Quisitive Technology Solutions Inc.

Good afternoon and welcome to Quisitus' fourth quarter and full year 2023 earnings conference call. Joining us for today's call are Quisitus Chief Executive Officer Mike Reinhart and Chief Financial Officer Scott Merriweather. Following their remarks, we will open the call for your questions. Before we begin today, I'd like to remind everyone that during the conference call, management will be making statements that contain forward-looking statements within the meaning of applicable Canadian securities legislation. Please refer to the company's forward-looking information disclaimer statement, which can be found on the notice for this call, the website, and the fourth quarter and full year 2023 earnings release. Now, I will turn the call over to Mike Reinhart. Sir, please proceed.

Thank you, Operator, and good afternoon, everyone. We appreciate you taking the time to join our Q4 and full year 2023 earnings call. The latter half of 2023 and the beginning of 2024 marked a transformative time for our company. This period was defined by the divestiture of our payment segment, including the sale of PayIQ and BankCard, and more importantly, the strategic refocusing of Quisitive as a premier cloud and AI solutions provider. In 2023, we conducted a detailed assessment of Quisitive, including our payment segment, to reevaluate our mission and strategic direction. This comprehensive review made it clear which path we needed to follow to enhance shareholder value. Consequently, the rapid divestiture of PayIQ and BankCard was a strategic and essential move. This decision not only reduced risks, but also curtailed volatility and significantly boosted our balance sheet. I am pleased to announce that effective today, the company has successfully canceled 133.1 million shares following the sale of Bank Card. This reduces the total number of outstanding shares to 275.9 million, marking a 33% reduction. By making this strategic move, we can streamline our efforts, resources, and attention to our cloud and AI business, reinforcing our status as a leading provider of Microsoft solutions. This refocusing was essential for positioning the company as a leader during a significant transformation in the IT sector where AI plays a central role. Almost every company is now discussing, introducing, and integrating AI, viewing it as a catalyst for new investments, and it is becoming a vital driver for future IT services revenue growth. Microsoft is the clear leader in AI. Inquisitive's cloud offerings, including data, modern applications, and security are foundational to their AI strategy. Inquisitive, by returning to its roots as a dedicated cloud and AI solutions provider, is positioned to capitalize on its strong partnership with Microsoft, enabling comprehensive readiness, assessment, and deployment strategies for AI solutions, including capabilities with Copilot. Considerable investments have already been allocated, including the formation of a new AI-focused sales team, strategic senior hirings, and collaborative development of go-to-market strategies alongside Microsoft, to name a few. Quisitive is well-positioned to capitalize on this industry inflection point. with a promising growth outlook ahead as we leverage our core foundation and partnership with Microsoft. First, I will pass it to Scott to review our full year and Q4 2023 financial results. After his insights, I'll discuss the future trajectory of Quisitive and highlight the strategic actions we've implemented in the fourth quarter and recent months to set the stage for success. Scott?

