i3 Verticals - Q3 2024

Transcript

Operator (participant)

Good day, everyone, and welcome to the i3 Verticals Third Quarter 2024 Earnings Conference Call. Today's call is being recorded and a replay will be available starting today through August 16. The number for the replay is 877-344-7529, and the access code is 2697756. The replay may also be accessed for 30 days at the company's website. At this time, for opening remarks, I'd like to turn the conference call over to Jeff Smith, SVP of Finance. Please go ahead, sir.

Geoffrey Smith (SVP of Finance)

Good morning, and welcome to the third quarter 2024 conference call for i3 Verticals. Joining me on this call are Greg Daily, our Chairman and CEO, Clay Whitson, our CFO, Rick Stanford, our President, and Paul Christians, our CRO. To the extent any non-GAAP financial measures discussed in today's call, you will also find a reconciliation to the most directly comparable GAAP financial measure by reviewing yesterday's earnings release. It is the company's intent to provide non-GAAP financial information to enhance understanding of its consolidated GAAP financial information. This non-GAAP financial information should be considered by each individual in addition to, but not instead of, the GAAP financial statements. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding the company's expected financial and operating performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are hereby cautioned that these forward-looking statements may be affected by important factors, among others, set forth in the company's earnings release and in reports that are filed or furnished to the SEC. Consequently, actual operations and results may differ materially from those discussed in the forward-looking statements. Finally, the information shared on this call is valid as of today's date, and the company undertakes no obligation to update it, except as may be required under applicable law. I will now turn the call over to the company's Chairman and CEO, Greg Daily.

Thanks, Jeff, and good morning to all of you on the call. We have a lot going on at i3 these days, and we're excited to share with you this morning. First, it is my pleasure to announce our latest acquisition. Rick will elaborate that this is a deal that is a perfect fit with what we do: acquire, integrate vertical market software businesses within the public sector and best-of-class product, unrealized transactional revenue opportunities, cross-sell potential, and a fantastic founder-led team. 2024 has been a challenging year in multiple ways. Our realignment, our divestiture of the merchant services business has coincided with weaker than expected revenue from sources such as professional services and the sale of software licenses. We have had deals push out. We have made significant investments in products and opportunities for which we are not yet reaping the rewards.

We believe we have set the stage for a much stronger fiscal year 2025. Our visibility of our sales funnel and the products we have coming to market give us confidence in our long-term guidance of high single-digit organic growth. That is our focus, internal growth execution. I'll now turn the call over to Clay, which he'll provide you more detail on our financial performance. When he's finished, Rick will add commentary on the business, and finally, Paul will discuss revenue. Then we'll open up the call for questions.

Clay Whitson (CFO)

Thanks, Greg. The following pertains to the third quarter of our fiscal year 2024, which is the quarter ended June 30, 2024. Please refer to the slide presentation titled Supplemental Information on our website for reference with this discussion. Due to the expected sale of our merchant services business, we have classified that portion of our company as discontinued operations. The following will pertain to continuing operations, which we also call RemainCo, for quarterly results in the outlook section. This is a transitional reporting period, as we have announced the sale but have not yet closed. Revenues for the third quarter of fiscal 2024 declined 2% to $56 million, from $57.3 million for Q3 2023, reflecting organic growth from recurring sources, offset by declines in non-recurring sources. SaaS and transaction-based software revenues grew 8%, while payments revenues grew 9%.

Non-recurring sales of software licenses declined by approximately $2 million, as expected, reflecting the ongoing shift to SaaS. Professional services revenues declined by $1.1 million, principally a result of the delay in Celtic' implementation with Manitoba, caused by the public worker strike. ARR increased 4% to $181.3 million for Q3 2024, compared to $174.5 million for Q3 2023. Over 80% of our revenues in the quarter continued to come from recurring sources.... Software and related services represented 74% of total revenues for Q3, with payments 21% and other 5%. Adjusted EBITDA declined 11% to $12.9 million for Q3 2024, from $14.5 million for Q3 2023.

