being around $150 million?
spk06: Not a whole lot, but it is bound to tail off a little bit just based on the timing of the transition revenue exits, right? It's not going to be in the $30 million, $40 million range like the run rate from early 2020, right? or mid-2020, but there is bound to be a little bit of it, not a whole lot.
spk08: Okay, thank you. And then lastly, just on the debt balances, the company has been repurchasing both bonds and loans in the open market. Can you maybe give us a sense of what the debt balances look like currently, subsequent to any repurchases after the quarter?
spk06: We had one, you will see the more specific details when we file our queue, most likely on Monday. But high level, you saw the net debt stat also on our deck, right? There's a breakup on the rollup of the net debt of 1.247 billion.
spk11: Right, yeah, there is that.
spk08: I just didn't know if we, probably in the queue you'll have the breakout of what it is between bonds and loans and anything that's happened since the quarter. I think the number there is as of September 30th, right?
spk06: Yeah.
spk08: Okay. That's it for me. Thank you. Thanks, Alex.
spk02: And the next question will be from Jerry Wang from Carlyle. Please go ahead.
spk07: Hey, Shakan, just a quick one. I think you might have mentioned 270, call it, in revenue delays or revenue impacts, 150 low margin revenues, 70 COVID delays. What was the last 50 you mentioned?
spk06: The last 30. The last 30 was the asset sales, Jerry. It's for the two businesses that we sold in early to second quarter of 2022.
spk07: Right. Okay. I think you might have got some growth in the second half of this year. What percentage of that miss was driven from timing from the federal government budgeting process?
spk06: Yeah, since you framed that question that way, just to clarify, right, my response to Alex was specifically year-over-year impact, right, so saying $270 million of revenue, annual revenue, not on an apples-to-apples basis. If your question is second-half impact, it's not necessarily that much. From a guidance perspective, again, since you asked me to give you additional color, heading into our Q2 call, we still had potential public sector revenue to come through, and With Q2, with inoculation, we expected a lot more of the business to be back up and running, if not pre-COVID levels, at least much better than what we are experiencing right now. That is the reason for the guidance change, so to speak.
spk07: Okay, so you would say the majority of it?
spk06: Yeah, but since we are talking about it, Jerry, I'd also like to, again, hit upon the specific points You know, our stable, we feel very confident about our stable revenue. While COVID impact is ongoing in certain ways for us, we are focused on liquidity, which in turn helps us to deploy capital to reduce debt. And in turn, it's driving down our interest costs, right? So our focus has been on margins and cash flow improvement. The reason I say that on a question about guidance is I just don't want to focus on top line alone, right? We have to also look at our overall strategy So when you have a debt service of 170 plus million, and when we can execute and reduce it by 50 million, that's a game changer, right? One feeds the other. So while we're talking about revenue, I also want to keep the big picture in mind as to what we have been doing and what our goals are.
spk07: Yep. Got it. On expenses, you know, your gross profit was actually not very different. You know, I think your margins have changed. gotten a lot better through the year. But, you know, your adjusted EBITDA is lower this quarter. You know, your SG&A is still up, even though your revenues are down. And then you have that non-cash other charges. Can you just help me just parse through kind of the puts and takes on how you got to that $36 million? What is, well, first, what is that non-cash? Yeah. Was there additional SG&A expenses in the quarter that was more one-time?
spk06: Again, to give you a high level there, sequential quarter comparison is always difficult. That's what I was pointing out. In Q1, we were favorably impacted by a pickup of $3.5 million. We also had certain one-time projects that came in at higher margins. Admittedly, Q3, our revenue decrease impacted margins. Plain and simple, that's what it is. We need to do We need profitable revenue growth. That said, that is why we want to look at YTD basis or annual basis. That's why I pointed out, even though year-to-date our revenue declined $106 million, our gross profits were up by $9 million. That even sold some of the one-timers. And in terms of your question specifically to the quarter, I don't pick the other charges that you indicated, But on SG&A, there was a 3.8 million one-timer infrequent. We do not expect that to repeat. So on that count, it was lower. And then on the add-back part, I don't know what specific line item you're looking at for other charges. I can help you with that if you want. But those are specifically to the one-timers that I talked about just now, plus the negative add-back, so to speak, for the gain on extinguishment of debt. That's where you'll see that number probably. Okay.
spk07: Mm-hmm, mm-hmm, mm-hmm. Okay, understood.
spk13: Yeah.
