Eric Martinuzzi

Eric Martinuzzi inquired about the reasons for the Q4 guidance being below expectations for the legacy business, specifically asking if the entire $1.05 million difference was due to AirDial pushouts. He also asked if the current customer behavior regarding AirDial installations, particularly the pushouts, represents a new trend compared to 12 months ago or if it reflects engagement with larger opportunities. Finally, he asked about Ooma's immediate post-close actions and intentions for integrating the FluentStream customer base.

Answer

CFO Shig Hamamatsu confirmed that most of the difference in Q4 guidance was attributable to AirDial pushouts, citing delays in customer deployment timing and new order timing, especially with larger accounts requiring longer proof-of-concept installations. CEO Eric Stang added that customers often delay rollouts until after the holiday season. Regarding FluentStream, Eric Stang emphasized a cautious approach, aiming to learn from and optimize the well-managed business, leveraging Ooma's scale for vendor relationships, AirDial cross-selling through FluentStream's channels, and combining R&D efforts, with the goal of optimizing over an extended period rather than rushing integration.

Eric Martinuzzi asked about the allocation of cash flow between share repurchases and M&A, and whether the full-year business growth guidance of 5-6% was conservative given recent performance.

Answer

CEO Eric Stang explained that while share buybacks are currently sensible, the company remains active in seeking strategic, tuck-in M&A opportunities. CFO Shig Hamamatsu clarified that the guidance reflects potential variability in the timing of AirDial installations in the second half, rather than concerns about incremental churn.

Eric Martinuzzi of Lake Street Capital Markets inquired about the sustainability of operating expense productivity, potential investment shifts, the persistence of the 72% subscription gross margin, and the productivity of AirDial partners.

Answer

CEO Eric Stang confirmed a gradual shift in sales and marketing spend towards AirDial and 2600Hz, with a long-term goal of lowering R&D as a percentage of revenue. CFO Shig Hamamatsu expects the 72% subscription gross margin to hold steady in the near term due to investments supporting AirDial growth. Stang added that the company is pleased with the contributions from its range of AirDial reseller partners.

Eric Martinuzzi from Lake Street Capital Markets asked about the sustainability of operating expense productivity, future investment areas, the outlook for the 72% subscription gross margin, and the productivity of AirDial reseller partners.

Answer

CEO Eric Stang explained that Ooma is reallocating sales and marketing spend towards AirDial and 2600Hz and continues to invest in R&D for feature enhancements. CFO Shig Hamamatsu stated that the 72% subscription gross margin should be stable in the near term due to infrastructure investments to support AirDial growth. Stang added that all reseller partners are contributing and the company is pleased with traction from its largest partners.

Eric Martinuzzi sought to quantify the impact of the IWG customer runoff on the Q4 revenue guidance. He also asked about the expected length of the delay for the Frontier partnership ramp-up following its acquisition by Verizon.

Answer

CFO Shigeyuki Hamamatsu explained that the IWG impact on Q4 guidance is not substantial, as half of the churn was realized in Q3 and IWG represents a low single-digit percentage of total revenue. CEO Eric Stang addressed the Frontier delay, stating that while the timing is now uncertain, the long-term opportunity remains significant and is now expanded to potentially include Verizon. He emphasized that a new win with a top-tier national cable company, which is eager to launch, helps mitigate the timing risk.

Inquired about the specific impact of IWG churn on Q4 revenue guidance and the expected duration of the delay in the Frontier partnership ramp-up following its acquisition by Verizon.

Answer

Executives stated the IWG churn impact on Q4 guidance is not large. Regarding the Frontier partnership, the delay is uncertain due to the Verizon acquisition, but the long-term opportunity remains significant and is now expanded to include Verizon. A new major win with a national cable company is expected to launch quickly, helping to balance the timing.

Eric Martinuzzi asked about the competitive environment for the recent ILEC win, the potential for similar deals to convert within the fiscal year, and the reason for the 13% full-year business growth guidance when Q2 growth ex-2600hz was 9%.

Answer

CEO Eric Stang noted that while the market is competitive, Ooma's solutions stood out on features and value, and that sales from this win will begin in the second half of fiscal 2025. CFO Shigeyuki Hamamatsu explained that the quarter-over-quarter trend in the year-over-year business growth rate was primarily impacted by its largest customer, IWG, where new seat additions have slowed compared to the prior year, affecting the year-over-year comparison.

Eric Martinuzzi from Lake Street Capital Markets asked for clarification on the Q3 billing shortfall, specifically whether it was due to a few large transactions or multiple mid-sized deals. He also questioned Domo's planned investment areas for FY27, particularly regarding OpEx run rates in R&D and sales.

Answer

Josh James, Founder and CEO of Domo, clarified that the Q3 billing shortfall was due to a number of medium-sized deals slipping, not just a few large ones, primarily because of extended partner sales cycles. He and Tod Crane, CFO, stated that while there will be strategic investments in FY27, they also anticipate increased efficiency through internal AI adoption, committing to the 10% growth and 10% operating margin guideposts.

Eric Martinuzzi inquired about the nature of the Q3 billing shortfall, specifically whether it was due to a few large transactions or multiple mid-sized deals. He also asked about planned areas of investment for FY27 in OpEx, R&D, or sales.

Answer

Josh James (Founder and CEO, Domo) clarified that the Q3 billing shortfall was due to a number of medium-sized deals, not just one or two large ones, primarily because partner sales cycles are longer. He reiterated confidence in Q4 due to higher visibility from multi-year contracts. Tod Crane (CFO, Domo) stated that while there will be investment areas in FY27, Domo also seeks efficiency through AI and internal product use. He emphasized commitment to the FY27 guidepost of 10% billings growth and 10% operating margin, investing within those constraints.

Eric Martinuzzi of Lake Street Capital Markets asked about any observed differences in buying behavior between large enterprise customers and smaller customer cohorts.

Answer

CEO Josh James explained that the primary difference is that enterprises require alignment with their established data strategies and 'blessed' vendors. He noted that partnering with approved CDWs and hyperscalers, and enabling purchases through their marketplaces, has been crucial for accelerating deal velocity with these larger customers.

Eric Martinuzzi from Lake Street Capital Markets inquired about the pricing strategy for consumption-based contract renewals, whether consumption cohorts show higher adoption of new AI products, and the underlying factors supporting the guided billings growth acceleration in the second half of the year.

Answer

CRO RJ Tracy explained that the consumption model naturally aligns customer cost with value; as customers adopt more features like AI and derive more value, their usage increases, leading to larger contracts. He confirmed that consumption-based customers are significantly more likely to adopt new technologies because the model removes paywall barriers to experimentation. CFO Tod Crane stated that the confidence in achieving the 5% billings growth exit rate is based on a comprehensive analysis of pipeline trajectory, rep productivity, and historical trends.

Eric Martinuzzi of Lake Street Capital Markets questioned the Q4 billings guidance, which implies a year-over-year contraction, and asked if the positive momentum from partners and AI would lead to growth in fiscal 2026.

