Quisitive Technology Solutions Inc. (TSXV:QUIS), a premier partner of Microsoft (NASDAQ:MSFT), shared a positive outlook in their first quarter 2024 earnings call, highlighting advancements in their AI strategy and a solid pipeline of new sales
The company reported first-quarter revenue of $29.9 million, a gross margin of 42.8%, and adjusted EBITDA of $3.9 million. They have updated the fiscal year 2024 guidance to a revenue range of $120 million to $130 million and adjusted EBITDA of $15 million to $17 million, reflecting the expected improvement in the second half of the year.
The company emphasized its focus on larger deals, particularly in the healthcare, public sector, and manufacturing sectors, while also noting the cautious IT services market for the remainder of 2024.
Key Takeaways
- Quisitive achieved Microsoft's AI and machine learning in Azure advanced specialization.
- They generated nearly $10 million in new sales pipeline and launched a targeted AI Accelerator marketing campaign.
- The company anticipates revenue growth from cloud data infrastructure and security projects and substantial AI gains in 2025.
- Quisitive has no future earnout payments due and expects to improve EBITDA margin by removing $1.2 million of projected revenue for transitional services.
- They target the mid-market segment in the U.S. and are focused on securing larger contracts with longer sales cycles.
Company Outlook
- Quisitive anticipates stronger performance in the latter half of 2024, with an updated revenue guidance of $120 million to $130 million and adjusted EBITDA of $15 million to $17 million.
- The company expects to see significant gains in AI starting in 2025.
Bearish Highlights
- The IT services market is approached with caution for the remainder of 2024.
- There is a noted softness in application development.
Bullish Highlights
- Quisitive is solidifying its capabilities in AI and unlocking co-selling opportunities with Microsoft.
- The company is making headway in healthcare, public sector, and manufacturing sectors with various projects.
Misses
- Quisitive will remove $1.2 million from their projected revenue, which is attributed to transitional services.
Q&A Highlights
- Sales cycles and approval processes for bookings have remained consistent.
- The company is securing larger contracts, which may result in longer sales cycles.
- Microsoft's year-end may influence seasonality in revenue.
Market Focus and Financial Strategy
- The company's primary focus is the mid-market segment in the U.S., aiming at the upper half, which offers thousands of potential accounts.
- There has been a modest increase in sales costs due to sales team expansion, while G&A expenses are expected to remain relatively unchanged.
- Quisitive is committed to maximizing shareholder value and expressed gratitude to its stakeholders for ongoing support.
InvestingPro Insights
Quisitive Technology Solutions Inc. (VANQ) has been navigating the competitive landscape with a strategic focus on AI and larger contracts. The company's recent financial data and market performance provide a nuanced view of its position. According to InvestingPro, VANQ's market capitalization stands at a modest $197.79 million, reflecting its status as a relatively small player in the IT services sector. Despite the challenges, the company's Price / Book ratio, as of the last twelve months ending Q4 2023, is at an attractive 0.27, suggesting the stock could be undervalued relative to its assets, which is a point of interest for value investors.
However, VANQ has been grappling with a significant decline in revenue, showing a -22.28% change over the last twelve months as of Q4 2023. This decline may raise concerns about the company's growth trajectory, especially in a cautious IT services market. On a brighter note, analysts predict that the company's net income is expected to grow this year, which could signal a turnaround from the previous performance and align with the company's optimistic outlook for the second half of 2024.
InvestingPro Tips indicate that VANQ has been quickly burning through cash, which may require close monitoring by potential investors. The stock has also experienced high price volatility, which could be a double-edged sword, offering opportunities for quick gains but also posing risks for those seeking stability. For those interested in a deeper analysis, InvestingPro offers additional tips on VANQ, which can be accessed at: https://www.investing.com/pro/VANQ. There are 16 more InvestingPro Tips available, which can provide further insights into the company's financial health and market performance.
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Full transcript - None (QUISF) Q1 2024:
Operator: Good afternoon, and welcome to Quisitive's First Quarter 2024 Earnings Conference Call. Joining us for today's call are Quisitive's Chief Executive Officer, Mike Reinhart and Chief Financial Officer, Scott Meriwether. Following their remarks, we will open the call for your questions. Before we begin today, I'd like to remind everyone that during the conference call, management will be making statements that contain forward-looking statements within the meaning of applicable Canadian securities legislation. Please refer to the company's forward-looking information disclaimer and statement, which can be found on the notice for this call, the website and the first quarter 2024 earnings release. Now, I will turn the call over to Mike Reinhart. Sir, please proceed.