Adjusted EBITDA as a percentage of revenues declined to 23% from 25.3% for Q3 2023, principally reflecting $2 million less in one-time software license sales, which fall to the bottom line in the quarter they land. This decline was partially offset by lower corporate expenses, resulting from the internal realignment discussed on previous quarterly calls. We have provided a view of our revenue and adjusted EBITDA from continuing operations for fiscal 2023 and the previous quarters of fiscal 2024, and the supplemental information on our website, including reconciliations to the nearest GAAP number. Pro forma adjusted diluted earnings per share from continuing operations was $0.07 for Q3 2024. This number excludes discontinued operations, but includes consolidated interest expense of $0.23. Again, please refer to the press release for a full description and reconciliation. Our balance sheet remains strong and well-positioned for 2025.

At quarter end, borrowings under the revolver net of cash were $341.7 million. Our consolidated leverage ratio was 3.6 times. The current constraint is 5 times under our $450 million revolving credit. On August first, we acquired a permitting and licensing company in the public sector for $18 million in cash, plus 311,634 shares of Class A Common Stock. This acquisition will fit well with our existing businesses and provide a growth vehicle for the future. We paid a multiple at the high end of our range due to above average growth. The acquisition has a similar EBITDA margin profile as our existing Remainco business, excluding corporate overhead.

Following the anticipated sale of our merchant services business, we will be a pure play vertical software and services company, and plan to pay down all of our revolving credit facility, leaving us plenty of capacity for expansion in our existing verticals. Outlook. This is a transitional year, so I will first outline our outlook for revenues and Adjusted EBITDA from continuing operations for fiscal year 2024. We cannot currently guide fiscal year 2024 pro forma adjusted diluted EPS, because we cannot determine interest expense until we know the closing date for the anticipated merchant business sale. I will then give guidance for continuing operations for fiscal year 2025. The outlook for both time periods do not include acquisitions that have not been announced or transaction-related costs.

For fiscal year 2024, our revised outlook follows: revenues, $228 million-$234 million; Adjusted EBITDA, $56 million-$60 million. We continue to expect high single-digit organic revenue growth, with annual EBITDA margin improvement of 50 to 100 basis points per year, beginning in fiscal year 2025. Some tailwinds that we have identified include the Manitoba project returning to a normal cadence, continued momentum in the utilities market, and the SaaS transition becoming less of a short-term drag. The education business will also lap the introduction of certain state subsidies for lunch, which began during the back-to-school season in 2023. While acquisitions that have not yet closed are not included in the outlook, we do expect to resume acquisitions on a regular basis following the anticipated sale of our merchant business.

For fiscal year 2025, our revised outlook follows: revenues, $243 million-$263 million. Adjusted EBITDA, $63 million-$71.5 million. Depreciation and internally developed software amortization, $12 million-$14 million. Cash interest expense, $1 million-$2 million. Pro forma adjusted diluted EPS, $1.05-$1.25. I will now turn the call over to Rick for company updates and the M&A pipeline.

Rick Stanford (President)

Thank you, Clay. Good morning, everyone. Before I begin my remarks, I wanted to share a quick update on the sale of our merchant services business that we announced in June after we executed a purchase agreement. We are working towards closing that transaction, and we still anticipate a closing in our fiscal fourth quarter. As we have stated, this divestiture transaction offers important strategic benefits to us, and we anticipate realizing those benefits in short order once the transaction closes. As we progress toward a software focus on our specific verticals, we intend to further enhance our product team by adding an enterprise leader for that group. This leader will help us drive our ongoing investment in web-native, configurable, next-generation applications. This individual will be responsible for defining and delivering our product vision, strategy, and roadmap, and for communicating this vision.

He or she will help determine a product strategy for a broad set of services tailored to a varied customer base, driving research-led innovation, while also focusing on commercialization and bringing new products to life. I wanted to touch briefly on our latest acquisition that we announced last night. The deal closed on August 1, and it fits nicely in our public sector vertical. The company operates in 17 states today, with its headquarters in the southwestern U.S. The company specializes in permitting and licensing solutions for boards, commissions, and agencies, and is able to support over 150 regulatory license types today.