Answer

CFO Tod Crane declined to give fiscal 2026 guidance but reiterated optimism from partner pipeline momentum. CEO Joshua James explained the company is intentionally reallocating resources from short-term lead generation to its long-term ecosystem strategy, optimizing for future billings rather than the current quarter. Crane added that sales capacity was intentionally reduced to focus on reps with the right skills for this partner motion.

Eric Martinuzzi of Lake Street Capital Markets noted the Q4 billings guidance implies a 4% year-over-year contraction and asked if a return to growth is expected in fiscal 2026, given the positive momentum discussed, or if the guidance was simply conservative.

Answer

Chief Financial Officer Tod Crane declined to provide fiscal 2026 guidance but reiterated optimism based on partner pipeline momentum. Founder and CEO Joshua James clarified that the company is intentionally reallocating resources from traditional marketing to the ecosystem channel to optimize for long-term, durable growth over near-term billings. He expects to offer more clarity on the fiscal 2026 growth outlook on the next earnings call. Tod Crane also added that sales capacity is intentionally lower as they build a core team skilled for the partner motion.

Eric Martinuzzi questioned the key reasons for the substantial reset in the full-year billings guidance and asked for an explanation for the projected increase in Q3's non-GAAP net loss per share compared to Q2, despite similar revenue guidance.

Answer

CEO Josh James attributed the billings guidance change to a strategic reallocation of resources. Seeing strong early results from the CDW strategy, the company shifted sales personnel to focus on building partner relationships, a move that optimizes for long-term growth over near-term billings. CFO David Jolley explained the higher Q3 loss guidance is due to planned investments, including backfilling some positions that were open in Q2, while continuing to align the overall cost structure with performance.

Eric Martinuzzi questioned the key reasons for the significant downward revision of the full-year billings guidance and asked for an explanation for the projected increase in non-GAAP net loss per share from Q2 to Q3.

Answer

Founder and CEO Joshua James attributed the billings guidance reset to a strategic decision to reallocate resources towards building the partner ecosystem, which prioritizes long-term growth over short-term billings. CFO David Jolley explained that the higher projected Q3 loss reflects plans to backfill some positions after moderating costs in Q2, while continuing to align the overall cost structure with financial performance.

Eric Martinuzzi of Lake Street Capital Markets questioned the pricing strategy for consumption-based contracts upon renewal, asking if price increases are a factor or if growth is purely from increased usage. He also asked if consumption-based customers are more likely to adopt new AI products and sought clarity on the confidence behind the implied acceleration in billings growth in the full-year guidance.

Answer

CRO RJ Tracy explained that the consumption model's growth is driven by helping customers find more value and solve more use cases, which naturally increases usage and leads to discussions about better rates at higher volumes. He confirmed that consumption customers are 'a lot more likely to adopt' new features like AI because the platform is open, removing paywall barriers. CFO Tod Crane stated that confidence in the billings growth acceleration is based on a combination of factors, including pipeline trajectory, quality, historical trends, and rep productivity.

Eric Martinuzzi from Lake Street Capital Markets asked CFO Tarek Robbiati about the expected skewing of R&D and sales & marketing investments in FY27, specifically whether it would be abnormally back-half loaded compared to the FY26 distribution of non-GAAP operating profits.

Answer

CFO Tarek Robbiati stated that while FY27 planning is ongoing, Pure Storage aims to sustain current growth, requiring investments in R&D, sales & marketing, and back-office systems. He assured that OPEX lines as a percentage of revenues would not see "material disruption," though dollar amounts would increase.

Eric Martinuzzi from Lake Street Capital Markets asked about the expected skewing of R&D and sales & marketing investments in fiscal year 2027, specifically if it would be more back-half loaded compared to fiscal year 2026's distribution (34% in H1, 66% in H2).

Answer

CFO Tarek Robbiati stated that while planning for fiscal year 2027 is ongoing, the goal is to sustain growth levels seen in fiscal year 2026, which necessitates increased dollar investments in R&D, sales & marketing, and back-office systems. He clarified that there wouldn't be a material disruption to these OPEX lines as a percentage of revenues, though the absolute dollar amounts would increase.

Eric Martinuzzi from Lake Street Capital Markets asked for clarification on replacing SSD-based environments at hyperscalers, questioning if this meant a 'rip and replace' strategy or a focus on new builds.

Answer

CEO Charles Giancarlo explained that hyperscalers do not typically 'rip and replace' components but rather perform full data center refreshes every five to seven years. He clarified that Pure's opportunity is in these new builds, where its Direct Flash technology can replace both hard disk and traditional SSD designs to provide superior performance, reliability, and durability across all storage tiers.

Eric Martinuzzi questioned the nature of the deepened Kioxia relationship, asking how it works if Pure is not selling hardware to the hyperscaler and whether this arrangement means Pure is being disintermediated from the hardware supply chain.

Answer

CEO Charles Giancarlo clarified that Pure is not being disintermediated; it maintains the relationship with all NAND vendors, handling qualification and the design of the DirectFlash modules. The hyperscaler's integrator will purchase the hardware modules. CTO Rob Lee added the collaboration with Kioxia is also technological, involving co-designing modules with their latest NAND for the customer.

Eric Martinuzzi requested more detail on the commentary about a 'modest strategic decline' in product gross margin for the second half of the year.

Answer

CFO Kevan Krysler described this as a positive development, reflecting the success and strong sales momentum of the E family and FlashArray//C solutions. These products target cost-sensitive workloads and carry lower margins, and their success in displacing disk is driving the expected modest margin decline, which is in line with the company's strategy.

Eric Martinuzzi inquired about the projected Q4 growth rate, which appears lower than Q3, asking if this reflects conservatism. He also questioned if the street's 11% double-digit growth consensus for 2026 should be adjusted downwards based on current Q4 trends.

Answer

CFO Elad Tzubery confirmed a conservative approach for Q4 due to the upcoming holiday season. Regarding 2026, he stated that the company aims to capture significantly more market share, expects to beat street expectations, and will continue to see growth engines outperform the market, supported by investments in efficiency and business scaling.

Eric Martinuzzi questioned the implied sequential growth rate for Q4 2025, which appeared lower than Q3 2025, and asked if the current street consensus for double-digit growth in 2026 should be adjusted based on Q4 trends.

Answer

CFO Elad Tzubery indicated that the Q4 2025 guidance reflects a conservative approach ahead of the holiday season. For 2026, he stated that Perion aims to capture significantly more market share and believes it will exceed street expectations, driven by outperforming growth engines and increased investments for scaling Perion One.

Eric Martinuzzi asked about the 5% decline in Connected TV (CTV) revenue, questioning if it was a broader industry trend or specific to Perion, and inquired about any changes in advertising campaign lengths due to economic uncertainty.

Answer

CEO Tal Jacobson explained that the CTV dip was not an industry-wide issue but a result of budget shifts to other formats in Q2, with those budgets expected to return in the second half. He emphasized Perion's channel-agnostic strategy focused on CMO outcomes and noted the new Performance CTV solution should boost future results. He also stated there have been no significant changes in campaign lengths or concerns about tariffs.