Mike Reinhart: Thank you, operator, and good afternoon, everyone. We appreciate you taking the time to join our first quarter 2024 earnings call. Just a note, we had an issue with the press release getting sent out. It should be hitting the wire very shortly. So, we'll expect it to land here in a matter of minutes. Before we begin, I'd like to note that today's earnings call will be brief as we provided a comprehensive update just a few weeks ago. However, I did want to highlight that while we're refocusing back to our core as a pure play premier and specialized Microsoft cloud and AI solutions provider, our team has made important advancements and developments. We've seen encouraging progress with our AI strategy, offerings, and marketing program. Our dedicated efforts in AI, including robust marketing campaign initiatives and strategic alignment with Microsoft on their leading early-stage adoption offerings have generated nearly 10 million in new sales pipeline. By leveraging our Microsoft AI assessment and accelerator programs, we have engaged over 70 customers with Quisitive on Copilot and security initiatives, showcasing the early traction of this AI era. Additionally, we achieved the AI and machine learning in Azure advanced specialization from Microsoft in Q1. Further solidifying our AI capabilities within the Microsoft ecosystem and unlocking co-selling opportunities alongside Microsoft. We continue to prioritize aligning with Microsoft's focus on AI and are seeing positive returns on our investment through Microsoft funding and collaborative marketing opportunities. Recently, we launched a targeted marketing campaign for our acquisitive AI Accelerator, which provides a sandbox environment for customers to explore AI opportunities from a specific use case perspective. This campaign has significantly increased customer interest, resulting in 45 customer leads and two signed contracts in less than 30 days. This surge reflects the growing sentiment among customers who are eager to take action on AI and seek seamless ways to experiment with their data using AI tools. In terms of revenue recognition, our accelerators, copilot assessment programs, and security assessment programs are identifying critical security and data quality issues that must be addressed within customers' technology estates before implementing a comprehensive AI as a platform strategy. We anticipate that resolving these issues will unlock opportunities for revenue-generating cloud data infrastructure and security projects in the latter half of the year with more substantial gains in AI expected in 2025. Given the significant interest, our technical teams and global back-built team have been developing a repeatable methodology to guide customers from early-stage accelerator engagement to AI as a platform implementation and ongoing support. This prescriptive yet flexible implementation model aligned with best practices will enable us to meet the demands of our growing pipeline. Additionally, it will allow us to stay aligned with Microsoft's leadership in AI adoption in the industry for the upcoming fiscal year. Shifting our focus to specific industries, we are making significant progress in penetrating the healthcare, public sector and manufacturing sectors with notable wins and solution development. In the manufacturing sector, we continue to secure major deals for large-scale ERP migrations and consolidation projects using Microsoft Dynamics F&O. Currently, we are working on a $4 million contract for an ERP consolidation as well as providing data analytics and Azure managed services for a large publicly traded industrial leader. A win attributed to our expertise in the Microsoft Sure Step methodology and bundled offerings across the Microsoft Cloud. In the public sector, we are balancing the delivery of traditional cloud services with new AI developments. We are currently executing a nearly $2 million contract for a public education institution focusing on infrastructure and application development to consolidate and enhance the security of their identity management solution. On the AI front, we are collaborating with state governments to develop an advanced suite of AI backed tools designed to streamline the writing and reviewing of legislation and provide greater transparency to citizens. This initiative highlights the significant opportunities we have identified through customer AI strategy discussions where Quisitive can address market gaps with AI tools that leverage large language models and ingest multimedia data sources to transform the industry. In healthcare, we partner with Microsoft to secure a project for a large healthcare network aimed at modernizing their Microsoft Office 365 estate. This initiative focuses on enhancing collaboration by leveraging Microsoft Teams and cloud solutions, streamlining workflows, and providing a new content management solution. By utilizing Microsoft Teams and OneDrive, we aim to improve communication and coordination across the network, making it easier for health care professionals to collaborate in real time and securely share important documents. Additionally, the project will streamline workflows by automating routine tasks and integrating various applications, thereby reducing manual effort and increasing efficiency. The new content management solution will offer a centralized, secure platform for storing, organizing, and accessing critical healthcare documents, ensuring that the right information is available to the right people at the right time. The second stage of this project is anticipated to exceed $1 million further enhancing the network's technological infrastructure and operational capabilities. Our focus manufacturing, public sector, and healthcare is driving an increase in our $1 million deals. Thanks to our proven expertise in Microsoft technology and our deep industry specific knowledge. We are leveraging our comprehensive cloud solution suite, proprietary IP, and new AI offerings to deliver exceptional value to these sectors. This strategic approach allows us to effectively pursue and implement solutions that meet the