Upgrading our offering and permitting and licensing market is attractive because of the massive size of the market, the ample opportunities to cross-sell through our existing public sector footprint, and the presence of significant transactional revenue opportunities, which are a core competency for our business. In the United States, there are over 1,000 state-level licensing boards. These boards regulate various professions and occupations, ensuring that practitioners meet the required standards to provide services to the public. Each state has its own set of boards that oversee professions such as healthcare, legal, engineering, accounting, real estate, and many others. Below the state level is another large market of local governments who have similar needs. The company boasts a strong pipeline across a wide cross-section of the available opportunities in the industry, and sells both in a direct sales and reseller model.

One of the other facets of this deal that is so attractive is that they are geographically unconstrained. This deal was completed with a combination of cash and stock within our standard multiple range. Regarding M&A in general, our acquisition pipeline continues to be strong. However, we also continue to maintain a strong discipline to ensure the acquisitions meet our return objectives and augment our offerings in our respective markets. We hope to be able to share more details on the M&A front in the near future. I'll now turn the call over to Paul for additional comments on the business.

Paul Christians (COO)

Thank you, Rick. i3 Verticals is a software company delivering strategic vertical offerings in the public sector and healthcare markets with our proprietary dynamic software. i3 Verticals empowers our clients to better serve their communities by streamlining processes through secure and accessible software solutions. The market is responding positively to our deep domain expertise, market history, and flexible solution that resonate with clients, both new and existing. Additionally, M&A continues to coalesce around each vertical to augment our product offerings, as detailed by Rick in his remarks. Q3 2024, the healthcare vertical secured a major win with one of the United States' top five healthcare payers, expanding the use of our platform to over 7,000 users globally. In addition, we also secured multiple six-figure service engagements, focusing on extending the value of our platform into new departments within these organizations.

Robust cross-selling opportunities with customers, acquiring additional solutions across the breadth of our software offerings, which include electronic health records, customer portals, and bill presentment. Our revenue cycle management service offerings are experiencing continued expansion among our academic medical institution clients, and we are also pleased to experience an uptick in new mid-market accounts onboarding with our services over the last quarter. Education continues to expand our client footprint in our existing geographical markets with our established customer base. In addition, we have recently opened two new territories, North Carolina and Texas, where we are experiencing broad adoption of our fully integrated SaaS solutions. Public sector is made up of four sub-vertical segments: utilities, transportation, Enterprise Resource Planning, or ERP, and justice tech.

The utility segment is experiencing a broad adoption as well of our utility customer engagement ePortal software suite. This SaaS solution has played a key role in helping more than 50% of our customers achieve top rankings in customer satisfaction measurements, as recognized by J.D. Power and other leading research organizations. We currently have more than 7 million utility customers under management. Built with a mobile-first approach, i3 Verticals' ePortal is designed for seamless access across all devices. The portal's user-friendly interface ensures that customers can manage their utility services effortlessly, whether they are using a smartphone, tablet, or computer. A notable achievement this year includes a prominent water utility serving over 3 million customers across eight states, which successfully implemented i3 Verticals' portal within just five months.

In addition to our utility customer digital engagement software, we are also in the process of installing a state-of-the-art gas transportation billing system for a prominent multi-state utility provider. Leveraging the latest technology, this system is designed to offer exceptional configuration capabilities, minimizing the need for costly customizations. The new solution, which is SaaS-based and hosted on AWS, ensures scalability, reliability, and top-tier security.... It also streamlines operations, laying the foundation as a core architectural model for future solutions. On a similar product evolution note, we are also successfully deploying our upgraded customer information systems utility billing software, focused on clients of less than 100,000 meters, which also follows our SaaS, SaaS hosted on AWS model.