Thanks, Mike. and thank you to all who are joining us for today's call. To reiterate Mike's message, we are proud of our recent strategic moves and the pace in which they were accomplished as we strengthen our position for the future. After experiencing professional services demand weakness through the first half of 23, our revenue within our cloud business has stabilized. We made appropriate changes to our cost structure to align to market demand, and our gross margin profile is well positioned for future growth and in comparison to our peers. Before we move into the financial results, I want to take a moment to discuss the changes in presentation to our financial statements. Resulting from our decision to divest our payment segment, we have presented all of our payment activities within discontinued operations and assets held for sale. The face of our income statement and our 1231.23 balance sheet now present only the activities for our cloud segment and corporate expenses as a continuing operation. There is no allocation of corporate expenses, interest, or other similar charges to the legacy payment segment. Consequently, all the corporate expenses that supported both our cloud and payment segments are presented within the continuing operation, and it is arguable that the historic cost structure is overburdened for the remaining cloud company. Our 2022 results have been restated to present the discontinued operation, and we have updated the quarterly tables within MD&A to present the discontinued operations. Given the strategic refocusing of the company and the accompanying presentation of the financials for the continuing operations, The remainder of the financial discussion will focus primarily on their continuing cloud operations, including comparisons to the prior year as restated. Revenue within the global cloud solutions was $28.4 million, or a 12% decrease from last year and a 7% decrease from Q3. In our last earnings call, we noted that cloud revenue had stabilized from Q2 to Q3 of 2023 and that we expected similar revenue trends in Q4 after adjusting to the normal holiday seasonality. Our cloud revenue expectation held true in Q4, and we are seeing similar revenue stabilization in Q1 of 2024. Year over year, cloud revenue was down 15% in Q2, 15% in Q3, and 12% in Q4. We expect the first half of 2024 to be relatively flat to the run rates at the end of 2023, with modest growth picking up in the back half of 2024 as AI-driven projects begin to ramp up. When compared to all other quarters during the year, Q4 revenue experiences the strongest seasonal impact, given the holidays. I noted that revenue decreased 7% from Q3 of 23 to Q4 of 23. Revenue experienced a similar drop in 2022, as we saw revenues decrease more than 10% from Q3 to Q4 in 2022. In Q4, we have less billing dates available, greater pay time off is taken, our customer availability is reduced, and there is general avoidance of new products archived by our customers during the holiday period. During the COVID pandemic, the historic trends of the seasonal decline were muted, but we have experienced a return to historic seasonality the last few years, and we can expect the seasonal trend to continue going forward. Although we experienced a weakened market demand for professional services revenue last year, we have seen continued growth and expansion within our recurring revenue. Recurring revenue for fiscal year 22 was 31% as a percentage of revenue. In fiscal year 23, recurring revenue increased to 38% of revenue, strengthening throughout the year. The increase has been driven by our expanding many services activity, as well as increased licensing revenue. Overall gross margin in Q4 of 23 was 12.1 million, which was down 0.7 million or 5% from 12.8 million in Q4 of 22. The most indicative financial metric that best depicts the progress made within cloud operations is our gross margin percentage when compared to revenue. Gross margin as a percentage of revenue increased to 42% from 39% in Q4 of 22. Gross margin increased to $25.2 billion or 43% of revenue in the second half of 23 from $23.6 million or 38% of revenue from the first half of 23. The share mining of our cost structure during fiscal year 23 and