Q4 2020 Q2 Holdings Inc Earnings Call
Yeah.
Good morning, My name and Stephanie and I will be your conference operator today.
At this time I would like to welcome everyone to the Q2 holdings fourth quarter and full year 2020 financial results Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during the session and you will need to press star one on your telephone.
And you I would now like to turn today's call over to Josh Yankovich Investor Relations. Sir. Please go ahead.
Okay.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Okay.
Thank you operator, good morning, everyone and thank you for joining us for our fourth quarter and full year 2020 conference call with me on the call today is Matt Flake, our CEO and David <unk>, our CFO and Jennifer Harris.
The call contains forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance Q2 holdings and actual results may differ materially from those contemplated by these forward looking statements and we can give no assurance that such expectations or any of our forward looking statements will prove to be correct.
Important factors that could cause actual results to differ materially from those reflected and the forward looking statements are included in our periodic reports filed with the SEC, including our most recent annual report on form 10-K, and subsequent filings and the press release distributed yesterday afternoon, and regarding financial results and we'll discuss today.
Forward looking statements that we can make this call are based on assumptions only as of today discussed investors should not assume that these statements will remain operative at a later time and we undertake no obligation to update any such forward looking statements discussed on this call.
Also unless otherwise stated all financial measures discussed on this call will be on a non-GAAP basis and discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which may be found on the Investor Relations section of our website and in our form 8-K filed with the SEC yesterday.
Afternoon, Let me now turn the call over to Matt.
Thanks, Josh today I'll share some highlights from the fourth quarter and full year 2020.
And then turn the call over to David Mee Hawk, our new Chief Financial Officer for a more detailed look at our fourth quarter and.
And 2020 financial result, as well as guidance for the first quarter and full year 2021.
And the fourth quarter, we generated non-GAAP revenue of $109 7 million up 24% year over year and 5% sequentially.
Non-GAAP revenue for the full year was $407 $2 million up 28% year over year.
We added approximately 700000 registered users and the fourth quarter ending the year with $17 8 million users on our platform a year over year increase of 22%.
As these results indicate the fourth quarter was a solid finish to an unprecedented year flow business. We continued to generate considerable expansion activity within our customer base, we onboard new customers and users and an impressive rate and we saw another surge and digital activity prompted by stimulus payments issued in December which our teams and systems managed.
Well.
While net sales front, we had several notable wins in the quarter, including one enterprise and two tier one day.
One of the highlights from the quarter was an expansion deal with a tier one retail banking customer and the $8 billion Bank made the decision to replace their legacy commercial banking solution with Q2's corporate banking suite.
And what was a highly competitive evaluation the bank cited our execution against our corporate roadmap and the ability to manage all customer relationships from a single platform as key drivers and their decision.
Along with the purchase of our commercial banking line. This customer opted to extend their existing agreement with Q2, providing and another example of the mission critical nature of our solutions and the ability to identify other expansion opportunities given the far reaching benefits of our platform.
Enterprise deal and second tier one way and in the quarter were both within digital lending and.
The enterprise win was with the U S subsidiary of a top 10 Global Bank, which selected us for a loan data and enterprise coaching solutions I believe wins like these are an indication that our loan pricing solutions continue to gain traction and the market during.
During the fourth quarter. We also continued to see impressive cross sale and renewal activity across our customer base, which rounded out and already strong year of expansion performance.
Primary driver of this performance was renewal activity with both digital banking and lending customers as I stated throughout 2020, I had been tremendously encouraged by our customers' desire to proactively extend their relationships with us.
And our expansion performance throughout the year that has helped offset some of the macro driven slowdowns and net new decision, making that we have previously discussed the continued.
<unk> strength of our cross sale activity is partially attributable to the breadth of our product portfolio and the innovation of our teams continue our teams continued to deliver we.
We saw strong demand for products like card swap centric for risk management, and our digital acquisition and Onboarding solutions with traditional financial institutions and Fintech alike.
We're seeing a steady increase and interest for these products, which indicates to me that the pandemic has accelerated demand for digital acquisition risk management and other digital features that provide for a more comprehensive and seamless and user experience.
In addition to our sales execution the fourth quarter saw remarkable performances.
Our delivery and hosting teams as our user growth from the quarter suggests we continued to deliver our software to new customers added and impressive clip.
While continuing to see steady organic user growth I was particularly impressed by the fact that we had two of our largest customer go lives ever in the fourth quarter within a two week span, we launched and approximately $40 billion customer for retail and approximately $50 billion customer for commercial as I've said in the past.