In transportation, we are seeing strong demand that spans our motor carrier, motor vehicle, and driver's license solutions, with increased interest across the spectrum as states are looking to modernize services. We have recently deployed solutions with successful installations in Florida, South Carolina, and phase two of three in Manitoba. In the public sector's ERP unit, our software suite consists of financial management, human capital administration, property and business tax, appraisal, regulatory compliance, and official records management, all seamlessly integrated with payment processing interfaces. ERP demand is consistent, with several products also being refreshed to meet our next generation cloud and configurability standards. i3 JusticeTech subvertical encompasses our public safety, court management solutions, e-filing, and document managed solutions. The JusticeTech and Public Safety vertical represents our deepest and broadest product line.

In addition, we are developing our i3 JusticeTech 3.0 court management solution as we evolve our technology to web-native, highly configurable solutions. Sales and demand generation activity continue to grow with a focus on an expanded ARR model. We are seeing additional share opportunities in markets we have recently opened, as well as increased adoption in the local municipal court markets that have not historically been a focus. I would also like to speak quickly about our vertical segment market leadership structure. Each vertical or segment within verticals has highly seasoned leadership, as well as dedicated staff for product, sales, marketing, and service delivery. This ensures continuity of domain expertise across the entire sales, product, and fulfillment spectrum. The staff is further augmented by our corporate development, marketing, finance, legal, and HR teams. This concludes my comments, Jamie.

At this time, we will open the call for Q&A, please.

Operator (participant)

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. And our first question today comes from John Davis from Raymond James. Please go ahead with your question.

John Davis (MD and Equity Research Analyst)

Hey, good morning, guys. Well, I just wanted to touch on the EBITDA outlook for both this year and next year. I think if we look at the midpoint, you know, EBITDA will be down slightly year over year for RemainCo. You called out several different headwinds. You know, by my math, you look like $6 million-$7 million of headwinds. You know, that gets you back to kind of the 10% organic growth, my headwinds this year, if you give us some comfort on 10% organic EBITDA growth next year. But, you know, is it fair to say the headwinds you called out are kind of $6 million-$7 million or any other color in helping that size, the different headwinds you called out in 2024?

Paul Christians (COO)

I get a little more than that. Manitoba was a $3 million or is a $3 million headwind this year. The SaaS transition is a $5 million headwind, and education is a $4 million headwind this year. So I get a $12 million headwind this year, which should not repeat next year.

John Davis (MD and Equity Research Analyst)

Right. And Clay, I just assume that's high margin business, although I was talking about EBITDA. So, you know, if we look at the EBITDA of $59 million going to $58 million this year, that $12 million, though, you know, I think you said the, the license revenue is very high margin. So, you know, I'm just looking at the EBITDA guide. So if you take that $12 million of revs, you know, maybe to 50% margin, that would get you back to kind of a, a 10% EBITDA growth number for fiscal 2024. Is that a reasonable statement?

Paul Christians (COO)

Yeah. Yeah, correct. I was... My numbers were revenue numbers.

John Davis (MD and Equity Research Analyst)

Okay. No, that's, that's helpful. And then Rick, you talked about or I forget, one of you, either Rick or Clay, said that the new acquisition, you know, high into the multiple range for better growth and higher growth. So just want to elaborate a little bit more on the growth profile of the August of the deal closed August first.

Paul Christians (COO)

We expect double-digit growth from that company in fiscal year 25. In recent years, it's been comfortably double-digit. You know, they have the ability to win some larger contracts, and so those can bump growth rates in any given year.

John Davis (MD and Equity Research Analyst)

Okay, that's helpful. And then last one for me, Clay. I think the implied margin expansion in the guide for 25 is about 150 basis points. Historically, you guys have been running closer to 50-100. Is, you know, is it some of that high margin revenue expected that got pushed out coming in next year? Is that what's driving? It sounds like the acquisition is similar margins. And then maybe should we still think about 50-100 basis points longer term, call it 26 and beyond, is that fair at this point?