increased recurring revenues is seen in our gross margins. Adjusted EBITDA for our continuing operations was $2.8 million in Q4 of 23 down from $3.4 million in Q4 of 22. EBITDA margin decreased to 9.9% in Q4 of 23 from 10.4% in Q4 of 22. EBITDA margin increased to 7.7 million or 13.1% of revenue from H2 of 23. For H, for the second half of 23, EBITDA was 5.2 million in the first half of 23 or 8.4% of revenue. Given the significant cost reductions made within the continuing operations during 2023, Along with the impact going forward of the bank card and PIQ divestitures, the corporation believes pro forma adjusted EBITDA is a helpful measure to understand our run rate performance for 2023 and as a comparison measure for future periods. Pro forma adjusted EBITDA was $16.4 million, or 14% of revenue, for fiscal year 2023. Pro forma adjusted EBITDA further adjusts our adjusted EBITDA by adding back $0.4 million in certain cost savings, primarily corporate insurance, realized by the continuing operation following the divestiture to pay IQ and bank card. It also adds back $4.2 million of headcount reductions, as if the savings from those reductions had been realized as of January 1st of 23. Offset against these savings is the removal of the $1.2 million benefit of variable compensation and bonuses that were recognized during the year, which effectively reduces the pro forma adjusted EBITDA. In order to achieve our strategic goals, we need to further invest in our AI teams and our sales team expansion in fiscal year 24. As a result, we don't expect our margins to grow in fiscal year 24 from our current run rates. Quickly on payments, the payment segment had a weak fourth quarter. Payments contributed 11.1 million of revenue in the fourth quarter of 23, which was down 2.4 million or 18% from Q4 of 22. Revenue was sequentially down 2.6 million or 19% from Q3 of 2023. The payment segment contributed 1.9 million of EBITDA, its lowest total ever, as compared to 4.7 million in Q4 of 2022. Moving to the balance sheet, at December 31st, we had 7 million of cash on hand. Our term loans were 68.6 million. We amended and restated our credit agreement with the close of the bank card sale. As part of that transaction, we paid down our credit agreement to a new outstanding balance of 34 million. Our next quarterly pay down will be June 30th and will be a payment of $850,000. After the bank card transaction, our leverage ratio was approximately 2.1 times. All of our debt is classified as current at December 31st, as we were not in compliance with the financial covenants. Q4 is weaker seasonally for the cloud segment, and this was exacerbated by the weakness experience of the payment segment in Q4 that I previously noted. We also had excess operating expenses related to the divestitures. Any risks related to our credit facility status were remediated with the bank card sale and the amended credit agreement, and our financial position is significantly improved after the bank card divestiture. After the sale of PayIQ, our capital expenditure run rate dropped significantly. We expect capital expenditures will be approximately $3 billion annually for the continuing operation, and they will be relatively even every quarter. Due to the presentation of assets held for sale, we had a working capital surplus that was offset by the current presentation of the entire credit facility. After the bank card sale and amended credit facility, our debt will go back to its historical presentation and the outstanding earnouts will be settled. We've also paid the outstanding major earnouts at this time. Our working capital should be in a surplus position moving forward. One other note related to our credit facility, the current weighted average interest rate on our term loans is 7.96%. We are reiterating our guidance for fiscal year 2024 for the continuing operation. with fiscal year 2024 revenue being a low of $123 million and a high of $137 million, and fiscal year 2024 adjusted EBITDA with being a low of $15 million to a high of $18 million. This concludes the financial section of this call. With that, I'll turn the call back over to Mike for his discussion of our vision and strategy for 2024. Mike? Thanks, Scott.