unique needs of our customers in these industries. As highlighted in our last earnings call, I'd like to reiterate some of the strategic advantages available to Quisitive as a trusted premier partner of Microsoft. We are collaborating with Microsoft on joint marketing campaigns and funding programs to provide assessments in security, data, and copilot solutions, helping customers develop their AI strategy and plans. Quisitive continues to leverage this partnership to support the activation of our AI offerings for both existing and new customers. This strategy drives demand and accelerates customer acquisition. This partnership is crucial to Quisitive's broader sales and marketing initiatives, significantly reducing our sales cost as we develop our own AI and copilot pipeline. Utilizing these programs enables us to scale our efforts more efficiently, ensuring that we can deliver cutting-edge solutions while reducing our customer acquisition costs. As we progress through the year, we anticipate leveraging the increased demand and enthusiasm for AI. Our goal is to capitalize on this trend by offering premier technical guidance and integration strategies as a proud Microsoft go to part market partner. Additionally, we are committed to developing personalized AI solutions tailored to meet each customer's unique industry and business needs. Early indications of demand have been strong and we expect to see tangible benefits from these efforts in the latter half of 2024 and into 2025. Our redefined vision and strategy focus coupled with our investments and dedicated team position us well to deliver consistent and stable growth for our valued customers. Thank you all for joining us today. I'll now turn it over to our CFO, Scott Meriwether to discuss Q1 2024 Financial Results. Scott?
Scott Meriwether: Thanks, Mike, and thank you to all who are joining us for today's call. Before we move into the financial results, I want to take a moment to reiterate the changes in presentation to our financial statements that we made at December 31. All of our historical cloud and corporate costs are considered continuing operations. All results from our legacy payments segment are considered discontinued operations. All of our discussions will be only for the continuing operations of the company unless we specifically note it is for the discontinued Payments segment. Our first quarter results were in line with our expectations as revenue has stabilized since the second quarter of 2023 and we have maintained improvements we previously made to our margin profile. Revenue in our Global Cloud Solutions segment was $29.9 million a 6% decrease from Q1 of last year and a 5% increase from last quarter. The most indicative financial metric that best depicts the progress made within the cloud segment is gross margin. Overall gross margin in Q1 2024 was $12.8 million which was up $9 million or 8% from $11.9 million in Q1 of '23. Gross margin as a percentage of revenue increased to 42.8% this quarter from 37.3% in Q1 of 2023. Adjusted EBITDA for our continuing operations was $3.9 million in Q1 of '24, up from $3.3 million in Q1 of '23 and also up $1.1 million from the $2.8 million we reported last quarter. EBITDA margin increased to 13.2% in Q1 of '24, up from 10.5% in Q1 of '23. As we noted in our last call, we see the need to further invest in our AI teams and in sales expansion in fiscal year '24, so we don't expect our margins to grow in fiscal year 2024 from the current run rate. Over time, we do expect EBITDA margin to increase as overall growth should outpace the growth of our corporate and public company expenses. Quickly on payments with the sale PayiQ effective in January, the EBITDA contribution of the discontinued payments segment improved from a weak $1.9 million in Q4 of '23 to $3.3 million this quarter. For comparison, EBITDA was $3.7 million in Q1 of '23. Payments contributed $10.8 million of revenue in the first quarter of 2024 compared to $16.4 million in the first quarter of 2023. Moving to the balance sheet, at March 31st, we had $6.6 million of cash on hand. Our term loans were $68.6 million at March 31st, they were paid down four days later to $34 million. Our next quarterly pay down will be in June 30th and will be $850,000. At March 31st, our pro forma leverage ratio was approximately 1.9 times. Similar to last quarter, all our debt is classified as current at March 31st. After the closing of the bank card transaction and the corresponding pay down of the facility to $34 million we have ample headroom under our covenants and our debt will primarily be presented as long-term when we report the June 30th quarter. The current weighted average interest rate under term loans is 7.96%. Capital expenditures were $5 million in the first quarter of 2024. We don't expect capital expenditures to exceed $3 million for 2024. We have paid the outstanding Mazik earnout and the bank card earnout was cleared as part of the bank card sale. Going forward, we have no expected future earnout payments related to our past acquisitions and there's nothing accrued on the balance sheet. We are updating our guidance for fiscal year 2024 for the continuing operation. We continue to expect revenue improvement in the second half of 2024, but the general IT services market has been cautious about the remainder of 2024. As Mike Reinhart noted, we see AI activities driving pipeline growth throughout the remainder of 2024. One other item to note is that our prior guidance included $1.2 million of projected revenue for transitional services related to the sale PayiQ that we will now classify as a contra expense and are removing it from revenue. This lowers our revenue projection though it effectively improves our EBITDA margin profile. The updated guidance is as follows: fiscal year 2024 revenue from continuing operations, a range of a low of $120 million to a high of $130 million. Fiscal year 2024 adjusted EBITDA from continuing operations, a low of $15 million to a high of $17 million. This concludes the financial section of this call. We are now ready to open the call up for your questions. Operator?