Eric Martinuzzi sought clarification on the updated guidance, asking for a specific breakdown of the revenue and EBITDA increase attributable to the Greenbids acquisition versus the core business, and also requested Greenbids' 2024 financial performance.

Answer

CEO Tal Jacobson and CFO Elad Tzubery explained that they would not break down the guidance contribution due to immediate synergies making the businesses difficult to separate. Tzubery did state that Greenbids' 2024 revenue was in the 'low double-digit' millions with 'low single-digit' million EBITDA. They clarified that while technology integration is immediate, the full financial impact will accelerate in 2026 as they scale the acquisition in the U.S.

Eric Martinuzzi questioned the slowdown in CTV growth from 30% for the full year to 10% in Q4 and asked about the growth rate baked into the 2025 forecast. He also requested clarification on the expected free cash flow conversion from the 2025 adjusted EBITDA guidance.

Answer

CFO Elad Tzubery explained that some Q4 CTV budget dollars shifted to digital out-of-home, impacting the quarterly growth rate. Both he and CEO Tal Jacobson stated they expect to continue outperforming the market in CTV growth on an annual basis in 2025. Regarding cash flow, they clarified that the conversion from EBITDA is expected to return to historical norms in 2025, resulting in a free cash flow figure much higher than 2024's and close to the adjusted EBITDA number.

Eric Martinuzzi of Lake Street sought clarification on the Microsoft contract, specifically asking about the duration and expected revenue contribution from the 'tail' period in 2025, following the confirmation that the contract will not be renewed.

Answer

CFO Elad Tzubery confirmed the contract has a tail clause allowing users to continue with the Microsoft engine through Perion until the end of 2025. However, he noted that user churn is expected, and while it will contribute to 2025 revenue, the exact forecast is not yet available. He agreed that an assumption of less than 2% of full-year revenue was reasonable but promised more accuracy next quarter.

Eric Martinuzzi from Lake Street Capital Markets inquired about Quantum's product strategy, specifically asking if there are planned changes in emphasis or go-to-market for products like DXi, Myriad, or ActiveScale. He also questioned the filling of open management positions and the timing of operating expense reductions.

Answer

Quantum's CEO, Hugues Meyrath, stated that the company will push DXi hard, sees opportunities in ActiveScale cold storage for long-term data retention, and plans more investments in StorNext, particularly the Ethernet IP version. He also indicated no radical changes are expected for the management team. Chief Accounting Officer, Laura Nash, clarified that operating expense reductions from Q1 restructuring and early July changes are expected to largely materialize in fiscal Q2, alongside the absence of certain non-recurring Q1 expenses.

Eric Martinuzzi from Lake Street Capital Markets asked for details on the mechanics of the standby equity purchase agreement with Yorkville and inquired if the manufacturing headwinds impacting guidance were a continuation of prior issues or related to tariffs.

Answer

Chairman and CEO Jamie Lerner described the equity agreement as a strategic tool to raise capital efficiently for debt reduction and growth initiatives, noting no specific actions have been announced. CFO Ken Gianella added that the Board and financial advisors would guide its use. Regarding headwinds, Lerner explained they stem from manufacturing the new i7 product, managing long lead times for parts, and navigating potential tariff and geopolitical uncertainties.

Eric Martinuzzi from Lake Street Capital Markets asked about the mechanics of the standby equity purchase agreement with Yorkville and whether the manufacturing headwinds mentioned in guidance were a continuation of prior issues or related to new tariffs.

Answer

Chairman and CEO Jamie Lerner explained the equity agreement is a tool to raise capital efficiently to become debt-free and fuel growth, with specific actions to be decided by the board. He also attributed manufacturing headwinds to long lead times for the new i7 product and general geopolitical concerns around potential tariffs, though he noted operations have been smooth so far. CFO Ken Gianella added that the equity agreement is a great tool for managing liquidity and paying down debt.

Eric Martinuzzi asked about the Q2 revenue shortfall, its connection to supply chain issues, the elevated backlog, and the decline in primary storage. He also requested key performance indicators for Myriad and ActiveScale and clarification on the company's cash flow targets for the second half of the fiscal year.

Answer

Chairman and CEO Jamie Lerner attributed the revenue shortfall to extended lead times for high-speed all-flash systems, which constitute their primary storage offerings, noting that pre-ordering is risky due to changing configurations. He highlighted that the company surpassed 1,000 subscription customers. CFO Ken Gianella added that supply chain headwinds were more persistent than planned. Regarding cash flow, Gianella explained that significant one-time expenses for an ERP system, a new R&D facility, and restructuring are now largely complete, paving the way for positive operating cash flow in the second half of fiscal 2025.

Eric Martinuzzi asked about the Q2 revenue shortfall, its connection to supply chain issues, the decline in primary storage, and specific performance metrics for the Myriad and ActiveScale product lines. He also inquired about the Q2 cash burn and the company's free cash flow outlook for the second half of the fiscal year.

Answer

Chairman and CEO Jamie Lerner attributed the revenue shortfall to extended lead times for all-flash systems, which increased the backlog to $14 million, despite bookings being on target. He confirmed this fulfillment issue was the primary reason for the decline in primary storage revenue. For performance metrics, CFO Ken Gianella highlighted significant pipeline growth, while Lerner noted that Quantum has surpassed 1,000 subscription software customers. Regarding cash flow, Gianella explained that the recent cash burn was due to ~$50 million in one-time CapEx and restructuring costs over the last two years, which are now substantially complete, positioning the company for positive free cash flow in the second half of fiscal 2025.

Eric Martinuzzi of Lake Street Capital Markets asked for an update on early customer renewal trends, specifically regarding gross renewal rates and net revenue retention for the initial cohorts of contracts.

Answer

CEO John Kedzierski reported that of the 400 units up for natural renewal in 2025, about 200 were actioned in the first half. He noted that due to customer expansions alongside renewals, the company saw a net unit retention rate of over 100%. Kedzierski emphasized that these figures still represent a very small portion of the total installed base but that the company is pleased with the early signs.

Eric Martinuzzi asked for the expected range of Evolv Express unit shipments for 2025 that supports the revenue guidance. He also questioned the expected revenue progression for the year, asking if a sequential step-down should be expected in Q2, and inquired about the timing of the planned $2 million in near-term investments.

Answer

CEO John Kedzierski projected deploying at least as many units as in 2024, ending 2025 with approximately 8,000 total deployed units, while noting the company will de-emphasize new unit shipments as a key metric. CFO Chris Kutsor did not provide specific Q2 guidance but advised that a shift to pure subscription models defers revenue recognition, which informs the full-year outlook. He also stated the $2 million investment spend has begun and will be slightly more weighted to the second half of the year.

Eric Martinuzzi from Lake Street Capital Markets asked about business trends in July given the improved linearity in Q2, and also inquired about the current competitive landscape and pricing environment in the education sector.