Before I share some of the strategic initiatives we've undertaken in recent months, I want to reaffirm Quisitive's identity following our divestiture. Quisitive stands as a premier specialized provider of Microsoft Cloud and AI solutions. As a key partner of Microsoft, we possess comprehensive expertise in their offerings, providing more than just broad cloud solutions. We also offer technical guidance and strategic consulting. We pride ourselves on delivering custom solutions that are tailored to align with our customers' industry-specific and business objectives. These solutions not only represent best practices in technology implementation and security, but also provide managed services and support to ensure customer success. Aligned with our refreshed vision for the organization, we have made strategic investments to position ourselves for success. This includes strengthening our workforce by recruiting top tier talents such as Dan Coons, our newly appointed EVP of cloud delivery, appointing Lane Sorgen as the EVP of our sales and marketing organization. Additionally, we have brought on board a VP from a competitor, Jimmy Ledbetter, to spearhead our AI vision and strategy, ensuring the integration of these capabilities across our cloud service offerings. We are also actively enhancing the skills of our existing team members in industry expertise and AI capabilities. We've also made investments to deploy Microsoft Copilot internally to optimize our own operations. And we are developing AI accelerators to help our customers quickly deploy proof of concepts and discover the value of AI. As we discussed during our last earnings call, the growing demand for AI services and solutions within the cloud ecosystem has sharpened our focus and driven our investments in this area. We formed the Quisitive AI Black Belt sales team to synchronize with Microsoft's strong go-to-market strategies to help Microsoft meet their goals to deploy co-pilot on every device, establish principle-driven governance and security for their customers, and deliver an Azure AI services design win in every account. As Scott mentioned, we're committed to further investments in this area as we anticipate fully realizing the ROI from these strategic investments and initiatives beginning in the latter half of 2024 and into 2025, particularly as AI opportunities and projects gain momentum. We continue to have strong customer retention and expansion in our growing Azure and security managed services. Additionally, we are broadening our managed services to help clients incorporate Microsoft Copilot into their operations. These capabilities are fundamental to expanding our recurring revenue and increasing wallet share per customer. We have developed AI adoption workshops to assist our customers in crafting a thorough AI-informed strategy that aligns with their business objectives, including sessions on AI innovation, governance, and incubation. In collaboration with Microsoft and in line with their goal to deploy Microsoft Copilot on every device, we have established joint solutions for assessment, readiness, and quick starts. These are designed to expedite effective M365 co-pilot deployment and adoption for Microsoft. Additionally, we are utilizing Microsoft funding programs associated with these offerings to activate co-pilot for both existing and new customers, thereby stimulating demand. This funding from Microsoft not only underscores our trusted relationship, but also accelerates customer acquisition and reduces the company's sales cost as we develop our pipelines. Quisitive's data solutions, which feature proficiency in Databricks and Microsoft Fabric, establish us as a comprehensive cloud partner for both industry and AI solutions. Fabric provides an integrated approach to data analytics, making a vital platform for organizations aiming to harness their data's value and prepare for AI integration. As an early adopter of Fabric, Quisitive has implemented one of the inaugural showcase projects in healthcare. and our team had the opportunity to present at the Microsoft Fabric Conference in March. Moreover, we maintain our strong industry alignment, leveraging our expertise in healthcare, state and local government, and manufacturing as these sectors navigate the transformations brought about by Microsoft Cloud Dynamics platforms. We continue to witness demand for ERP and CRM projects, utilizing our dynamics expertise across manufacturing and healthcare, including our MacyCare healthcare solution. We recently introduced embedded AI tools within the MacyCare platform through our MacyCare co-pilot offering. This industry leading module was unveiled at the HIMSS conference in the Microsoft booth, where it received favorable feedback from industry leaders and sparked numerous promising discussions with healthcare organizations throughout the sector. As we approach the final months of Microsoft's fiscal year, our commitment to ongoing collaboration with Microsoft remains steadfast as they strive to achieve their goals, and we together lay the groundwork for a strong future partnership ahead. The team and I are energized by the renewed focus within the business, the growing AI wave, and Quisitive's readiness to make an impact at scale. Regarding mergers and acquisitions, while there is definitely potential for such opportunities in the future, we are grounded currently and focused on our organic growth in our cloud and AI business. Quizzit's core offerings in cloud services and solutions for data, infrastructure, and security, along with modern work and business applications, are complemented by an evolving AI strategy. This includes copilot deployment and management, customized copilot solutions, leveraging Azure AI services, and responsible AI governance and operations. As a unique partner with Microsoft, we are well positioned to be a leader in the Microsoft ecosystem in this new era of IT services. With the right investments, vision, personnel, and strategy in place, we are confident in the financial potential that lies ahead. We thank all our shareholders and supporters who have joined us on this call. We are now ready to open the call up for questions. Operator?

Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, as a reminder, each analyst will be limited to a maximum of two questions. One moment, please, while we poll for questions. Our first question comes from Christian Escrow with Eighth Capital. Please go ahead.

Hi, good afternoon, and thanks for taking my questions. You provided a lot of context on the growing dynamics with Microsoft. I want to dig in a little bit deeper into that relationship through this year with their AI focus. Aside from some of the support you called out, has their incentive structure or has their messaging to you as Quisitive changed at all in the recent months or weeks?

Well, obviously there's a, uh, if you, you can't show up at anything at Microsoft without it being AI centered, right? You've listened to their earnings call and, and the focus they have on AI and what they're doing in the marketplace. So you'll see as they finish out their year, there's a set of things they're doing to begin to activate, you know, that a lot of the copilot and other things just became generally available early this year. So you're starting to see that momentum build and you're seeing increasing alignment of incentives. Go-to-market motions, marketing dollars, everything they do is aligned to activation of Copilot, Azure AI services, and bringing all those things together. Now, the great point, Fabric is a key component of that on the data side. And what we're seeing, and really is an important piece to this, is in order to make all that happen for Microsoft, they need all the capabilities that we bring across infrastructure, security, data, AI, modern apps, to bring all of that to life. because that's actually the core and the foundation that needs to be established to bring that together. But clearly we're already hearing that in FY25 that begins in July, there'll be an even further emphasis by Microsoft in terms of how we're positioning to help them activate AI, which is why we're making the investments and doing the things we're doing to be sure that we're a thought leader with them in that motion.

I got it. Thank you. And for my second question, more mechanically on the size of the team within your cloud business. Could you comment on the size of your professional services team, Mike, and then your capacity looking out this year to handle the demand?

Yeah. So our total cloud business has about 800 team members globally of those about 60% or so are focused on professional services related things. And then the balance are a combination of certainly we've got people that are sales, marketing, but also all of our managed services offerings and working on our products like Macy's Care and M Performer and all those kinds of things. But about 60% of that capacity is professional services related.

Great. Thank you for taking my questions. Thank you.

Our next question comes from the line of Rob Goff with Echelon Wealth Partners. Please go ahead.

Thank you very much for taking my question. While it might seem a long time ago, just looking back to Q3, following the Q3 results, you talked about the signing of, I think it was $6 million plus IT solution contracts. Can you talk to your sales pipeline and momentum that you're seeing there?

Yeah, I mean, we continue to see pipeline driven. What's interesting is pipeline driven across kind of traditional IT services, whether it's data initiatives, certainly ERP with our IP as a complement is something that is very much a strong pipeline for us. So one of our unique value propositions to Microsoft in healthcare and manufacturing for that matter is not only our deep expertise in their dynamics platforms, but our unique IP offerings around our shop floor solutions, and other kinds of things. And as we're bringing those, those are driving substantial opportunities both across our software licensing capabilities, services for implementation of these complex solutions, and then streamlined managed services as the backside of that. And that's where you're seeing those large deals come in, and we continue to have a strong pipeline there. Outside of that, we're seeing pipeline in various forms, but increasingly an element of that is about AI and how AI is going to create business outcomes for customers. And then what do they have to do to actually be able to take advantage of AI? One of the biggest challenges is infrastructure and security, having data in the proper structure for security purposes and others. to make sure that all of that is managed well inside of enterprise as you start to unlock services around generative AI and others. Additionally, getting the data estate well established to be able to service what you're trying to do with custom co-pilots and other AI-related things is a big initiative. And that's where the whole fabric offering that Microsoft is bringing, as well as some of the work we're doing at Databricks, is a key component of that that companies need to establish and put in place. We're seeing a growing pipeline. So we're seeing strong pipeline, obviously, and all the things around Microsoft Co-Pilot and deploying that. Lots, it's one of our largest pipelines. Strong pipeline in our industry solutions and all the things we're doing on that front with Dynamics as well as our healthcare and other products. And then certainly from a data perspective, seeing significant work with customers to help them be ready to start to do things with AI, but getting their data estate well established.

Okay, thank you. And I think taking on Christian's questions with respect to the professional services, were your professional services revenues constrained in any way by labor capacity? And on the same thing of labor, would your EBITDA guidance for the year include further efficiencies?

So related to that, if you remember last year, there was obviously demand pressures for professional services across the IT industry, and we certainly felt that. So reduction of our labor force was the cost efficiencies that we created where we had excess capacity for the market demand, and we've right-sized that now. that relates to your first question about was there some constraints. The constraints were not because we couldn't hire or do any of that stuff. The constraints on professional services related to customer demand in the industry. We don't have an issue hiring talent, and we have both strong offshore capacity as well as domestic opportunity to build and hire. That is not a constraint for us. Certainly, there'll be some challenges with AI-related resources, but that's why we're investing in our internal team. You really got to develop those people. You can't rely on the market to provide those. In terms of efficiencies, those efficiencies were mostly garnered through the processes that we did last year. There are some other efficiencies as we start to do things, leveraging Copilot and other kinds of AI offerings internally to help us drive higher output with less resources. Certainly as we grow, we believe AI, like other companies, will reduce the need to add additional overhead costs or other kinds of things as we scale and grow revenue. But most of the, I'll call it, cost takeout efficiencies have occurred.