Operator: [Operator Instructions]. Our first question comes from the line of Christian Sgro with VIII Capital. Please proceed with your question.
Christian Sgro: The first question I want to get at is sort of land versus expand, new logo activity versus expansion activity. Now would you say in the current pipeline, the mix is tilted more toward the hunting new logos? Or is it more about expanding wallet share and advancing conversations with current customers?
Mike Reinhart: It's a really balanced approach. Obviously, all of our strategic customers are engaging with us across a variety of fronts, including discussions about AI and activation and security related to those things. But also, for Microsoft, as part of the programmatic motions that we're doing with them, they have high interest in getting us engaged with net new customers to take advantage of our unique, set of expertise and scale capabilities to position Microsoft within those accounts and their copilot offerings and those kinds of things. So, it's very balanced, both in terms of our focus, but also Microsoft has a high interest in getting us introduced to new customers because of, our unique capabilities at scale that, they have limited, capacity and other partners.
Christian Sgro: Great. And for my second question, and it'll be follow on to the first, but what's the ideal target profile for a new customer? Say, one, you're targeting with Microsoft in terms of the size, their vertical maybe, and what they're looking for from the Microsoft suite?
Mike Reinhart: Yes. I mean, obviously, for us, we talk a lot about our focus on industry. So, healthcare related customers, is something that we continue to have strong momentum and some great capabilities. Manufacturing has been a really growing and public sector for us as well. And those are obviously all key, for Microsoft as well. If you follow what they're doing, those are heavy emphasis for them. And you can think about different places. The public sector has been slow to adopt technology and are really actively looking to engage both cloud as well as leveraging AI, healthcare. Similarly, both of them were laggards, in cloud adoption and transition, over the last several years and are actually taking an active approach to do that, as we see that. So that's part of it. Certainly, different offerings have different capabilities. Some of our managed services offerings are more in the mid-market space, as where some of our other capabilities across application and data and security and things like that are more in the enterprise space. So, those profiles kind of vary, but those industry focus and scale plays are important piece for us.
Operator: Our next question comes from the line of Rob Goff with Echelon. Please proceed with your question.
Rob Goff: How should we look at the revised guidance? Is that more of a fine-tuning? Or is there anything that you're seeing in the pipeline that perhaps was not as strong as when you last reported?
Mike Reinhart: I realize that's a change. I'll take a high-level and then Scott, you can jump in. But there are really two drivers. One, that I'll let Scott talk about in more detail around a change from how we need to capture some components of revenue versus expense. But more broadly as you think about the market, obviously, every one of the public companies that's been reporting has been talking about continued softness and we saw some of that and felt like we needed to be mindful of that and factor that into our adjustments as we think about the rest of the year as well as, how we think about investments and other kinds of things and being pragmatic about that. But, Scott, maybe you can talk about the changes in the way that we had to classify revenue versus expense?
Scott Meriwether: Yes, sure. So first off Rob, it is some tightening just for the guidance. We had a pretty wide range out there and just as we are looking at guidance, I'm trying to hone that in and put some tighter guardrails on where we see the year coming in. So that was one of our motivations. As Mike noted, there's also some just overall market softness. We again anticipate revenue growth to the back half of the year, but wanted to be cognizant of what the overall market is seeing. And then also one of the drivers was we had $1.2 million that we had planned on being revenue and being classified there that it's still going to be EBITDA that's received, but it has to be taken out of revenue and moved down into the expense line items and had been considered as revenue in our prior guidance. And that overall when you think about kind of where we were on the midpoint in the guidance would move the midpoint down that much as well. So, overall, trying to address that accounting change, but also trying to address some tighter guardrails and where we see the year coming in, but we don't anticipate back half of the year growth.