Answer

President and CEO Peter George confirmed that the positive momentum and improved linearity seen in Q2 continued into the start of Q3. Regarding the competitive landscape, he stated it remains largely unchanged, with a legacy screening company as the main competitor. However, he noted a positive long-term trend of schools incorporating security technology into their operating budgets rather than relying on grant funding.

Eric Martinuzzi of Lake Street Capital Markets questioned the current pricing environment, specifically in the education and healthcare verticals, and asked if the revised 2024 outlook accounts for potential price reductions. He also asked for the expected cash balance when the company reaches adjusted EBITDA breakeven.

Answer

CFO Mark Donohue acknowledged seeing increased pricing competition, particularly in high-volume education deals where the company has been amenable to working with customers. He confirmed that this pricing model is fully reflected in the revised 2024 outlook. Donohue also projected a cash balance in the $65 million to $75 million range when the company achieves adjusted EBITDA positivity in the first half of 2025.

Eric Martinuzzi of Lake Street Capital Markets followed up on prior commentary about European pipeline issues, asking if those challenges were resolved and if the defense and intelligence pipeline in Europe was back on track.

Answer

CEO Thomas Hogan and CRO Marcus Jewell confirmed that the European business has seen a strong recovery. They attributed this to a successful strategic pivot towards the Defense and Intelligence (D&I) market, which is benefiting from increased NATO spending priorities and funding to address the regional migrant crisis. They also noted the first Keryllium resale was to a European intelligence agency.

Eric Martinuzzi asked if the company is stepping away from its long-term $1 billion revenue target for 2028, given the current year's guidance. He also sought more detail on the softness in the EMEA region.

Answer

CFO Dana Gerner affirmed that the company is not changing its trajectory to $1 billion, explaining that the current year's softness is a timing issue expected to be caught up in 2026. CRO Marcus Jewell attributed the EMEA softness to a combination of a slowdown in public safety spending and a strategic pivot toward larger, longer-cycle deals in the Defense & Intelligence sector. He expressed confidence in the regional team to manage the transition and deliver future growth.

Eric Martinuzzi questioned the initiatives and lessons learned from 2024 that will help Cellebrite achieve its 2025 goal of increasing Case-to-Closure (C2C) platform penetration from approximately 20% to over 50% of the installed base.

Answer

CFO Dana Gerner highlighted the natural connectivity the Inseyets product provides across the C2C platform. Chief Revenue Officer Marcus Jewell added that the strategy includes investing in specialist sales teams focused on the 'investigator persona,' hosting successful company-led events to generate demand, and using vertical experts to clearly demonstrate the platform's value in speeding up investigations.

Eric Martinuzzi from Lake Street Capital asked about common themes among new Q2 customer wins and the current competitive landscape for gunshot detection.

Answer

CEO Ralph Clark stated that new customers, like New Orleans, share a common need to address persistent gun violence. Regarding competition, he noted that while they hear about some competitors, they do not encounter them directly very often and remain confident in their market position. Clark also detailed technological advancements, including a new sensor platform that enables 'angle of arrival' detection, which supports a new perimeter-based sniper detection solution for critical infrastructure.

Eric Martinuzzi sought clarity on the expected quarterly revenue progression for the remainder of the year, given the $3.5 million in catch-up revenue in Q1, and asked about the gross margin implications of the reduced full-year adjusted EBITDA guidance.

Answer

Executive Alan Stewart advised that Q2 revenue would likely see a reduction from Q1 before ramping up in Q3 and more significantly in Q4. He clarified that the full-year gross margin is still expected to be around 59%, with the adjusted EBITDA reduction stemming from a mix of COGS impacts (e.g., sensor costs) and operating expenses related to AI investments.

Eric Martinuzzi asked for the specific revenue contribution from the Chicago contract in fiscal 2024 and questioned whether the sales cycle elongation for ShotSpotter, mentioned in the prior quarter, had changed.

Answer

CFO Alan Stewart clarified that the Chicago contract's revenue contribution in 2024 is approximately $9.2 million. CEO Ralph Clark responded that the ShotSpotter sales cycle has stabilized at 12-18 months. He noted this is being offset by a more favorable mix across the portfolio, with much shorter sales cycles for the commercial SafePointe solution and an expected intermediate cycle for the new PlateRanger offering.

Eric Martinuzzi of Lake Street Capital Markets questioned the revenue contribution from the Canalys conference business, whether macro demand weakness was consistent geographically, and for examples of platform integrations.

Answer

CEO Gary Nugent estimated the Q4 Canalys Forums business contributes between $5 million and $10 million in revenue. He noted that while macro demand patterns are broadly consistent, the APAC market has been particularly challenging. Nugent also detailed that platform integrations span CRMs like Salesforce, marketing automation like HubSpot, and sales enablement platforms like Demandbase, with a goal of reaching 13 total integrations by the fall.

Eric Martinuzzi from Lake Street Capital Markets questioned the expected Q4 revenue contribution from the Canalys conference business, whether demand volatility was consistent across geographies, and for examples of the 'platforms of choice' for integration.

Answer

CEO Gary Nugent estimated the Canalys Forums would contribute between $5 million and $10 million in Q4 revenue. He noted that while demand patterns are broadly consistent, the APAC market has been particularly challenging. Nugent detailed the integration strategy, which includes CRMs (Salesforce), Marketing Automation Platforms (Marketo), and Sales Enablement Platforms (6sense, Demandbase), with a goal of reaching 13 total integrations.

Eric Martinuzzi questioned if the strategic shift towards large customer accounts has yielded an incremental pipeline lift. He also asked how the company is executing on 'artificial intelligence engine optimization' with platforms like ChatGPT, and requested color on the expected adjusted EBITDA margin progression needed to meet the full-year guidance after a low Q1 result.

Answer

CEO Gary Nugent confirmed a positive response and pipeline growth from the large account focus, noting they are uncovering more budget opportunities across the customer lifecycle. On AI optimization, Nugent explained that the company is actively testing and learning in the evolving space, believing its existing search authority and focus on quality content are advantageous. CFO Dan Noreck addressed margins, stating that Q1 would be the trough and that sequential revenue growth throughout the year would drive the necessary margin expansion to hit full-year targets.

Eric Martinuzzi of Lake Street Capital Markets inquired about tangible results, such as pipeline lift, from the strategic shift towards large customer accounts. He also asked for details on how the company is executing 'artificial intelligence engine optimization' (AIO) with major generative AI platforms and questioned the expected progression of adjusted EBITDA margins to reach the full-year target.

Answer

CEO Gary Nugent confirmed a positive response and pipeline growth from the large-customer focus, explaining that the company can now address multiple budget pools across a client's entire product lifecycle. Regarding AIO, he stated that while the 'rules of the game' are still forming, the company's existing SEO authority appears beneficial, and the core strategy remains focused on producing high-quality, original content. CFO Dan Norick addressed the margin question, stating that Q1 would be the lowest point, with sequential growth expected throughout the remaining quarters to achieve the full-year target.