Thanks, Mike. Good luck. Thank you. Thank you.

Our next question is from the line of Jerome Dubroy with Desjardins. Please go ahead.

Hi, thanks for taking my question. The first one is a clarification from Scott. Just to kind of bridge a gap between what you expect in terms of pro forma AIDA and what we should be actually seeing in 2024, I think the net of the impact you were mentioning is approximately 3 million If I take that from mid-range of the guidance provided, is it fair to assume that 2024 EBITDA is going to be at roughly $13 million at the mid-range, just making sure our estimates are broadly in the right place?

No, no, that's not the guidance we provided. The numbers we cited earlier were the 2023 numbers, but as far as 2024, we're still holding to our guidance that we previously published. So stating the low end of the guidance being 15 million and the high end being 18 for 2024.

Perfect. Thank you. Another thing that I'd like clarification on that you mentioned on the call, you mentioned something along the lines of the remaining structure is overburdened for the remaining cloud accompanies. Cloud company, do you mean that it was overburdened in the results presented in the quarter or that the existing structure that you have right now is too heavy for the remaining cloud company?

More for us, we look historically just as we look through discontinued operations. We had a corporate structure in fiscal year 22 and 23 that supported both our payments and our cloud side of the business. When you do the discontinued operations piece, you only carve out the two assets we sold. There's no allocation of any corporate costs. There are differences in the numbers we've provided. You'll also see in our filings related to the adjusted EBITDA quarterly for the continuing operation. It basically removes any allocation of corporate expense to the payments piece and puts it back to the continuing operation. Our corporate structure, as we now present the company within our financial statements, the entire corporate structure that was there to support the company the last few years is fully within that continuing operation. And therefore, the prior allocations, the payments are now brought back into the cloud company. So it penalizes cloud for the corporate structure that was also there to support payments. Going forward, we have... plans in place to continue to optimize our corporate expenses as needed. We also are continuing to provide some support through transitional services agreement to the PayIQ team, which helps subsidize some of the ongoing expense that we have at corporate that supported the payments team. That has not included any of our ad backs, but from a corporate perspective, that's just how the prior numbers are presented, and that's why I made the comment that it It overburns cloud historically for the structure we had.

Very clear. Thank you. Thank you.

Our next question is from Stephen Boland with Raymond James. Please go ahead.

Hi, guys. Maybe a couple of numbers questions, which I'll bunch into one if I can get away with that. So, Scott – First of all, actually, have the statements been filed? I can't find the statements anywhere on the site or any of the systems. Are those the MD&A?

All this will be in the MD&A. They're in process right now. I don't believe they've actually hit the filing yet.

But we will get them to us. Okay. Appreciate that. So you've given... the new share count. You ran through some numbers pretty quick. Again, what's your cash and your debt again post the sale? I guess it would be April 29th or whatever is equivalent. Sure.

From a debt perspective, it's $34 million. We were at 68.6 at year end. We paid down 34.6 to be paid down to 34. That's our current outstanding balance after the bank card transaction and moving forward. Cash at year end was $7 million. Closer to the transaction, we were in that $4.5 to $5 million range, and that was kind of our low point that we would expect. So we expect cash to hover around that $5 million mark as our low mark and building throughout the year back into the probably comfortably a run rate will be more in that $7 and $8 million range as we move forward.

And just, Stephen, just for your reference, and Stephen, your reference to everybody else, is we've updated an investor deck on our website, and there's a page in there that provides both that share count as well as cash position and things as of the sale of a bank card.

