Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the G. T Y Technology Holdings Q4, 2019 earnings call.
At this time all participants are in listen only mode and after the speakers presentation. There will be a question and answer session.
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John correct.
CFO. Please go ahead.
Thank you good morning, everyone I'm, John current DTY, CFO and I'd like to welcome you to our fourth quarter earnings conference call for 2019.
With me on todays call or Steve rolled leader, DTY, CEO, and chairman and Harry you GT Wise Vice Chairman.
Please note that our earnings release is available on the GP White website at Www Dot DTY technology Dot com.
And contains additional information about our financial results.
During the call we may use a non-GAAP financial measure if we believe it is useful to investors or we believe it will help investors better understand a result, where business trend.
You can see a reconciliation of certain items from GAAP to non-GAAP and exhibit two of the earnings release.
Any forward looking statements we made in the earnings release or any that we may make during this call are based on information that we believed to be true as of today.
Things often change however, and actual results may differ materially from those projected or anticipated.
Please refer to our cautionary statements in the earnings release under the heading forward looking statements.
You should also refer to our SEC filings, including our perspective, some form four to four before filed on June 620, 19 for a list of risk factors, a clickable to GT why.
With that I'll now turn the call over to Steve.
Thanks, John.
Hi, everyone and thanks for joining us this morning.
In 2019, we executed our strategy and delivered strong results in the back half of the year.
We believe we have momentum heading into 2020 and expect to accelerate top line growth this year.
As we completed the initial year of operations at G. T Y I'd like to start with a review of our brief history and highlight some of the things we've learned in that time.
In February of 2019, Gee why was formed with the acquisition of six companies, providing unique SaaS solutions for the public sector market.
These solutions listed by relative revenue contribution to GT why include budgeting with questar going Sherpa.
Payments with Citi base.
Grants management with the service procurement with bonfire and permitting with open counter.
As you may recall, the founders of G. T Y saw a great opportunity to provide modern SaaS technology to the public sector customers of North America.
By any measure this market is large and in the early stages of digital transformation.
Our experience over the last year's confirmed that were in the right market to support our growth plans.
That experience also led us to three key findings.
They include product market fit our go to market approach and our back office efficiency opportunities.
Gee why six business units provide best of breed solutions solving key pain points for public sector customers.
The time I've spent with our customers and our engineering teams has clearly shown me that we have SaaS technology that our customers really value.
And we have the engineering talent to continue innovating and expanding our product base.
Our products are flexible market relevant and easy to deploy accelerating our customers time to value.
This combination allows us to win in this very fragmented marketplace.
Secondly.
Early in our journey, we found the six companies were very different levels of go to market organization maturity.
Some had established sales marketing organizations, while others had founder led sales organizations.
It was clear that we needed to invest in our internal sales and marketing resources further develop our partner channels and implement systems and processes to support our sales teams. So that all of the business units were operating at a high level.
Finally, our back office systems and processes, we're unique for each of the six businesses.
We saw a great opportunity is to standardize on common systems and processes. So we can scale our businesses more effectively.
These early findings drove the development of our GT why business strategy.
This strategy is comprised of four key drivers to help us rapidly grow our topline and enhance our operating performance.
I want to briefly touch on our performance against each of these four strategic drivers one customer success to go to market excellence, three continuous innovation and for operational efficiency.
First we have an unwavering focus on customer success.
We operate in a referral market and keeping our customers happy is paramount.
We are also a SaaS business, so keeping our customers happy keeps our churn low and our renewal base growing.
The ultimate test of a happy customer is whether they will promote you with other potential customers.
We've got a number of examples on the GT why website and the individual Bu web sites of customers, who are willing to do more than just provide a reference.
They are willing to invest their time and helping us create marketing collateral like some of the great videos that we have on our web sites.
Customers like the city of Detroit, who maximize their grant funding through the use of these service.
The Great Lakes water authority, who is managing $1.8 billion in procurement contracts with bonfire.
Satisfied customers are also customers, who renew their contracts with us year after year.
We've experienced low churn rates and negative net dollar churn for 2019.
For those of you that are new to the SaaS business negative net dollar churn is a good thing.
These are good results and you had 2019 marks only the beginning.
Well continue to focus and invest in customer success customer support and product development in an effort to delight our customers.
Our second strategic driver is anchored in the continued evolution of our go to market approach.
We need to continue to mature our sales and marketing teams and expand our channels to accelerate growth.
To be very clear go to market excellence is our mantra.
Over the last year, we've been bit very busy in this area and are proud of the progress we've made to date.