Rob Goff: Thank you. And just as follow-up, if I could, taking Christian's question a little bit further. When he was asking about cyber and AI contracts, can you profile how you're seeing contracts? Are they three-year contracts? And how do you see it, hitting traction? Like is it upfront is X percent and then ongoing is Y percent?
Mike Reinhart: Yes. No. As we've discussed, our managed services are either annual or multiyear contracts, and we continue to see strong growth in our managed services, components of it. So those, the profile and the nature of those are still in that annual auto renewal at a minimum and then in some cases, multiyear. The project services stuff is quite honestly when I'm talking about the $1 million, increased number of $1 million projects are larger projects that we're seeing that are multifaceted, the $4 million contracts that I talked about, which is combination of ERP, and, data and analytics as well as some of our managed services all blended together. So, it is important that they're large-scale contracts, but, again, the value is that we're able to provide these advanced professional services for implementation and custom analytics and, AI strategy while also providing, the managed services and some of those things as a component of that.
Operator: Our next question comes from the line of Jerome Dubreuil with Desjardins. Please proceed with your question.
Jerome Dubreuil: The first one is on what Microsoft said on the last call, kept it ramping up with CapEx to keep up with demand. Just not quite what we're seeing in the IT services space. Is this demand that's related to really model training to which IT services is not as exposed to? Or maybe if you can just explain the difference of what we're seeing and if you think that can be in a reliable, maybe a leading indicator for IT services down the road?
Mike Reinhart: Yes. Certainly, a component of what you're talking about is true that some of the early large language model and training and all those kinds of things is a small number of customers driving a large volume, and the services correlation there is not going to be high. The second piece though is, as you described, there's a lag, and there always is around deployment. I'll use the whole copilot scenario. Microsoft might go sell and as part of a new enterprise agreement with a customer have 25,000 or 30,000 copilot licenses that the customer starts paying for, as part of their upsell in that process that Microsoft will start to recognize. But they're not yet deployed and activated and all those things. And that goes back to they got to do the security, they got to set up the data and privacy and do all those things. And then so all those things, there's going to be, there's always a few quarter lag from the time that Microsoft secures the licensing agreements to the activation where customers are working to do that because Microsoft does everything on those annual or on the enterprise agreement level. So, you'll see some of that disconnect, but a lot of it is people really, thinking through. But the biggest driver at the moment is large language model training and other kinds of things that are a little less connected. Longer term, as we move through '24 to '25, we see where the activation of those, seats of Copilot as well as all the things that are going to happen inside organization around data security, all those will start to present themselves as services opportunities for companies like Quisitive.
Jerome Dubreuil: And you think that LLM work or investment from those few very large clients might be actually be diverted away from more traditional IT service work or is this other business not related?
Mike Reinhart: No. Unrelated, like there's lots of, there's lots of language model now is there's kind of the small language models and targeted language models and other things, and Microsoft is coming out well through them. We see a lot of work where we'll be working with organizations with those language models, helping train and deploy those. That's going to be a really important way of going forward versus the big guys using these large language models is customers using custom, scenarios as well as some of these small language models as part of it that companies like ours, in closet, will be very involved in helping both the training as well as deployment of solutions around those.
Jerome Dubreuil: And then maybe one last clarification. Scott, you might have mentioned it, but just to see what's the margin on this Pay IQ revenue of $1.2 million that's removed from the guidance, so basically the EBITDA impact from that change?
Scott Meriwether: We didn't break out the specific EBITDA impact, but it's think of it as just moving $1.2 million out of revenue and reducing your G&A expenses or your operating expenses. So, it's really just classification, it's the same EBITDA. But depending on where you have projections on the top-line, that $1.2 million will move down below OpEx and affect your calculations accordingly $1,000 a quarter.
Operator: Our next question comes from the line of Robert Young with Canaccord. Please proceed with your question.
Robert Young: Just a couple of questions on the guidance. Sorry, if I'm retreading something you already mentioned here. But an apples-to-apples comparison we would get there the one difference is this $1.2 million of reconfiguration of revenue. The remainder of the change in guidance is driven by your assessment to the macro. Is that the right way to think of it?