While our partnerships formally began at contract signing it's the implementation that dictates the tone of the relationship and I believe our success with these projects puts us and are positioned to grow these customer relationships for years to come.
As the year came to a close many of our customers participated and the issuance of hundreds of billions of dollars and stimulus payments, we had our teams and it infrastructure ready to go.
And out of the role we played and delivering funds from the stimulus relief package and I want to recognize our customers and teams for their hard work and making the delivery of those much needed stimulus payments possible for the end users with.
With the fourth quarter now and the books I'll take a moment to reflect on 2020, which was perhaps the most unique year and our company's history to begin with I had been extremely proud of the resiliency.
Of our employees customers and the underlying business the business environment for the year was tough and unexpected but as we look back I am very pleased with the results we generated and the lessons we will take forward and.
Many economic implications of COVID-19, further emphasized just how critical our customers are to their communities and the functioning of the global economy at large it was a reminder, that we need more than a few large banks in this country without the network of thousands of community and regional financial institutions. There is no way that hundreds of billions of dollars and.
And as payments and small business loans could have been efficiently delivered the events of 2020 also demonstrated just how critical our solutions for our customers to function in today's environment.
Through our efforts to support and serve our customers. The Q2 team lived up to our mission to build stronger more diverse communities by strengthening their financial institutions at the highest level.
The amplified call for diversity inclusion and equity and 2020 caused us to pause and consider our values and what our company means to our employees and the world. While we've always believed and the value of different backgrounds and perspective I'm proud of the way we've stepped up and participated in our communities from the juvenile diabetes Research Foundation.
To local groups like code to college, and Black Girls code, which are dedicated to creating opportunity and technology for underrepresented groups.
The hundreds of other groups across the globe in the many communities, where Q2 team members live and work and we're just getting started in 2021 diversity inclusion efforts will remain a core focus across the company and investors should expect to see more disclosure from us and regards to ESG initiatives throughout the year on the business side I was pleased.
With the way the team continued to perform after shifting to and all remote environment and March sales team forged ahead in spite of unforeseen headwinds, reaching new customers and expanding our relationships with existing customers signing three enterprise customers 13 tier ones and numerous tier two and three deals and a re.
Record number of renewals and cross sales I was also impressed with the innovation from our product and development teams.
We designed and deployed a full PPP loan origination and forgiveness solution and a matter of weeks, we integrated various components of our portfolio to create and launch treasury onboard and we were recognized by <unk> as a best in class provider of commercial banking solutions, and we continue to add compelling functionality across the.
Portfolio with a focus on user experience or.
Our delivery team implemented our software and our record pace, adding over $3 1 million users and 2020 approximately as many as we had and total at the time of our IPO in 2014 and in spite of 2000 Twenty's challenges. It was our first full year with our combined product portfolio and in digital banking.
And digital lending banking as a service and data driven solutions and our performance across those lines of business provides a glimpse into what we expect for 2021 and beyond we ended the year with more than 1700 employees and more than 1000 customers, including leading financial institutions and fintech companies across the globe.
We increased our footprint and all of our market segments and geographies, we saw record setting expansion activity across our customer basis, and our solutions continued to generate substantial amounts of incredibly valuable financial data approximately $3 seven trillion dollars and commercial loan pricing data and more than <unk>.
4 billion log ins into our digital banking system with all of this and mine I'm as confident as ever that we are uniquely equipped to help financial service services providers across the globe digitally transform their businesses and 2021 and beyond.
With that I'll welcome David <unk>, our Chief Financial Officer to discuss our financial results and provide guidance for the first quarter and full year 2021, after which I'll close the call with a few comments regarding our 2021 business outlook.
Thanks, Matt.
My first quarter as part of the Q2 team is clearly illustrates me the talent of our team members and the strength of our solutions and financial model.
I couldnt be more excited for the opportunities that lie ahead.
We were pleased with our financial performance for the quarter as we exceeded the high end of our revenue guidance and.
And we're within the range of our adjusted EBITDA guidance.
Before I begin providing more detail on the results. Let me give you some clarification and quantification of a couple of items first day.
And to the maturity of our cloud lending business during the fourth quarter, we aligned our accounting for professional services revenue to be recognized over time as services are performed.
Rather than at the completion of those services.
At the same time, we also align the costs associated with those professional services contracts and be recognized as they are incurred.
This change resulted and an acceleration of recognition and the fourth quarter of $3 $3 million and revenue and.
And $4 $2 million and cost of revenues.
And as well as the corresponding reduction and deferred revenue and deferred implementation cost balances.