Our efforts were focused in two areas first is the expansion and the development of our business unit sales and marketing teams.
Secondly, expanding our partner ecosystem, including service partners technology partners and distribution partners.
As we discussed on our Q3 earnings call. We added 20 people to the sales and marketing team last year.
In the fourth quarter, we added 22 more people to the team, bringing our six month total to 42, almost 50% increase in our sales capacity.
We've been working hard to onboard this talent and we're starting to see the first part of a positive effects of these investments.
We're seeing more leads being generated resulting in a significantly larger pipeline for 2020.
On the channel front, we've been busy as well last quarter, we announced a new co-operative contract with the Texas Department of information resources for our bonfire business.
In Q4, we've seen five new customers added under that contract.
Cooperative contract vehicles like this one can greatly shorten our sales cycle, resulting in lower cost of sales and the rapid addition of new customers to GT why.
We're happy to announce that in the fourth quarter. We also signed a new relationship with Kara soft a trusted IP solutions provider was a number of co-operative contracts already in place along with the sales and marketing resources focused on Gtwok.
Right now our E service grants management and open counter permitting and licensing products are available through care, a soft and moving forward, we anticipate adding additional GT wide products.
On the channel front I'm excited to announce the signing of a joint marketing agreement with grant Thornton, which will be working with our budgeting and grants management business units as both an implementation partner and a reseller of our products.
Partners are a key component of our go to market model and I am expecting them to play a bigger role in the future.
For example.
Our partner in four and our quest to good team just close the city of New Orleans, one of the top 50 cities in the us.
More details on both of these announcements will be coming out the next couple of days.
Finally, we are investing to reach more customers in both the middle market and enterprise market.
In Q4, we added 62, new customers, which compares to 72 new customers in Q3.
Most notably the 62 customers added this quarter contributed higher subscription values in total than the customers added in Q3.
We see this is early early success of our strategy and we increasingly closed business at the enterprise level.
Some notable enterprise wins in the quarter include the city of San Jose The US Virgin Islands, and the California Department of housing and community development.
Our third strategic driver is continuous innovation to maintain our product leadership and develop new technology to effectively serve our market.
During Q4, we introduced a number of new offerings, including multi step approvals and burgeoning for open counter permitting and licensing.
Fund Max grants management for me service and city basis, new user profile functionality.
We also saw the first joint offering between city based payment functionality and open counter permitting and licensing where we're providing a joint solution to a major use city.
In addition to the new technologies and offerings that are visible in the marketplace. Our engineering teams are working diligently to improve the performance and security of our existing platforms as well as working to make them easier to use and easier to implement.
We believe our products are best of breed today, and we're committed to maintaining technology leadership.
Our fourth strategic driver is operational efficiency.
Early in our journey, we observed a need to implement common technology and best practices across our business units to drive out redundant costs and allow our business units to focus on their customers and product innovation.
We've completed our implementation of net suite. So we now have a single ERP system for all of our business units.
This should allow us to close our books faster and improve the visibility into our business operations.
Now that we have our ERP in place we can move on to other systems that will help us improve productivity like the rollout of concur for managing our travel and entertainment spend.
It's important to note that in 2020, we will we will be using our own quest sticker budgeting software to manage our forecasting and budgeting processes.
With regard to our rollout of Salesforce Dot com, we expect to have our system fully operational in Q1.
This is a critical tool for our sales teams and we're looking forward to having all of our sales data in one place.
In summary.
I'm extremely pleased with our team's progress against our strategy.
Im accustom to moving fast and I would have liked to have been further along on a few fronts, but that said I see the visible impact our strategy is having on our business and more importantly on our many customers.
Now, let me turn the call over to John who will talk about the effect our strategy is having on our Q4 and our annual financial results John over to you.
Thanks, Steve.
Our product offerings are primarily cloud based SAP solution.
Generate recurring revenue stream.
As Steve mentioned earlier, we have high customer satisfaction that results in low customer churn and higher lifetime value.
From a financial perspective, we believe this gives us stable foundation for us to build on overtime.
Well I recurring revenue represents the majority of our revenue today. We also have services revenue associated with the configuration or implementation of our solutions with our customers and this revenue can vary from quarter to quarter.
Over time as their subscription base growth the mix of our revenue from services should decline.
Moving onto our financial results for the quarter, our GAAP revenue was $11.5 million in Q4 of 19 compared to 8.8 million in Q3 of 19 and 8.8 million in Q4 of 18.
On a non-GAAP basis revenue was 12 million for Q4 of 19 compared to 9.8 million in Q3 of 19 and 8.8 million in Q4 of 18.