Scott Meriwether: Yes. It's overall just looking at the overall market, looking at the timing of some deactivation, it's there was less of it that we received that we think is going to happen in Q2. We think Q2 is going to be a fine quarter. But removing some of the top end of the projection and narrowing kind of the overall range of where we really see things coming in, but more market conditions, the timing of the adoption of AI, some of the softness that continues to be within application development. So, piece one is trying to get the guidance narrowed in a way to affect the revenue recognition change within piece two is acknowledging current market trends and just kind of how we see the year progressing through Q2, Q3. We continue to our trend lines remain the same, but it's more just activation of that revenue. We do believe AI will drive 2025 and remain very bullish on where we'll be in 2025.
Robert Young: Across some of the peers, it seems like bookings are very strong, demand is very strong, but it's getting bookings across the line into revenue, see deferrals, lengthy sales cycles, more stringent requirements on approvals. Relative to the last time you updated investors, has it gotten a little bit worse along those dimensions or is it relatively roughly the same? Are you seeing the same things?
Mike Reinhart: The delays are kind of consistent with what they've been. The thing that we are doing and it's something we're focusing more on is larger deals. So, it's something we've been more intentional about. So, securing some of the deals I talked about have been very intentional to have less high-volume transactions and secure larger contracts. And with those are longer sales cycles and some of those things, but much better for the business as we're securing them to have longer runway on those, services side. So that's been an intentional shift, which we do think is going to defer, the timing on some of those a little bit, which is part of the discussion on guidance just so that we know that but we do know that that's the right thing in the longer term is to have a higher average deal price and more $1 million plus engagements and we're very focused on that.
Robert Young: Last question for me just around timing of the year-end, the Microsoft year-end, does that change any kind of seasonality? It sounds like you're expecting maybe better, some of the revenue push towards the back end of the year. Maybe just talk a bit about that dynamic in that pipeline.
Mike Reinhart: Yes. Obviously, Microsoft is closing up their quarter and focused on doing the things. But as they go into the New Year, there'll be significant changes that they make. Every year they do, both in terms of field engagement, programmatic motion, marketing motion. We're in very active dialogue with them around, their new fiscal year planning, establishing our targets and scorecards, looking at funding programs, all the things that we're going to be doing in concert with them and all that kind of between now and the end of July really is when all of that gets fully baked and brought together as we launch the new year with them. And obviously everything is about how they're going to deploy and activate AI both copilot and others and you'll see all the things that they bring to market are going be centered around, how they really provide a conduit for somebody like Quisitive to go and be an agent for them to really activate all of their AI capabilities with their customer base.
Operator: Our next question comes from the line of Gavin Fairweather with Cormark Securities. Please proceed with your question.
Graham Smith: This is Graham on for Gavin. I just have a follow-up to Christian's question earlier just on pipeline. Can you give us an idea of, sort of what percent or how much of the pipe is actually coming from, like, Microsoft introductions? That'd be really helpful. Thanks.
Mike Reinhart: Yes. I mean, obviously, it's kind of hard to narrow leads from Microsoft. We don't get a ton of those. Everything we do is in joint partnership with Microsoft. So, if we do a marketing motion, we do it with Microsoft, not them doing it and giving it to us. So, we go and create a game plan with them, our marketing team with theirs. We then Target (NYSE:TGT), here's the customers we want to go after. Here's the messaging that we want to collectively do, and then we go hit it. And then, we'll together capture those leads and source them. So, the vast majority of it is not given to us by Microsoft. It's done in joint partnership with them. Similarly, our sellers are co-selling and it starts not just with responding to opportunities. It's sitting with Microsoft, field teams talking about their territories, our territories. Where did they have white space they're trying to attack? Where do we have white space? What are our offers? They've got their sales place. We map all of our sales place to their sales place, and we're jointly saying, you take the lead on these five accounts. We'll lead on these, and we'll we share across our CRM system to do all that. So, it's not, I wish there were, this huge flow of leads coming in from Microsoft. That's not really how it works. It's us really being an extension of them in joint marketing and joint selling with them across a large, set of accounts.
Graham Smith: Then just another on the pipeline. So, for first party IP, is that sort of growing faster than ProServe? Or could you give us an idea of how that pipeline is made up of first-party IP versus, ProServe?