I appreciate that. That's the one tab I haven't gotten into yet, so I appreciate that. And, Mike, you know the guidance for 2024? I mean, you've always been pretty certain about your – you know, the pipeline, there is a fair range here in, you know, your revenue, obviously, you know, and you're, you know, we're at the end of April. So I would say, you know, we're past the third of the year. You know, what's, what's the range? I mean, is it, is it a few big contracts or is it, you know, just caution? Like what, what's driving that, that, I would say that bigger range in terms of the, of the revenue numbers.

It's really driven around the AI adoption that Microsoft realizes. At the end of the day, that's a big part of it. The expectation of growth and some of those kinds of things is highly correlated to that. Clearly, they're making good momentum there, and we expect that to be a big, big piece of the back half of the year. For companies really realizing and starting to do that. So that's really, you know, the biggest thing. The other kinds of service things are still, if you listen to Accenture and some of the other folks that have recently reported, they talked about kind of traditional IT projects. Some of those things still are constrained. And a big part of that is because when we talk to customers, they're saying, look, we're reserving some of that. what we would have used as discretionary projects and other kinds of things to say, look, we need to make meaningful investments to use AI as an accelerant for things that they need to do in the business and look at how they apply it. And they're starting to reserve some of that. So that's part of it that we think the first half here, we'll report Q1 soon, but as Scott alluded to in his, we're seeing it consistent with it on a stabilization, but we think the growth that we've got in that forecast is back half loaded. And if that delays a few months, then it changes it, right? I mean, we're confident it's going to happen. It's just, you know, how quickly is it later in the year? Because we do have the Q4 seasonality that we got to be mindful of that Scott also hit on that, you know, Q3 is going to be really the growth area. And then Q4 will have a little bit of softness again, just because of the professional services seasonality. Okay.

That's great. And we'll sneak one more in. Mike, did you say, could you explain that comment you said about, I think it was $3 million in CapEx annually, or it's improved by $3 million? Sorry, I just cut out there.

Yeah, that was mine. That's the expected run rate. Yeah, so if you... kind of forget everything that happened in the past. And when you remove payments for a 2024 perspective and the use of proceeds, use of funds, cash for investing, we expect about $3 million in CapEx for a fiscal year 24. And that should be a relatively static run rate for us.

Okay. I appreciate the updates, guys. Thanks. Thanks, Tim. Thank you. Our next question is from the line of Divya Goyal with Scotiabank.

Please go ahead.

Good afternoon, everyone. Mike, I just wanted a little bit more clarity on this basic care solution. I know you talked about it in detail. So it is a SaaS-like solution. I suppose that's a fair assumption. I wanted to understand what is the recurring revenue that you are anticipating from the solution here? And how do you plan to scale it?

Yeah, we don't report the licensing of that independently at this stage. What we report is our recurring revenues collectively, but it really provides a recurring revenue stream at very high margins, right? So the licensing component of it, it's typically sold on a seat-based multi-year contract that you might see from a SaaS offering, monthly multi-year contracts, the way the license is. It's highly coupled. with the deployment of dynamics typically or activation, and usually large services deals complemented with it. And so it not only brings value directly as a product, but because we have that, it creates significant project services, professional services work related to dynamics implementations around ERP and CRM and all those kinds of things as a component of it that also are a big catalyst for us. So we don't report it separately, but it's something that we continue to expand our license base, but also drive significant managed services and professional services as a result of having that product.

That's helpful. And just on the same topic, could you help us understand or quantify what is the size of clientele that are actually using Maisie Care solution or could potentially be using MacyCare co-pilot, are these smaller healthcare companies that you're working with, or would those be large-scale healthcare organizations for that matter?