Clay Whitson (CFO)

... Well, licensed software sales is the highest margin, and we're not expecting a better year in that in 25. But revenues at the midpoint are growing 9.5%, and while expenses might be growing on the order of 7%, so that's leading to. And that's some leftover effects of the internal realignment that we've talked about in previous quarters.

John Davis (MD and Equity Research Analyst)

Okay, appreciate it. Thanks, guys.

Operator (participant)

Our next question comes from Matt VanVliet from BTIG. Please go ahead with your question.

Matt VanVliet (Analyst)

Hey, good morning. Thanks for taking the question. I guess when you look at the acquisition just announced, I guess, how much overlap do you have in some of these markets, selling into, kind of, the appropriate buyers there? And then you also mentioned the ability to better monetize payment through that platform. What, if any, timeframe will it take to build those integrations into the product?

Paul Christians (COO)

Hi, Matt, this is Paul. We have a similar product that would need attention to be refined, and so this will be our benchmark product in that arena, and we have begun planning to transition our historic to our new. The cost structures under the support mechanisms for the new product offering and the new acquisition are appreciably more favorable, and that is in process as we speak, as well as other marketing activity to an expanded i3 customer base.

Clay Whitson (CFO)

I'll add to that and say that our existing public sector group has been working with this acquisition prior to close, and we've exchanged several deals and quoted together on several deals, so we expect to get traction right away.

Matt VanVliet (Analyst)

Okay, very helpful. And then as you look at the M&A pipeline, this deal came in, you mentioned either at the high end or just above kind of the typical range. Is there any reason to think that now that you have a bigger platform, you've sort of replatformed or modernized some of your other products, that the higher end of the range is maybe more in line with if the targets you're gonna look at, something a little higher growth, higher margin, sort of ready-made? Or should we still expect kind of a broad range of potential deals coming through, in the next couple of years?

Clay Whitson (CFO)

I mean, you know, these ranges we have are, are history that we're quoting, but obviously, if something's growing 20%+, it deserves a higher multiple. If something's 100% SaaS, it deserves a higher multiple. So they're not really strict rules, but just following history, I would, I would guess they would remain in our normal range. But we are flexible if, if, you know, companies have characteristics that warrant them.

Matt VanVliet (Analyst)

Okay, great. Thank you.

Operator (participant)

Our next question comes from Charles Nabhan from Stephens. Please go ahead with your question.

Charles Nabhan (MD and Senior Equity Research Analyst)

Good morning, and thank you for taking my question. I wanted to get a little more color around the acquisition and confirm my understanding of the math and impact based on your comments. You had said it's the top end of your range, which I guess if I'm thinking about that correctly, would imply something a little more than $2 million in EBITDA, and assuming, you know, a margin in line with the book, that gets you to about 7-ish from a revenue standpoint. Is that sort of a fair way of thinking about it? And also wanted to confirm that that is included in the fiscal year 2025 guide as well.

Clay Whitson (CFO)

Yeah, that's a reasonable approach, Chuck, and it is included in the guide.

Charles Nabhan (MD and Senior Equity Research Analyst)

Got it. So I guess that being the case, you know, should we think about... I guess that would get you to organic roughly in the 6%-7% range, if I'm thinking about that correctly. I guess my follow-up would be, with respect to the guide, I know you're not giving quarterly guidance, but as we think about the cadence through the year, should we think about it as sort of a gradual step up, as we move through fiscal year 2025? Or do you anticipate any disproportionate acceleration at any point in the year?

Clay Whitson (CFO)

Q4, our September quarter, is always our best quarter. Back to school is the strongest during that quarter. I would look at history as a seasonality guide. Our Q3 is usually very flat on an organic basis with our Q2. And then the payment processing, which is less of a factor now, but it's weakest in the calendar fourth quarter. So I would just look at prior year history to be the best guide for that. We don't have as much—the one-time software sales were $10 million, $10.5 million in 2023, less than $5 million in 2024, so that's less of a distortion than it was in prior years.