Mike Reinhart: Yes. I mean, they go hand in hand. Our first-party IP is not the scale play SaaS offerings where, it's a $1.99 per seat, per month or something. Like, we're selling enterprise SaaS offerings through our MazikCare platform and things like that, tightly coupled with sophisticated professional services to implement Dynamics and integrated across that. So, they're very connected. So, the ratios of pipeline, the dollars are always bigger on services than they are in licensing. If you think about, the traditional models where it's anywhere from $7 to $10 of services for every dollar of licensing, very similar for us as we do that. So, they're done in concert always. So, our scale and growth of our IP related, licensing for MACE Secure and other kinds of things will grow and the services proportionally with it because they're very critical in concert with each other.
Operator: And our next question comes from the line of Divya Goyal with Scotiabank. Please proceed with your question.
Divya Goyal: So, Mike, I actually wanted to ask, go further on this Microsoft discussion. Thanks a lot for the color you provided. I do not think we have a 100 or at least, I don't have a 100% clarity on the size and type of customer you are servicing. I know in the past you provided some color. I'm trying to understand, considering where Microsoft Copilot is currently going, there are a lot of technology services providers that are addressing the market, and, obviously, a lot of them are catering to the enterprise segment. First of all, if you could provide color into what is the size of segment that you're servicing? And then do you anticipate an increased demand coming out of the mid-market and the SMB segment as Copilot takes hold across enterprises?
Mike Reinhart: Yes. So, SMB segment is not a target market for us. Those are smaller customers that the cost of sales, we certainly do them opportunistically, but that's not a primary target for us. So, for us, it's mid-market and in the U.S., call that a $500 million business to $5 billion to $7 billion is kind of mid-market in the U.S. And we're probably more focused on the upper half, which is thousands of potential accounts, obviously, in that space. But that's where our target is. We certainly have exceptions, some very large enterprise customers that we work with, doing various kinds of things, but that's the wheelhouse for us is what is in Microsoft's landscape called their SMC segment, small, medium, and corporate. It's the upper half of that segment of Microsoft, which is, their most important segment for growth opportunity for them, and it's where we're best aligned to service them.
Divya Goyal: that’s helpful. And then my second one is, for Scott. Scott, if you could provide us some color on the sales and marketing and G&A expense going forward. I know there's like on a year-over-year basis in these numbers, the sales and marketing expense has picked up pretty, sizably. So, if you could provide us some context as to how should we model this? And is there a seasonality, across the next few quarters for the sales and marketing and G&A expense? Thank you.
Scott Meriwether: Yes. So, some of that is classification, where we're just considering our presales team more of a sales and marketing. So, you've seen a little bit of a shift between the two lines. Viewed together, it would hold steadier. Overall, I do anticipate our current run rates are good run rate for you. So, taking a look at Q1, there'll be some modest increase in our overall sales cost just as we look at the need to expand our overall sales team. Outside of that, the G&A side remain relatively stagnant. The only seasonality within G&A is really our professional services costs around high periods of audit. So, we just came out of a higher period of that coming out of Q1. We tend to bottom out some in Q2 and Q3, with a little bit of pickup in Q4 there. Not that significant. We're talking about a couple of $100,000 here in seasonality, not $1 million. The only item when we look at historicals to note is that Q3 of 2023 had a very light G&A number that you'll see when we report if you look back at historicals. So that G&A number in Q3 of '23 had some one-time reversals and pickups in it. It was only around more of a $7 million number, whereas we've been running in the upper sevens, as in 7.7 from this quarter. So, it's an anomaly from a trending perspective, from a seasonality perspective. But otherwise, the 7.7 and G&A that we just reported for Q1 should be pretty stagnant for the remainder of the year, and I think it's fine for to use for modeling moving forward.
Divya Goyal: That’s helpful. Thank you.
Operator: Thank you. At this time, this concludes the company's question-and-answer session. If your question was not taken, you may contact Quisitive's Investor Relations team at QUIS@gateway-grp.com I'd now like to turn the call back over to Mr. Reinhart for his closing remarks.
Mike Reinhart: Thank you everyone for joining us today. I especially want to express my gratitude to our employees, partners, investors, and customers for their support. We truly appreciate your continued interest in inquisitive and are committed to diligently working to maximize our shareholder value. Operator?
Operator: Thank you for joining us today for Quisitive's first quarter 2024 earnings conference call. You may now disconnect.
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