Eric Martinuzzi of Lake Street Capital Markets asked about subscription renewal rates, the repositioning of the Netline product, the reshaping of the intelligence and advisory portfolio, and for an update on the company's cash and debt balances.

Answer

CEO Gary Nugent stated that value-based renewal rates for the intelligence and advisory business are holding flat year-over-year. He noted encouragement from the Q1 market acceptance of the repositioned Netline product. Nugent also detailed the reshaping of the intelligence portfolio into fewer, larger packages aligned with market segments. CFO Dan Noreck clarified that the net debt position is fundamentally unchanged after using cash and a revolver draw to repay convertible notes.

Eric Martinuzzi of Lake Street Capital Markets questioned the performance of the subscription business, the repositioning of the Netline product, the reshaping of the intelligence portfolio, and the latest cash and debt balances.

Answer

CEO Gary Nugent reported that value-based renewal rates in the core intelligence and advisory subscription business are holding flat year-over-year. He expressed encouragement with the Q1 market acceptance of the repositioned Netline product. Nugent also detailed the reshaping of the intelligence portfolio, which involved creating fewer, larger product packages and establishing two distinct consulting capabilities. CFO Dan Noreck added that the company's net debt position is fundamentally unchanged after repaying convertible notes.

Eric Martinuzzi asked if the SPO percentage of revenue might see a step-down due to the DSP reconfiguration and questioned the risk of other DSPs making similar unexpected changes to inventory valuation.

Answer

Co-Founder and CEO Rajeev Goel responded that any change in the SPO mix would more likely be driven by the strategic diversification into the mid-market advertiser segment, which is growing faster and less reliant on SPO deals. He acknowledged the company was reacting with limited visibility in this instance and that the goal is always to be as close to DSP partners as possible to avoid such surprises.

Eric Martinuzzi asked about PubMatic's direct interactions with the Department of Justice regarding remedies for the Google antitrust ruling and inquired about the long-term ceiling for Supply Path Optimization (SPO) as a percentage of activity.

Answer

CEO Rajeev Goel stated that while he couldn't detail specific conversations, the DOJ is consulting with trial witnesses. He emphasized that the verdict has crystallized for customers that Google is not an 'immovable object,' creating significant share-gain opportunities for PubMatic. Goel projected that SPO could reach as high as 75% of total business activity in the long term, driven by growth with existing agency holding companies and expansion into the independent agency and direct advertiser markets.

Eric Martinuzzi requested the underlying growth figures (excluding the large DSP and political spend) for Q1 and Q2 of 2024, to compare with the 17% and 16% figures provided for Q3 and Q4.

Answer

CFO Steven Pantelick explained that this specific breakout was only relevant for the second half of 2024, as the DSP impact began mid-year and political ad spend was also a second-half phenomenon. CEO Rajeev Goel added that the net effect of this transition is a positive strategic shift, deleveraging from the cyclical display business and re-leveraging towards high-growth areas like CTV and mobile.

Eric Martinuzzi from Lake Street Capital Markets asked about the drivers behind the company's improved marketing efficiency and the status of staff retention at the recently relocated Nashville and Levittown facilities.

Answer

CEO Scott Shaw attributed the marketing success to both effective tactics and, more significantly, greater market receptivity for skilled trades careers. Regarding staffing, he noted it was too early to comment on Levittown but highlighted the immense excitement and pride among staff and students at both the new Nashville and Levittown facilities, which he expects will positively impact retention.

Eric Martinuzzi from Lake Street Capital Markets asked for an update on the new program rollout for 2025, specifically regarding regulatory approvals for the remaining five programs. He also sought clarity on the timeline for lapping the student start contraction in the healthcare segment.

Answer

Executive Scott Shaw clarified that of the planned new programs, only the welding program in Rhode Island awaits final Department of Education approval, which is expected within 4-5 months. He noted the company will fully anniversary the discontinued massage and culinary programs by November 2025. Shaw also added that the Paramus nursing program's pass rates are now well above benchmarks, and they are petitioning for an early reinstatement, which could accelerate the healthcare segment's return to growth.

Eric Martinuzzi of Lake Street Capital Markets, LLC sought clarification on the 2027 strategic growth plan, asking if the $550 million revenue target includes the new Hicksville campus and questioning the expected progression of the adjusted EBITDA margin from the 2025 guidance of ~12% to the 16% target.

Answer

Executive Brian Meyers clarified that the $550 million revenue target for 2027 does not include contributions from the Hicksville campus due to its late 2026 launch. Executive Scott Shaw added that the margin expansion is expected to be a gradual, stair-step increase from 2025 to 2027, potentially accelerating in 2026 as new programs mature and contribute more to profitability.

Eric Martinuzzi of Lake Street Capital Markets asked about the planned square footage of the new Long Island campus and whether the company's robust lead generation was primarily due to smarter marketing or a favorable macroeconomic environment.

Answer

Executive Scott Shaw stated that the Long Island campus is planned to be around 65,000 square feet, slightly larger than the East Point campus. He attributed the strong lead generation to a combination of factors, noting that while the marketing team is getting smarter, the broader macro trend of increased interest in skilled trades is providing a significant boost.

Eric Martinuzzi asked if the recent macro trend of lower foot traffic at QSRs has led to an increase in demand or pipeline for PAR's Engagement Cloud products as restaurants seek to drive customer loyalty.

Answer

CEO Savneet Singh confirmed that PAR is 'absolutely' seeing more demand and interest in its loyalty and engagement products in the current volatile macro environment. He noted that the value of these programs is undeniable in both good and bad markets, as they focus on building lasting personal connections with consumers, which in turn allows PAR to connect other products like ordering and wallets.

Eric Martinuzzi of Lake Street Capital Markets, LLC asked about the ARR contribution of the new PAR OPS product line, combining Data Central and Delaget, and inquired if customers pulled forward hardware orders in Q1 ahead of potential tariffs.

Answer

CEO Savneet Singh detailed that the legacy Data Central product had an ARR of about $1,500 per year, and the newly acquired Delaget modules can add another $500 to $1,400 annually. Regarding hardware, he noted that some order pull-forward was observed in Q2, not Q1, and expects a strong Q2 for hardware. He reiterated confidence in managing tariff impacts due to a diversified supply chain with minimal China exposure.

Eric Martinuzzi questioned the non-GAAP Subscription Service gross margin of 64.7%, asking if this represented a trough and what the outlook was for 2025. He also requested the pro forma share count following the Delaget acquisition.

Answer

CFO Bryan Menar explained that the margin dip was due to recent acquisitions resetting the baseline. He stated that he expects the margin to improve by 50 to 150 basis points quarterly from this new level. He also confirmed the pro forma share count is just over 40 million.

Eric Martinuzzi asked if the company was seeing any macro-level changes in its top-of-funnel pipeline. He also asked for growth rate expectations over the next few years, comparing the Operator and Engagement Cloud segments.