Charles Nabhan (MD and Senior Equity Research Analyst)

Got it. Okay. And as a follow-up, I had a sort of a high-level question. It sounds like things are trending pretty well from a demand and a business standpoint, which is consistent with comments from one of your competitors a few weeks ago. I wanted to get your thoughts on some of the underlying tailwinds to that demand. I know they talked about cybersecurity concerns as a catalyst. I know there's still some federal funds out there that are providing a tailwind as well. But any additional thoughts around, you know, just the demand environment and the underlying tailwinds would be helpful.

Paul Christians (COO)

... Well, we agree that cyber is a concern, and it, you know, it takes additional resources, and it also can have the impact of taking longer to get people live as you coordinate, you know, throughput on all the systems to make sure they're there. From a general demand perspective, given the markets that we're focused on, we're fairly durable. You know, with a heavy orientation in utilities and public, you know, utility bills have to be paid every month, and they're not really going down. So our mix for that gives us a nice degree of protection that we don't, you know, that others may not necessarily experience. And, generally, from a customer demand and capability system of things, we're not really seeing less demand.

Our RFP activities are up, and our, you know, engagement with customers trying to modernize are also up. But customers also have constraints on needing to do that across the entire spectrum of their software services. So we're expanding our positions on configurability for software to make transitions for them easier and make it more seamless and also enhance the ability to, you know, facilitate their data transitions in the process.

Charles Nabhan (MD and Senior Equity Research Analyst)

Got it. Appreciate all that, caller. Thank you.

Operator (participant)

Our next question comes from James Faucette from Morgan Stanley. Please go ahead with your question.

James Faucette (MD and Senior Equity Research Analyst)

Hi, thank you for taking my question. I'm asking a question on behalf of James. I was wondering what the competitive environment is looking like in the software space now that you're a solely software-focused company, if there's any changes there? And then secondly, what do you think your key differentiator versus peers is like now with this new realignment?

Paul Christians (COO)

You know, it's relatively consistent to what it has been. You know, we were heavily focused on software and then the downstream monetization of that with integrated payments. So that hasn't changed. Our alignments into our verticals and our sub verticals has allowed us to be more responsive and ensure, you know, execution and continuity of delivery and certainty of delivery across our spectrum. I think that is one of the key differentiators as well, that when we sell something, we do execute on it, and we do get it live. And that's a critical piece in our business that's culturally very important to us.

Operator (participant)

Our next question comes from Alex Markgraff from KeyBanc Capital Markets. Please go ahead with your question.

Alexander Markgraff (VP and Equity Research Analyst)

Hey, everyone. Thanks for taking my question. Just one for me, for Paul and- or Clay. Just sort of curious to get your thoughts on what the growth opportunity around cross-sell is and sort of like what that could represent on an annual basis in terms of growth contribution. Thank you.

Paul Christians (COO)

This is Paul. I'll take that one. I'll start with that one. Cross-sell opportunities are profound. They're significant. You know, we started that several years ago with our initial UPO offering, and then each of our steps since then have been in a position to further refine our market offering and expand that, and we're via the realignments organizationally highly defined and highly effective in being able to execute in that arena. So we think those are profound as we're doing that. In terms of, you know, what that would mean for us, I'm relatively fresh in this role, so I haven't had the opportunity to really tie all those numbers back out as we coalesced around those segments. So that'll be for a future time.

Alexander Markgraff (VP and Equity Research Analyst)

Thank you.

Operator (participant)

Our next question comes from Peter Heckmann from D.A. Davidson. Please go ahead with your question.

Peter Heckmann (MD and Senior Research Analyst)

Hey, good morning, everyone. I wanted to follow up on Manitoba and just see if you had any additional line of sight. Remind us, you know, what is still to be recognized there, and if you have line of sight as to when it gets reramped and when we might see that project completed?