spk07: Great. Thank you. Yeah, no problem, Jerry. Thanks, Jerry.
spk02: And the next question comes from Randall Klein from Avenue Capital Group. Please go ahead.
spk12: Hey, guys. Thanks for taking the call, and nice job on, you know, working on the balance sheet and liquidity. You guys are in much, much greater shape these days. Thank you, sir. Hopefully two somewhat quick questions. The first one's really quick. Ron, when you started off and it came up a couple times, the $50 million cash flow improvement, obviously that's focused on interest and lease expense savings. And I think you mentioned it, Ron, that obviously on top of that, I'm assuming, you know, directionally you guys are hoping to do something very material on, you know, EBITDA, gross margin, what's called EBITDA, net profit, etc.? ? And that's really, you know, since you're not guiding to 2022, I assume that's why you're not kind of talking about it. But I assume that's kind of a hope on top of these other, you know, kind of more regular way savings. Is that correct?
spk06: That's partly correct, Randall. First of all, thank you for acknowledging the positive. Ron, I'll take this since it's number based. Yeah, Randall, we are multi-front, right? Both, as I said, focus on strengthening the balance sheet as well as continue to improve our profitability. That said, for the $37 million and also the overall $15 million target we have for cash flow, it really matters. Particularly a lot of that is going to come from interest cost savings as we deploy the capital and reduce the debt. That matters because on the capital structure, if you look at it, it's the $170 plus of debt service that's creating challenges, so to speak. the best thing for us to do as we deploy capital and reduce interest costs is it frees up a lot of free cash. In turn, it's going to feed all of our investment and growth in the business. So as you've seen over the last few quarters, we've continued to focus on margins, continued to focus on the business and operations. This is in addition, the capital structure fixes in addition to that, one feeds the other, so to speak. Did that address your question or were you...
spk12: Yeah, I mean, well, look, I agree. Obviously, the 50 is great and important. I was trying to differentiate fundamentals on the income statement and margins, which sounds like, yes, of course, you're trying to increase revenue and increase margins by definition. And I guess, again, given you don't have a 2022 projection per se, you can't really put a number on that today, which is fine. I have no issue with that. Right, right. Okay. Okay. And the second question is, your implied Q4 guidance effectively, since you have three quarters now and you're updating your 2021 guidance, it seems like there's actually a rebound in revenue. There will be revenue growth Q3 to Q4 and potentially pretty good profitability. It's a little hard to tell exactly. If you take a look at your EBITDA margin guidance, it's, I think, 16% to 17%, and yet you're only 15% year-to-date, which implies a nice jump. Although kind of gross margin looks like it's more flat. So I guess that begs the question, on your last quarterly call, you said the O&R charges should be running about $20 million for the year or $5 million a quarter. Directionally, is that still true? So we can kind of back into what we think, you know, kind of EBITDA before O&R charges would be?
spk06: Right. There are two or three different elements that you touched upon there, right? First of all, you're right. There is an expected revenue growth in Q4. We are usually favorably impacted by the seasonality, both on a healthcare business as well as, more importantly, the EMEA region where we have usually higher Q4 revenues. That is number one. And number two, you were looking at it in the right way from just a dividend perspective as well, given 15.3 or so for year to date, to get to 16% we should hit the 50 or so levels. The way to look at it also, if you look at what we did in Q2, at Q2 we were benefited by one-timers. Q2 results repeating in Q4 will get us there, so to speak. So it's not unfathomable sitting at this point in time, but we need to continue to execute. Execute.
spk12: Got it. Great. Okay. I'll go back in the queue if I have time. Thanks.
spk13: No problem. Thank you. Thank you, Randall.
spk12: Thanks, Randall.
spk02: The next question will be from Amir Tawanan from Imperial Capital. Please go ahead.
spk01: Hi, guys. Thanks for taking my question. Sure. I just wanted to reconcile something looking at your tender offer I'm not asking about that but you know that says that you're going to use about 225 of cash and looking at your liquidity that you just reported you have about 227 you know assuming that you know this tender goes through you know can you sort of talk about the back end liquidity of the company, what the number would be or how do you intend to sort of manage it?