For the full year 2019, GAAP revenues were 36.4 million compared to 29.8 million in 2018, an increase of 22%.
Full year non-GAAP revenues were 40.5 million compared to 29.8 million for 22018, that's an increase of 36%.
A reconciliation between our GAAP and non-GAAP results is included in exhibit two of our press release.
From a non-GAAP revenue perspective, we saw a year on year revenue growth of 37% for the fourth quarter, which has accelerated when compared to the 28% growth we reported in Q3.
On a non-GAAP quarter on quarter basis revenue grew by 23%.
As I noted on the call last quarter, we had some seasonality in our payments business. Our city base business experience is higher transaction volume in Q2 in Q4 as a result in certain payment streams that occur on a semi annual basis.
Such as by annual real estate tax payment.
Adjusting for this effect, we grew by mid teens quarter on quarter.
Taking a look at our operating expenses. Our total GAAP expenses were 49.2 million for Q4 of 19 and included a goodwill impairment charge of 32.2 million.
Excluding the charge, our operating expenses increased 9% quarter on quarter.
Our non-GAAP expenses also increased by 9%.
Sales and marketing expenses were up by 13% with our investments in incremental sales and marketing resources and represented roughly half of our overall increase in operating expenses.
The impairment charge for the quarter resulted from the year end review of our intangibles.
Based on this review we identified four business units, which are performing below our original expectations and we updated the valuations for these companies.
Based on this analysis, we identified goodwill impairments for three business units, resulting in an $18 million charge for city base that $13 million charge bonfire, and a $1 million charge for either.
From a cash perspective, we ended the year with 8.4 million in cash as announced during the quarter. We raised 12 million as a result, the new debt financing arrangement managed by you BS O'connor LLC.
We also announced that we are reviewing a broad range of potential strategic on their alternative to best position the company for the future.
We have not set a timetable for the conclusion of this review nor have we made any decisions related to any potential strategic alternatives at this time.
Now, let's take a quick review of our results for the business unit.
Budgeting continues to be a strong performing segment for us.
Let's stick out reported 3.9 million in non-GAAP revenue, representing 55% growth year on year.
And 13% growth quarter on quarter.
Sure, but our budgeting platform that specializes in large enterprise clients reported 1.8 million in non-GAAP revenue for the fourth quarter.
Given the size and complexity the deal for Sherpa revenue can vary from quarter to quarter due to service delivery timing.
For the full year non-GAAP revenue for sure, but with $5 million, representing 62% growth year on year.
On fire, our procurement platform reported 1.5 million at non-GAAP revenue, representing growth of 65% year on year, and 18% quarter on quarter procurement businesses delivered another strong quarter.
He service or grants management platform reported 1.6 million and non-GAAP revenue representing growth of 36% year on year, and a decrease of 12% quarter on quarter.
We are seeing early success with our new fund Max offering.
Open counter our permitting platform reported.
$500000 and non-GAAP revenue represented growth of 4% year on year and flat quarter on quarter.
We brought on a brand new sales team for open countering Q4, and we've already seen them returned to growth in Q1.
City base, our payments platform reported 2.6 million and non-GAAP revenue, representing a decline of 2% year on year, and an increase of 54% quarter on quarter.
As I noted earlier, there's seasonality the city basis, transactional revenue, which is driving more than half the city basis quarter over quarter growth.
Finally, as we noted in our press release on February 14th.
Our non-GAAP revenue guidance for 2020 is between 57 million and 63 million for the year, representing 48% growth at the midpoint of the range.
We also expect increased operating leverage as we scale leading to improvements in EBITDA and free cash flow as we move through the year.
I should note that our 2020 outlook does not take into account any potential impact from the Corona virus.
Well, we have no revenue from countries outside North America, or selling model, partly depends on event based marketing and travel to client meetings.
At this time, we are unable to quantify the effect of continued trends with travel and meeting cancellations due to the virus.
While our SaaS products generally allow for work from home usage, so that physical closure of offices due to current of Irish should not materially affect us. We are unable to know if outbreaks of grown a virus could affect budget sizes are budgeting priorities of our government clients going forward.
Operator, let's open it up for questions, Steve will provide some closing comments after the Q anyway.
At this time I'd like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and we'll pause for a moment, while we compile the Q and a roster.
And again, if you'd like to ask your question. Please press star one on your telephone keypad.
First question comes from the line of Joshua Reilly with Needham and company go ahead. Please your line is open.
And Josh when Riley. Your line is open if you're on mute. Please unmute your line.