Yeah, so related to, there are several modules within the MacyCare platform. The one that has the biggest footprint today is centered around care plan coordination. It's the piece that we built the co-pilot offering on. And that is certainly one of ours is a smaller company, Arthur Health, but they're actually working kind of with the Ontario Workers Network, as an example, which is the major provider of all workers comp in Canada. So while they're small, the engine that they're facilitating is quite big. And now all of that is running on our MacyCare platform. So it's targeted to physician networks and other auxiliary provider ecosystems. We also have a set of modules that are complementary in revenue cycle management and helping do supply chain management and other kinds of things for healthcare providers. And that does get into bigger providers, one of which is a division of UnitedHealth that is using that for some of the coordination work that they're doing on revenue cycle management. So there are components of it that kind of serve different industry needs. But on the patient care side, it's going to be that smaller mid-market. And some of the other offerings around care supply, revenue cycle management, it actually would likely be some of the larger organizations that we're working with to do that.

That's very helpful. Thank you. Thank you. Our next question is from the line of Gavin Fairweather with Cormac Securities. Please go ahead.

Hi, this is Graham on for Gavin. I just have a question on the gross margin. So they hit 42% this quarter. I was wondering what's kind of the pace of gross margin expansion that we can kind of expect from this point, given how strong they already kind of are being like an IT services business. I get you guys are getting some from some of the licensing. Maybe if you can just provide a bit of color on that front.

I think where we're at right now is a, It's about the ceiling of our expansion there. It could go higher as we expand our recurring revenue, and if we can get recurring revenue up into the mid-40s and maybe even up to 50%, which would be the ceiling we could ever really get our recurring revenue to, that would be the indicator for how quickly we can expand gross margins from a professional services side. We're not modeling or expecting any major expansion within our professional services size, so any expansion would come from that recurring revenue mix being the driver. So for the remainder of this year, I would – modeling and thinking about our gross margin, our current run rate is a solid run rate to use.

That's great. That's it for me. Thanks.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and 1. Our next question comes from the line of Jerome Dubray with Desjardins.

Please go ahead.

Yes, sorry, I'm back. I just wanted to see if there was an update on the pay IQ press or maybe just a quick refresher. I just want to make sure that the market doesn't forget about those in the valuation. Thanks.

Valuation will come on at pretty much close to face value around that $27 million. And so they'll just be held as an investment on our balance sheet. So that will be a minor amount that we'll include for value of future earnouts, but from the actual upfront purchase price piece, it'll be $27 million that'll move over and represents future value to shareholders potentially.

Great. Thank you. Thank you. Our next question comes from the line of Max Ingram with Canaccord Genuity.

Please go ahead.

Hi, this is Max on for Rob. Just one quick clarifying question. For the fiscal 24 guidance, that assumes the completion of the sale of PayIQ and BankCard happened on December 31st. Does that mean we would still have some contribution from, like, I think a BankCard for a full quarter? since it didn't close at the beginning of Q2. Am I thinking about that the right way?

You're correct on that. Our reporting will continue to show all of their operations in Q1 as discontinued operations, and so it won't be in the gross presentation of financial statements. But we did have their Q1 performance, their Q1 cash contributions, et cetera, for this part of the year. But all of our external reporting will just be for cloud and corporate expenses as we move forward. but they were within our operations for the first quarter of the year. But in our guidance, to confirm the note on guidance, as all of our reporting will be focused on the continuing operation, our guidance was for Cloud Incorporated and the continuing operation, and all the gross numbers and the financials will reflect that as well and will be what we compare against.

Okay, thank you. Thank you.

At this time, this concludes the company's question and answer session. If your question was not taken, you may contact the Visitive Investor Relations team at quis at gateway-grp.com. I'd now like to turn the call back over to Mr. Reinhart for his closing remarks.

Thank you, everyone, for joining us today. I especially want to express my gratitude to our employees, partners, investors, and customers for your support. We truly appreciate your continued interest in Quisitive and are committed to diligently working to maximize shareholder value. We look forward to reconvening in a few weeks to discuss our Q1 results.

I'll return it now back to the operator to close down. Thank you.

Ladies and gentlemen, thank you for joining us today for Quisitive's fourth quarter and four year 2023 earnings conference call. You may now disconnect.