David Wilkinson: Yeah, I’d say we have been really pleased with the conversations that we’re having with our existing customer base, both in the small and mid-market segments as well as the enterprise customer base. The sales cycle is different depending on which segment of that market we’re in. On the small to mid-size, it’s a much shorter sales cycle. We’ll call it three to six months. On the larger side, that will expand out six months to nine months. Some extend out to 12 months. Really, the platform conversations are all about the API capabilities that we unlock with connection to the platform and driving some of the enterprise functionality that we’ve been able to deliver to the enterprise customers and pushing that down back into the mid-market.
So some of the things that the enterprise scale players have had access to it for a long time, we’re now making available to our mid-market customers. So you’ll see more traction — we’re seeing more traction. You’ll see us with some more wins like we announced with Pressed, and that we’ll call it that mid-market-ish space where, or at the lower end of the enterprise where we’re seeing a lot of demand and a lot of traction. So positive trends, good discussions with new customers, and a lot of positive feedback from our existing base.
Isaac Sellhausen: Okay, that’s helpful. And then just a follow up on the transformation initiatives that you mentioned during the quarter. Is that focused on any particular business and maybe you could just frame if we will see any incremental costs going forward.
Brian Webb: Yes. So the transformation initiatives we described, $100 million cost out program, of which $70 million benefits this year and $30 million flows into next year. That program is underway and we’re doing well and it’s really three major buckets. One is hardware design and optimization on the hardware side. The second, which is the biggest piece, about 50%, is within our services business and this is doing more remote solve. This is having a different skill set. Now that we’re separated as two companies, we don’t need the same skill set. Those are just two examples. And then the other category, about 25%, is corporate expenses and real estate expenses and so that cost program is going well. The transformation and restructuring costs to achieve those cost savings that you saw in the quarter, that’s severance, that’s exit costs related to rightsizing the real estate portfolio and the IT portfolio.
And we expect, if I take the separation bucket plus the transformation bucket, about $80 million to $90 million of spend this year in total, including what happened in the first quarter and that’s in line with the free cash flow guidance that we’ve given.
Operator: Our next question comes from Alex Newman [ph] with Stevens. Please proceed with your question.
UnidentifiedAnalyst: Hi, this is Alex on for Chuck Nabhan. Just on the restaurant segment, we had 600 basis points of margin expansion. I think you attributed that to some transformational costs. Is that margin in the mid-to-high twenties something that we should expect for that segment going forward?
Brian Webb: It is. We would expect that segment to be at 26% to 27% for the full year. So it is something that we expect to continue.
UnidentifiedAnalyst: Okay. And then on digital banking as well, that margin also put positive after a couple years of investment, should we see some similar margin expansion going forward and then just how I think about revenue, could you maybe balance what the mix of ARPU versus year growth will be for that segment?
Brian Webb: Yes. So on margin, we expect margin to continue to improve for digital banking, roughly 39% for the full year, which will be up about 1% year-over-year. So we do expect EBITDA to grow faster than revenue, and we expect the revenue growth to be a combination of both the user growth and ARPU expansion as we go through the year. Like we saw, it was pretty good split in Q1. We’d expect that to continue.
Operator: Our next question comes from Matt Summerville with DA Davidson. Please proceed with your question. Thanks.
Matt Summerville: Just a couple of quick follow ups, Brian, to that $80 million to $ 90 million of cash related severance, etcetera, costs you expect to encounter this year. I realize it’s early. What does that number roughly look like as you’re thinking about ’25, I guess. How much can that tail off and therefore accrete to the company’s free cash flow profile and then have a follow up?
Brian Webb: Yeah, that definitely does come down over time. Separation, is a component of that that’s separation related, which goes away completely and then the part that’s around rightsizing the cost base. We’ll always have incremental cost work to do as we go forward, but we would expect that number to come down and that would be a help to free cash flow. In addition, as we improve our leverage and reduce our debt, the interest reduction would be a help to free cash flow. Holding CapEx steady as a percent of revenue or would help as we go forward, or actually holding CapEx steady and improving it as a percent of revenue with help free cash flow. So those are the drivers that give us confidence that we can improve free cash flow as we go forward.
Matt Summerville: Got it. And then you talk — spend some time talking about customer ads in the businesses. I was wondering if you could maybe touch on what your attrition rates have been looking like in retail restaurants and digital banking and how that maybe compares to even just a year or two ago. Again with a focus on all three reportable segments, please. Thank you.
David Wilkinson: Yeah, I would tell you that we’ll run through all the segments. So we’re focused on adding net new customers and we feel like we’re making traction there on the — we are pretty enterprise heavy focused. So we see strong retention of our enterprise customers, specifically on the retail side. When I get to the restaurant business, again, enterprise side, we see strong retention of our customer base, adding net new customers. So taking share and then on the smaller end of that, we see the normal — some of the normal churn happening at that small base. We could see that up to 10% and that small side of the business as our restaurant customers go out of business. On digital banking, we continue to see very strong renewal rates.
We’re doing 90% plus of our contracts and then you look at net retention rate on revenue and actually we’re seeing some strengthening of price and then we’re expanding like we did with the 200 customer and expanding ARPU with our existing base by cross selling and upselling across the capability that we move to operationalize as a singular portfolio from the market into that market segment. So overall we’re feeling good about it, really normal kind of attrition trends that we’ve seen continuing.