Can you hear me.
There were yet.
Can you hear me now okay, sorry, yes to answer.
Yep.
So first off congrats on the strong quarter I think top of everyone's mind here as you mentioned the impact from Covidien 19, what have you seen specifically in the last couple of weeks and then you mentioned the impact on conferences in salespeople traveling.
How much of your sales are done in person versus over the phone.
Josh It's it's a good question I'll kind of parse the answer into two pieces because.
Most of our our business is spread over both the middle market in the enterprise market. So the answer to your question varies depending on the go to market strategy of the business unit those business units that are focused more on the middle market.
Our somewhat relying on conferences, but frankly are due a direct sales have a direct sales motion to clients in potential clients.
The enterprise market is more of a face to face market and and frankly, the sales cycle was longer there anyway. So it's impossible to tell whether they'll we'll see any buying patterns shifts as a result of that.
And again each business unit is different you can look at the sales motion for bonfire, which is kind of product preliminary middle market done out of Toronto done remotely.
I can't anticipate any kind of of impact there, but there isn't a big requirement for face to face selling you go to the other end of the spectrum with Citi base, where they have more of an enterprise sales motion.
While the government still issues RFP and and we propose remotely you can never tell what there, but how they're buying patterns are going to be impacted so I guess the short answer is it varies by business unit and by the market that they go after right now.
Okay, Great and then next question how should we think about the scope of the strategic review process is that considering both.
Both internal operations and a possible sale sale of the business or.
Is there something else under review during the process that investors should be aware aware of.
And Josh show. This is John we can't really comment.
Anymore than what we've already commented.
In our and our and our comments today and in release, we sent out in February.
Okay. No problem and then you mentioned in the four business units that you had to take a goodwill impairment impairment charge on.
What are you doing to.
Improve their performance and operations here over the next 12 to 18 months.
Sure and I'll focus so of the for really only two of them added up at a material impact right. The city Bates and bonfire and we'll take those is really two different scenarios. So bonfire. There is we talked about in the quarter, they're growing well and our or get well program.
For them as to.
Support them and help them to grow faster right. They are behind our original expectations, but theres still doing very well. So the focus there is just to help them to continue to accelerate their growth patterns I think thats pretty straight board.
Great business model very profitable.
And their sales engine, just we need to give that a little bit more gas to help them the scale.
City base much more complicated.
Business there they have as Steve mentioned more of an enterprise sales motion.
Theres, an integration element to their product as they deploy it.
More complex.
But a similar story they were predominantly.
Founder led from a sales perspective, and we've invested.
In a sizable sales team for them.
So.
Part of the teams focused on the utilities in the other part of the team is focused on municipalities.
Really just got on on the ground right in Q4.
So there it's about bringing these guys up to speed, making sure they're fully onboarded and enabled so that they can get to productivity as quickly as possible.
And so those are our actions there'll be some.
There's already been some cost reduction activities undertaken by the team.
And we'll continue to to make.
Make changes in that space as well as we move forward.
Okay, Great and then my last question for me.
Given kind of where you're out with your opex trends trends here in 2020.
How should we think about the piece of sales hires here in 2020 versus pretty aggressive sales hiring you did in the back half of 2019.
Thanks, guys.
Sure, Yes ill start and John can draft in I think.
Our first priority Josh was to get the existing sales and marketing team that we've hired productive.
We've got the processes in place, we're giving him the tools to go to market. We are beginning to coordinate how we go to market.
Consistently across the GT, why enterprise and and frankly, we want to hit we want to see that team hit stride as we move through the year, we'll take note of the productivity gains and we'll make decisions on whether we want to continue to expand that workforce and when we want to continue to expand it.
So more to come on the decisions for expansion, but right now our priority is getting this team productive.
Yeah, as Steve said, our expectations for 2020 are that we will add sales and marketing capacity during the year, but at a slower rate than we did.
On the back half of 2019.
As you said, it's really a focus on getting the investments we've made productive before we really step on the gas from hiring perspective.
But our expectations are these guys are going to come up to speed and.
We'll be putting more resources.
Into sales and marketing as we move through the year.
And again as a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
And there are no further questions at this time I turn the call back over to our presenters.
Okay. Thank you operator.
Just to close in 2019, we executed our strategy and delivered strong results on the back half of the year.
We have momentum heading into 2020 and expect to accelerate topline growth. This year I want to thank all of you for joining our call. This morning. We appreciate your interest in GT wind and have a great day. Thank you.
This concludes todays conference call you may now disconnect.
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