spk06: Sure, Amar. Again, thanks for the question. Even though it's not specific to the tender offer, it's in a roundabout way having to discuss about that whole mechanics, right? So instead of talking about that, let's just talk about the fact that you'll probably have to give credit to the fact that we have set liquidity targets. We've achieved those. We're able to generate cash or raise cash. So the way we look at it is any of the multi-step strategy that we are planning on, we have the ability to execute on what we need to. We have the sufficient capital and we'll take care of the execution. From a sources perspective, there's going to be multiple livers. generation of cash. We have the S3 out there, raise more cash. We have other levers too, right? So we are absolutely going to be very strategic and intentful on what we want to do and how we want to do it. I'll put it that way.
spk01: So would you have the ability to maybe put like another sort of bank facility or something in place to, is that also a part of the equation or? I'm just trying to figure out what, you know, what those levers are.
spk06: Yeah, yeah. You know, absolutely fair question, Amir. Absolutely fair question. But since we're in the midst of it, I don't know if I want to discuss all of those specifics, right? Like I said, and I said there are multiple levers. Obviously, you know, we are working on multiple things, and any of those could, yeah.
spk01: Understood. I think all my other questions were answered, so thank you very much. Thanks, Amir.
spk02: Thanks. Thanks, Amir. And the next question is a follow-up from Josh Sigler from Cantor Fitzgerald. Please go ahead.
spk09: Hi, great. Thanks for taking my follow-up. I just wanted to, you know, turn focus over towards one of the growth drivers of the business here, the digital asset group. So, you know, given the outsized growth you have experienced this year in DMR and DriveSign, do you expect the digital asset group to be a larger part of the mix as we move into 2022? And how do you expect that to impact your margins just on a higher level? This is Ron.
spk03: Let me give just a walk through that. So I won't talk about the numbers, but what I do talk about is the adoption. And this is really what we've been doing since the beginning of the year with both DMR and anything that's one of the platforms within the digital asset group. So whether it's DrySign or DMR, we have eagerly been watching the growth quarter over quarter of new users. So as we have seen that adoption rate exceed anything we imagined, we look at that and for 2022 we see this expanding not only in just the number of users but in the geography and the presence and also some additional features or products. So we're very excited about that. Right now I think DAG was 8% of our revenue so It would be an expectation that that would become a larger contributor, and it is one of our higher gross margin business units. So we're very excited about where that will take us.
spk09: Great. That's very helpful. And then, you know, just diving a little bit further into that, can you provide an update on the SMB sales force and how that's been progressing? Sure.
spk03: Yeah, I think we mentioned we've been picking up some new talent as we go along the way. Part of the challenge in this market is to find those folks and be able to secure them. But we've had a lot of success in all of our geographies. And as we launch in 2022 and continue through the rest of this year, I think you'll be able to see through press releases or announcements things that we've had success with. So we're We're very excited about the folks in leadership in terms of what they're doing to drive the new sales and just the general adoption itself. It's a great comfort to us in our look at the strategy for 2022. Great.
spk11: Thank you very much, Ron.
spk13: Thank you.
spk02: And the next question is also a follow-up from Zach Cummins from B. Riley Securities. Please go ahead.
spk10: Yeah, thanks for taking my follow-up questions. Just wondering, to help me bridge the gap of the expected debt pay down, I think you outlined $355 million in expected debt pay down. Is that already including the $95 million that you have paid down year to date? I'm just looking at the tender offer, assuming that $250 million of debt can be retired with cash. So I'm just trying to bridge the gap there in terms of your plans to hit that debt pay down target.
spk06: It does not include 95 already.
spk13: It does not. It's an addition.
spk10: Understood. That's helpful. And then, finally, can you just give me an update on the cost savings plan at this juncture and kind of where you're at right now and what you can expect to start flowing through the model next year?
spk06: Hey, sorry, quick follow-up. The 355 are what you're talking about. It includes the 95.
spk11: Okay, thank you.
spk10: So it includes that 95. Got it. And just on the cost savings plan.
spk06: Cost savings plan, this 12.5 million of cost savings is items that are either executed at the end of Q3 or in process in Q4. We had some equipment and lease savings executed late Q3, so it'll start flowing through in Q4, and then we have another basket that we are executing in Q4. These are very specific initiatives that we are going after this quarter.
spk10: I understand. That's helpful. Thanks for taking my questions. No problem. Thank you.
spk02: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Ronald Cogburn for any closing remarks.
spk03: Thanks, Operator. And once again, thanks to everyone today for participating in our call. And thanks for the questions. And as always, if you feel like you have other questions you'd like to ask, feel free to reach out to our investor relations group, and we'll be glad to get back with you. Thank you, and we'll see you again next quarter.
spk02: And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now
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