Geoffrey Smith (SVP of Finance)

This is Jeff. So there's approximately $7 million still need to be recognized on that project. As far as the timeline of when that will be recognized, what's in our forecast right now is about half of that, this coming fiscal year and about half the next year. As far as, whether we'll stay on that timeline, we'll just have to keep you apprised of that. This is a project that has experienced significant delays over the periods that we've had it, and we think we've got the numbers dialed in conservatively, but, you know, we would just caution that we don't have perfect line of sight on this.

Peter Heckmann (MD and Senior Research Analyst)

Right. And so, yeah, certainly when we do hit those milestones, would we expect it to be relatively lumpy?

Geoffrey Smith (SVP of Finance)

No, it actually will probably come in decently smooth. This is a project that was sold before we did this acquisition, and it was using primarily professional services, not pursuing transactional revenue. SaaS revenue likely would sometimes, like to see... Eventually, a nice chunk of maintenance revenue will turn on this project, but we're a little ways out from that. So as we kind of work towards completion, essentially, it's getting recognized on a percent complete basis. So as our estimate kind of moves forward, the revenue will kind of come in gradually.

Peter Heckmann (MD and Senior Research Analyst)

... Okay, that's helpful. Got it. Got it. Okay, and then just on the American Rescue Plan, you haven't really called that out as a real driver or catalyst for spend necessarily, but I think the funds need to be earmarked here by the end of the year. Do you think that's gonna cause any kind of end-of-year budget flush, that or would we have already seen it?

Clay Whitson (CFO)

The American Rescue Plan? Yeah, I think we would. I, I don't, I don't believe it will. I think we've already. What we're gonna see, we've already largely seen.

Peter Heckmann (MD and Senior Research Analyst)

I appreciate it. Thank you.

Clay Whitson (CFO)

It's hard for us to really have visibility into that.

Peter Heckmann (MD and Senior Research Analyst)

Mm-hmm.

Clay Whitson (CFO)

It's, it's whatever our clients choose to tell us about it, which... And what they know about it, it's kind of a murky thing for us to get our arms around.

Peter Heckmann (MD and Senior Research Analyst)

Got it. Got it. Okay, I appreciate it. Look forward to talking to you soon.

Operator (participant)

Once again, if you would like to ask a question, please press Star and then one. To withdraw your questions, you may press Star and two. Our next question comes from Rufus Hone from BMO Capital Markets. Please go ahead with your question.

Rufus Hone (VP of Investor Relations, Private Equity)

Hey, guys. Good morning. Thanks. So maybe just a numbers-related question. And, Clay, I think you called out about $12 million of revenue headwinds in 2024. So if I, if I adjust the 2024 revenue guide for those $12 million of, of headwinds, then it looks like the midpoint of the 2025 revenue guide implies about 4% growth year-over-year. So I guess, what do you need to happen beyond those headwinds rolling off to get back to the high single-digit organic growth, and what are your thoughts around timing? Thanks.

Clay Whitson (CFO)

Well, so there are those headwinds which reverse. On top of that, we have been through an internal realignment, which we think will impact our sales organization favorably. But it's finding little time to get its footing. You know, new commission plans, new organizational structures to unify the sales organization as opposed to being in smaller groups of the companies we purchased.

Rufus Hone (VP of Investor Relations, Private Equity)

Thank you.

Clay Whitson (CFO)

I also believe, I also believe that the carve-out transaction we've been engaged in for the better part of a year, you know, has been a little bit of a distraction, where we'll be very happy to refocus all of our efforts on just growing the software and services business.

Rufus Hone (VP of Investor Relations, Private Equity)

Great. Thanks very much.

Operator (participant)

Ladies and gentlemen, at this time, in showing no additional questions, I'd like to turn the floor back over to Greg Daily for any closing remarks.

Gregory Daily (Chairman and CEO)

Well, thanks, everyone. I am excited that 2024 is in the books, almost over. It's been a busy transitional year and very excited for the team and for 2025, what we have in our pipeline, our visibility, and you know, we're excited about the future, and we appreciate your interest.

Operator (participant)

Ladies and gentlemen, with that, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your line.