Answer

CEO Savneet Singh reported no negative macro changes to the pipeline, noting the only shift has been positive momentum for Data Central attachment to Brink POS deals. He expects Operator Cloud to continue growing faster than Engagement Cloud, citing its larger addressable market and a broader suite of products to cross-sell.

Eric Martinuzzi of Lake Street Capital Markets, LLC inquired about the composition of the 30% year-over-year growth in contracted revenue, seeking details on the product mix (HCP vs. DTC), campaign lengths, and whether the growth was broad-based across all customer tiers.

Answer

CEO Steve Silvestro explained that the contracted revenue follows the historical product mix of HCP and DTC solutions, with the DAP (Dynamic Audience Platform) business showing outsized growth. He noted contract lengths are consistent with the past. CFO & COO Edward Stelmakh added that the growth is a broad-based ramp-up across all customer tiers, signaling strong market adoption of their offerings.

Eric Martinuzzi inquired about the status of the Medicx business's transition from a managed service to a self-service model, asking if the shift was largely complete.

Answer

CEO Stephen Silvestro confirmed that the transition from managed service is effectively complete, with only a 'de minimis' amount of revenue remaining from that model. He emphasized that despite the one-time adjustment, the underlying Medicx solutions, particularly the high-margin audience component, are performing well and showing strong growth.

Eric Martinuzzi from Lake Street Capital Markets, LLC asked for clarification on the normalized long-term growth rate for the Bresner segment. He also questioned the potential impact of recent defense budget legislation on the company's 2026-2027 pipeline, the potential size and timing of the U.S. Army combat vehicle opportunity, and whether strong OSS segment gross margins could lead to higher consolidated gross margins in 2026.

Answer

CFO Daniel Gabel clarified the long-term growth model is approximately 20-25% for the OSS segment and 7-9% for the Bresner segment. CEO Mike Knowles stated that the primary concern regarding government business is the timing of budget releases and continuing resolutions, not the scope of the opportunities, which remain strong. Regarding the Army combat vehicle program, Knowles described it as very early stage, with testing expected to continue through 2025, making it too soon to define scope or value. Gabel explained that while OSS segment margins are guided to the mid-30s to low-to-mid-40s, consolidated margins will vary based on product mix and program lifecycle stages.

Eric Martinuzzi sought clarification on the market conditions causing order delays from H1 to H2. He asked about the design work involved in the recent $6.5 million contract, the verticals driving high-margin sales, management's confidence in the steep H2 revenue ramp, and potential supply chain risks related to tariffs.

Answer

Executive Michael Knowles attributed H1 delays to the government's budget resolution process on the defense side and a customer's realignment on the commercial side. He noted the $6.5M contract was mostly production with minimal NRE. He expressed confidence in the H2 ramp, citing sufficient capacity and a strong Q4 2024 precedent. He also stated that the company has a diversified supply chain and a policy of passing tariff costs to customers. Executive Daniel Gabel added that the high-margin storage products were for a defense customer but that both markets are targeted for similar margins.

Eric Martinuzzi of Lake Street Capital Markets asked for a more precise timeline for the expected recovery in the Bressner segment and inquired whether the guided Q4 revenue step-up would translate to a corresponding increase in adjusted EBITDA.

Answer

An executive stated that a rebound in the Bressner segment could begin as early as Q2 2025, contingent on European economic improvements and supply chain normalization. The executive also confirmed that no significant additional investments are planned for Q4, suggesting the revenue increase should positively impact adjusted EBITDA.

Eric Martinuzzi from Lake Street Capital Markets asked about the sustainability of strong growth in EMEA and APAC, and whether stable pricing amid tariff uncertainty led to a pull-forward of orders in Q4.

Answer

President & CEO Ed Meyercord stated that momentum in both EMEA and APAC is expected to continue. He cited a stabilizing political environment in EMEA and significant new partner engagement in APAC following a major Japanese government win. Meyercord also clarified that there was minimal order pull-forward, as Extreme's products were largely exempt from recent tariffs, a fact that was communicated to customers.

Eric Martinuzzi asked if Extreme Networks was building its own inventory ahead of potential tariffs and questioned the drivers behind the guided sequential increase in Q4 operating expenses.

Answer

CFO Kevin Rhodes clarified that the company is not buying ahead and is instead working to reduce its own inventory levels to improve working capital. He attributed the Q4 OpEx increase primarily to two factors: the costs associated with the large 'Connect' user conference in Paris and higher sales commissions tied to the expected increase in quarterly revenue.

Eric Martinuzzi asked for management's view on the overall networking industry growth rate and for a specific explanation for the slight step-down in the gross margin outlook for the second half of the fiscal year.

Answer

CEO Ed Meyercord and CFO Kevin Rhodes positioned the industry as a mid-single-digit grower, with Extreme targeting high-single-digit growth through market share gains. Rhodes explained that the guided gross margin dip to a 62-63% range is primarily due to a product mix shift. As revenue growth accelerates in the second half, it will be driven more by lower-margin product sales compared to higher-margin subscription and support revenue. He also noted a minor impact from payroll tax resets.

Eric Martinuzzi questioned whether the robust recovery in the middle market was a near-term event and if the full-year outlook anticipates a recovery in the larger enterprise segment. He also asked about the lag time between budget approvals in Europe and their impact on procurement.

Answer

CEO Ed Meyercord affirmed that the company anticipates a return of larger projects, with confidence based on the existing sales funnel. Regarding Europe, he explained that the timing varies by agency but noted that Germany's budget is expected by the end of November and the U.K.'s new government is focused on infrastructure spending, with funds likely to be released before their new fiscal year begins on March 1.

Eric Martinuzzi asked about the potential revenue uplift from the new Enterprise Security Suite and the overall health of the core SMB customer base, separate from the AI-driven growth.

Answer

CEO Gleb Budman explained that some security features like the enterprise console are included to drive adoption, while others like anomaly alerts will be fee-based per terabyte. He emphasized that the core business remains strong across various sectors like MSPs, education, and media, with AI acting as an accelerant. CFO Marc Suidan added that all four B2 growth drivers, including self-serve and organic growth, are improving, indicating broad-based health.

Eric Martinuzzi questioned if the new Canadian data center investment would negatively impact the 78% gross margin and whether the record pipeline build was due to recent go-to-market changes or from deals already in progress.

Answer

CEO Gleb Budman responded that he does not expect a significant impact on gross margin from the new data center, viewing the 78% level as a permanent shift. He also clarified that the new CRO, Jason Wakeam, had scrubbed the existing pipeline and instituted more rigorous controls, meaning the current record pipeline is both larger and of higher quality as a direct result of the new strategy.

Eric Martinuzzi of Lake Street Capital Markets asked for details on the extended agreement with a key data supplier, the drivers behind the strong 97% gross revenue retention rate, and the company's capital allocation priorities given its robust cash flow.

