Clarke Jeffries: Thank you for taking the question. Brian, very encouraging to see operating margins up substantially, operating income dollars up 19% year-over-year. You talked about improved cloud operations as a driver of that. does that mean that some of the capacity in the private cloud is already being reduced? And you’re taking up EPS today, but could you talk a little bit about the expectations for full year, how operating margins pan out for the rest of the year?
Brian Miller: Yes. It’s not so much of the capacity – capacity debt or we do continue to move clients to AWS, and we are on track with our plans to evacuate our first data center midyear of this year. But really, that – a lot of those costs don’t go out until after that data center is closed. So that’s not really the biggest factor. Some of the things driving those improved cloud efficiencies are the releases we’ve had over recent quarters of the cloud optimized versions of our product, which improves the efficiencies and lowers our hosting costs at AWS. The progress we’ve made with version consolidation, and we made significant progress last year and continue to have aggressive plans this year about sunsetting older versions of products and getting the benefits from both support costs and development costs around the expenses associated with supporting multiple versions of multiple products.
And the new AWS agreement that we talked about last quarter has provided us with increased efficiencies or increased cost efficiencies around our hosting costs. So – all of those are continuing to play out. And then on the revenue side, the outperformance in terms of revenues, especially on the payment side, where we were able to cover fixed costs in a better way with incremental revenues from things like driver history records above our plan that contributed there. And then lastly, we mentioned briefly, but continue to have effective expense management of OpEx. So both sales and marketing and G&A costs are growing at a slower rate than our than our overall revenues. So we’re getting efficiencies there and those factor into the rest of the year as well.
Lynn Moore: Yes. Clark, I’d add we are seeing efficiencies through the cloud, but there’s still a runway to go in the efficiencies that we’re going to achieve. And there’s some other internal initiatives we don’t talk a lot about, things like improving our gross margins on pro services. We’ve seen – we saw an uptick of that in Q1. That’s really a function of a few different things. It’s more of – it’s a strategic focus that we started working on last year. But it’s also a function of that we’ve had a more stable labor market. Our turnover has been much lower and sort of returned back to pre-COVID levels. And that really helps. It helps drive billable utilization. Other internal initiatives around things like rationalization of some internal IT costs and real estate costs.
Things that we’ve been working on behind the scenes are all starting to show some results in addition to the cloud. But I want to emphasize that the efficiencies that we’re going to see from further version consolidation and optimization and all the things that we’re going to do in the cloud are still out there for us to go capture.
Operator: Your next question comes from the line of Michael Turrin from Wells Fargo Securities. Please go ahead.
Michael Turrin: Hi, thanks very much. Appreciate you taking the question. Maybe on transaction revenue, the prepared materials mentioned a customer change from gross to net. Would be curious on the rationale there, whether that’s something we could see other customers elect for? And Brian, maybe you can just walk through both the margin impacts for us to consider there as well as the increased growth guide. Fast start came up a couple of times on the call, but if there’s any supporting commentary on what’s driving that, also helpful.
Brian Miller: Sure. Yes, last year, and we talked about this some last year, we actually had two clients last year, state enterprise clients that had changes from the gross to the net model. And still, the vast majority of our payments business is on the gross model, and we expect that to continue to be the case. So we really don’t see sort of large-scale changes like that ahead. It is a client decision. Most of our clients prefer the certainty and predictability they get from having a growth arrangement with us, where we’re responsible for the merchant fees and interchange fees and bear the risk of the fluctuation of those. And – so most of our clients prefer that. These two clients, one changed towards the beginning of the year.
The one that’s still impacting our comparisons changed midyear last year, and they had roughly between $4 million and $5 million, a quarter of merchant fees associated with that account. So it will impact us in terms of our comparison for the first half of this year, and then it will lap itself and it won’t be a factor. So as a result, our growth in transaction revenues because of that impact, and again, an impact on revenues, it actually improves margins by going to the gross model and the merchant fees for the first half of the year will just be up – or transaction fees for the first half of the year, grow in the low single digits. But the second half of the year, we expect low to mid-teens when that impact has lapped. But again, I don’t see that as a real trend going forward, but it is a client decision on an individual basis and different clients have different approaches to the risk they’re willing to take and whether they’re willing to manage those and pay those merchant interchange fees directly themselves.
Michael Turrin: Details helpful. Thanks Brian.
Operator: Your next question comes from the line of Jonathan Ho from William Blair. Please go ahead.
Jonathan Ho: Hi. Just wanted to maybe understand a little bit better the progress that you’re seeing, I guess, adding more transaction-based systems to your existing customers. Can you give us a sense of how penetrated you are in terms of those transaction systems? And whether you’re sort of on plan or on track in terms of adding more content to these existing contracts? Thank you.
Lynn Moore: Yes, that’s a good question, Jonathan. I don’t have those numbers just off here off the top of my hand, we certainly can get back to you with those. I would say that generally speaking, we got a long runway left. We’re still pretty early in our transactions business. You can point to our presentation at Tyler 2030 for how we saw transactions revenue to grow and the cash flow from that over the next five to six years.