Answer

CFO Dan MacLachlan explained the data supplier agreement was extended to 2031 on similar terms with minimal cost escalation, a standard practice they initiate 12-18 months before renewal. He attributed the high retention rate to product stickiness and a recovery in the collections vertical, expecting it to remain around 95-96%. Chairman & CEO Derek Dubner outlined a multi-faceted capital allocation strategy that includes investing in AI and platform capabilities, evaluating small, accretive bolt-on acquisitions, and potentially utilizing the share buyback program.

Eric Martinuzzi asked for more detail on the Remaining Performance Obligation (RPO) backlog, specifically the mix of contract terms, and questioned the reasons behind the lower-than-expected hardware revenue.

Answer

CFO Ron Vincent detailed the RPO run-out, noting it's heavily weighted to the first three years of the five-year period. Both Vincent and COO Doug Gaylor explained that the decline in product revenue is a strategic choice to move away from low-margin business. Gaylor also noted a trend of more customers bringing their own devices from other VoIP providers, which reduces the hardware component in sales.

Eric Martinuzzi asked about the sustainability of Crexendo's double-digit revenue growth guidance and whether the competitive landscape, particularly regarding aggressive spiffs and incentives, has changed since 2024.

Answer

CEO Jeffrey Korn clarified that the double-digit growth guidance is on a year-over-year basis, acknowledging potential quarterly variances. He stated that competitors' unsustainable pricing practices persist, but Crexendo will not acquire customers at a loss, instead focusing on profitable growth by differentiating with superior products and customer service.

Eric Martinuzzi from Lake Street Capital Markets asked if there were any seven-figure software deals in 2024, questioned the adjusted EBITDA outlook for 2025 alongside projected double-digit growth, and inquired about market chatter regarding the Alianza-Metaswitch deal.

Answer

CRO Jon Brinton confirmed a couple of seven-figure deals based on total contract value, consistent with prior years. CFO Ron Vincent stated that the company expects continued improvement in adjusted EBITDA margins while reinvesting for growth. CEO Jeffrey Korn noted they have only heard rumors about a potential forced migration for Metaswitch customers.

Eric Martinuzzi asked about the flat sequential UCaaS services revenue, questioning if it was due to macro issues. He also asked about the expected run rate for operating expenses and the key takeaways from the recent user group meeting.

Answer

CFO Ron Vincent clarified that the flat sequential services revenue was due to a specific national account churn event and product mix, not a broader macro issue. CEO Jeffrey Korn stated that operating expenses will continue to rise due to investments in OCI and a new accounting system, though some hiring is being deferred. Korn and CRO Jon Brinton described the user group meeting as a major success with record attendance, over 30% first-time attendees, and a significantly more positive sentiment from licensees compared to the prior year.

Eric Martinuzzi from Lake Street Capital Markets inquired about the degree of customer overlap between Asure and the newly acquired Latham. He also asked for an update on the macro demand environment for Asure's core payroll and HCM products over the last 90 days.

Answer

CFO John Pence responded that there is 'very little' customer overlap between Asure and Latham, presenting a significant greenfield opportunity. CEO Pat Goepel added that the macro demand environment remains strong, citing a recent record for marketing qualified leads. While Q2 bookings were soft against a tough comparison, he expressed confidence in the sales pipeline going forward.

Eric Martinuzzi inquired about any potential slowdown in the small and medium-sized business (SMB) pipeline due to macroeconomic uncertainty, such as tariffs.

Answer

CEO Patrick Goepel responded that despite negative headlines, "Main Street America" feels solid. He noted that while sales cycles may have lengthened slightly, the sales pipeline and key lead metrics (MQLs and SQLs) are up. The company has modeled flat employment growth and sees no abnormal negative trends in its customer base at this time.

Eric Martinuzzi asked for a breakdown of the Q1 revenue outlook, specifically separating recurring revenues from seasonal components like W-2 and ACA processing, and sought clarification on the sequential recurring revenue growth from Q4.

Answer

CFO John Pence estimated the seasonal W-2 and ACA revenue would be about $5 million, similar to the prior year. CEO Pat Goepel added that this figure is partially masked by a strategic shift to annualized pricing models. He confirmed the Q1 recurring revenue guide implies roughly $29 million, noting that Q4 is often seasonally stronger due to bonus payroll runs.

Eric Martinuzzi requested a breakdown of the $6 million downward revision to the 2024 revenue guidance, asking to categorize the shortfall between new product rollouts, delayed enterprise tax deals, and professional services. He also sought clarification on the amount of ERTC revenue recognized in Q3.

Answer

CEO Patrick Goepel provided a rough breakdown of the $6 million guidance reduction, attributing approximately one-third to the timing of professional services revenue tied to large deals, one-third to a slower-than-modeled rollout of new products, and the remaining third to general deal timing and one acquisition that may slip into 2025. CFO John Pence confirmed that ERTC revenue in Q3 was de minimis, around $100,000 to $150,000.

Eric Martinuzzi asked about the sustainability of Rasmussen's strong enrollment growth for the remainder of 2025, the status of Department of Education approval for Rasmussen's potential expansion, and the expected quarterly cadence for the full-year CapEx guidance.

Answer

CEO Angela Selden expressed confidence in Rasmussen's momentum, highlighting that Q2 marks the fourth consecutive quarter of positive growth with no visible headwinds, but she did not provide segment-specific guidance beyond the next quarter. She also shared that she recently had a productive meeting with a senior Department of Education official regarding the pending approval of audited financials. CFO Richard Sunderland advised that for modeling purposes, the remaining CapEx could be spread evenly across the remaining quarters, though actual spending depends on project timing.

Eric Martinuzzi asked for a reconciliation between the significant cash use reported in Q1 and the company's full-year guidance for increased annual cash flow.

Answer

CFO Nicholas Taylor explained that the company's cash flow has a distinct seasonal pattern, with working capital outflows in the first half of the year and significant inflows in the second half. He reiterated that the full-year 2025 cash flow is expected to be positive and meaningfully higher than in 2024, consistent with this pattern and proportionate to EBITDA growth.

Eric Martinuzzi noted the Media tech segment's 4% growth in Q4 was below expectations and asked where its growth rate would fall relative to the overall 2025 company guidance of 21%.

Answer

CFO Nicholas Taylor acknowledged the Q4 result but emphasized the segment's 15% full-year growth in 2024 and its consistent history of double-digit growth. He confirmed expectations for another year of double-digit growth for the Media segment in 2025, driven by new initiatives like FanHub.

Eric Martinuzzi inquired about the strategy behind staggering the sportsbook renewal terms, asking how Genius decided which partners would receive shorter or longer-term contracts.

Answer

CEO Mark Locke confirmed that staggering the contract terms was a 'Genius-led' initiative to de-risk the business and address shareholder concerns about a renewal 'cliff effect.' He stated that while they work collaboratively with customers, the company successfully achieved its goal of creating a more balanced renewal cycle across its larger sportsbook partners, though he did not comment on the specifics of any individual deal.

Eric Martinuzzi asked for a clarifying data point regarding the political spend contribution ex-TAC for the full year 2024, following the disclosure of the Q4 figure.

Answer

CFO David Day provided the specific figure, stating that for the full year 2024, political ad spend constituted 3.2% of contribution ex-TAC.

Eric Martinuzzi asked about the impetus for enterprise brands like Jack in the Box to adopt Olo modules such as Rails, and what happens to their internal IT resources after implementation.

Answer

Noah Glass, Founder and CEO, explained that large brands adopt modules like Rails to streamline third-party marketplace operations, moving away from inefficient 'Tablet Hell' to gain control and better data integration. He noted that after adopting Olo, brands typically redeploy their internal IT teams to focus on unique, brand-differentiating projects rather than maintaining foundational technology, thereby leveraging Olo's proven scale and reliability.

Eric Martinuzzi from Lake Street Capital Markets inquired about the specifics of the one-time revenue benefit in Q2, particularly the Wingstop outperformance, and sought an update on the timeline for the Olo Pay card-present revenue ramp.

Answer

CFO Peter Benavides clarified that the Wingstop benefit was due to the brand remaining on the platform longer than expected with strong performance, and another item related to revenue recognition timing for a new brand. CEO Noah Glass confirmed the card-present timeline is on track for a 2025 revenue impact, highlighting the Honeygrow case study where Olo's gross profit per location is 6x higher due to full-stack payment processing, signaling significant potential for gross profit acceleration.

Eric Martinuzzi questioned the potential impact of new tariffs on auto carrier rates and whether carriers would seek re-rating from states if tariffs were implemented.

Answer

CEO Doug Valenti responded that QuinStreet has not had any conversations with clients about potential tariffs and it is not a factor in their current planning. He speculated that if tariffs were enacted, carriers would likely be able to get rate increases, as regulators have learned that carriers must be able to rate economically to provide coverage for their citizens.

Eric Martinuzzi asked for the specific revenue concentration of QuinStreet's largest client, Progressive, in Q1. He also questioned whether other insurance carriers are becoming more analytically sophisticated in their spending. Finally, he sought to confirm the full-year CapEx forecast to refine free cash flow estimates.

Answer

CFO Greg Wong confirmed that the largest client represented 20% of revenue in Q1. CEO Doug Valenti added that a key driver of market growth is that other carriers are indeed becoming much more sophisticated and analytic in their spending, following a similar path. Greg Wong also affirmed that the company's full-year CapEx forecast of approximately $15 million remains unchanged.

Eric Martinuzzi asked for details on the new Atlanta campus size, sought confirmation on the implied Q2 revenue guidance, and requested the dollar amount of strategic investment expenses deferred from Q1 into Q2.

Answer

CEO Jerome Grant explained that the 150,000 sq. ft. Atlanta campus is larger than the typical target to accommodate a full suite of programs and provides flexibility for future capacity increases. Interim CFO Christine Kline confirmed the analyst's Q2 revenue math was in the right neighborhood but slightly high, and clarified that the quarter-over-quarter operating expense increase would be about $10 million.

Eric Martinuzzi from Lake Street Capital Markets asked about the key drivers for the increased fiscal 2025 revenue guidance, questioning whether it stemmed from recent marketing investments or the rollout of new programs. He also sought management's perspective on the potential timeline and fundamental benefits for UTI following the recent election results.

Answer

CEO Jerome Grant explained that the FY2025 guidance increase was driven equally by two factors: stronger-than-anticipated student start potential at the Concorde division and a higher number of new program launches (19 total) than the previously stated minimum. Regarding the political environment, Grant stated the company focuses on delivering superior student outcomes but acknowledged the potential for a more favorable regulatory environment focused on an "even playing field" where outcomes, not an institution's tax status, are the primary measure of success.

Eric Martinuzzi questioned if the Expensify Travel offering was contributing to the growth in interchange revenue. He also asked if the increased free cash flow guidance was a result of cost-cutting measures like a reduction in force or from other operational efficiencies.

Answer

Executive Anuradha Muralidharan clarified that interchange from travel bookings is not a meaningful contributor, a point echoed by CEO David Barrett who highlighted the platform's card-agnostic nature. Muralidharan confirmed the improved free cash flow was driven by a higher interchange take rate and ongoing operational efficiencies, not by a reduction in force.

Inquired about the reason for the negative services gross margin in Q4, the gross margin outlook for 2024, the expected trajectory of operating expenses following a headcount reduction, and whether the recent senior management changes signal a shift in company strategy.

Answer

The negative Q4 services margin was attributed to the timing of project delivery expenses and is not expected to recur. Gross margins for 2024 are projected to be in line with 2023. Operating expenses in Q1 will be slightly below Q4, but will step up in Q2 due to the timing of annual merit increases. The management changes do not represent a strategy shift; rather, they are about installing the right leaders in key roles (CRO, CMO), centralizing operations under a new COO, and ensuring a smooth CFO transition.

Eric Martinuzzi from Lake Street inquired about the marketing spend plans for Q3, the reasons for USU's revenue growth despite a decline in its student body, the seasonal outlook for Q3, and the cause for the delay in securing the AR financing.

Answer

CEO Michael Mathews clarified that Q3 marketing spend would be at a maintenance level of under $0.5 million pending the AR facility closure. He attributed USU's revenue growth to a recent price increase and noted that organic enrollments remain strong. CFO Matt LaVay added that Q3 revenue would likely see a modest sequential decline due to seasonality and the pre-licensure teach-out, resulting in slightly negative adjusted EBITDA. Mathews explained that previous AR financing offers were declined due to unfavorable regulatory covenants, which are no longer a concern.

Eric Martinuzzi from Lake Street Capital Markets inquired about the 2023 outlook for the Pre-Licensure BSN program in Arizona, the specifics of the company's restructuring plan including headcount and marketing spend reductions, and the anticipated sequential revenue impact.

Answer

CEO Michael Mathews stated that Aspen Group is in discussions with the Arizona Board of Nursing regarding the program's future and confirmed the restructuring eliminated approximately 70 positions, primarily in G&A and IT. CFO Matt LaVay detailed that the normalized quarterly marketing spend of $4.2 million is being reduced to a maintenance level, resulting in significant savings. He also noted that the marketing cuts would affect both Aspen University and USU, shifting the company's focus to achieving positive cash flow.

Eric Martinuzzi from Lake Street Capital Markets asked about recent trends in class-taking behavior among working nurses, the potential for a 'teach-out' scenario at the Phoenix campuses, and the expected timeline for marketing spend and enrollment recovery.

Answer

Chairman & CEO Michael Mathews explained that increased attrition was primarily seen in Aspen's graduate programs (MSN/DNP) over the past year, a trend that has remained stable into calendar 2022. He confirmed a 'teach-out' scenario in Arizona is possible if the campuses fail to achieve four consecutive quarters of 80%+ NCLEX pass rates. Mathews also stated that marketing spend was restored to Q3 levels after the quarter, and he anticipates enrollments will normalize in fiscal Q2 after a typical lag. CFO Matt LaVay corrected that the surety bond was required by the Arizona Board of Education.