Second during the quarter, we recognized a contract asset impairment related to the restructuring of a contract with one of our fintech customers.
Resulting in a $2 $8 million negative impact to revenue and gross margin.
And combined impact of the accounting adjustment and contract asset impairment resulted in a net increase to fourth quarter revenue.
$467000.
Total impact to gross margin of these two adjustments was negative $3 $8 million.
Or and approximately 370 basis point reduction to our Q4 gross margins.
And then approximately 90 basis point reduction to our full year gross margins.
Throughout the remainder of my remarks, I will provide commentary on our financial results and.
And where appropriate.
Note the impact to our financial results from these adjustments.
Now I'll review our results for the fourth quarter and full year of 2020 before finishing with guidance for the first quarter and full year of 2021.
Total non-GAAP revenue for the fourth quarter and was $109 $7 million.
And increase of 24% year over year and up 5% sequentially.
Total non-GAAP revenue for the full year 2020 was.
It was $407 2 million up 28% year over year.
Both the sequential and year over year increases were positively impacted by an increase and subscription and services revenue.
Associated with the deployment of new customers and incremental users onboard and to the QQ platform.
The strong delivery performance combined with an increase and organic user growth resulted in a record number of digital banking users added in 2020.
Ending the year with approximately $17 8 million registered users.
And increase of over $3 1 million users.
Presenting 22% year over year growth.
The year over year revenue increase also benefited from the contribution of precision lender, which was acquired during the fourth quarter of 2019.
And also benefited from the expanding contributions of our other cloud based businesses and the benefit from our PPP solutions.
Transactional revenue represented 13% of total revenue for the quarter.
Down from 14% of total revenue and both the previous quarter and prior year period.
Transactional revenue represented 14% of the total revenue for the full year of 2020 compared to 15% for the full year 2019.
The decline and the mix of transactional revenue.
This is attributable to the increased subscription revenue <unk>.
Generation from precision lender as well as continued slowing growth and traditional bill pay revenue.
Turning to backlog, we delivered a sequential increase of $38 million or 3% during the quarter.
Resulting in total committed backlog as of year end of $1 3 billion, a 15% increase year over year.
In addition to the tier one and enterprise deals we booked during the quarter sequential improvement was also due to another successful quarter of expansion activity highly.
Highlighted by renewals, including several tier one customers.
And as well as continued success and our cross sell activity.
Our revenue churn for 2020 was five 9%.
As we indicated throughout the year, we anticipated that the macroeconomic impacts from Covid and increased mix of Fintech and all five customers could result, and an increase and overall churn.
Our digital banking churn for the full year remained below 5%. Despite the impact of the Q2 cares initiative.
Which provided short term financial relief for our customers and exchange for extensions of their existing contracts.
We expect churn levels to remain relatively consistent in 2021.
The scheduled expiration of many of the PPP contracts, we signed in 2020.
In addition.
While there is a potential negative impact to churn and the event of increased bank M&A activity in 2021.
This activity could also present opportunity for us as we have historically added more users to the Q2 platform through M&A and we have lost.
At the end of the year, our Q2 platform installed customer count was 450.
And up from 414 at the end of 2019.
The growth and customer count was attributable to large number of customer go lives and 2020 as well as reduced M&A activity within our existing customer base.
We expect that the COVID-19 related slowdowns on new buying activity, we saw in 2020.
And as well as the potential increase and the level of M&A activity within our digital banking customer base and 2021.
And it negatively impacts growth rates and.
And the number of net customer additions in 2021.
Our trailing 12 month net revenue retention rate for 2020 was 122%.
Up from 120% and 2019.
The revenue retention rate for 2020, excluding the impacts from precision lender, which we acquired and the fourth quarter of 2019 was 116%.
And 2021, I would expect our revenue retention rate to be within 115% to 120% range that we've observed historically.
Gross margin was 48, 3%.
Down from 56, 8% and the fourth quarter of 2019.
And 52, 5% and the previous quarter.
For the full year 2020 gross margin was 51, 9%.
Down from 54% for.
For the full year of 2019.
Cloud lending accounting adjustment and contract asset impairment charge discussed earlier.
Negatively impacted gross margins.
Reducing them for the fourth quarter from 52%.
And to 48, 3%.
And for the full year.
From 52, 8%.
51, 9%.
The remaining sequential and year over year decrease and gross margins. After factoring in these two items was attributable to investments associated with increasing levels of engagement across our various solutions.
Year over year decline and gross margins.
Also driven by incremental implementation resources and employee related costs associated with delivering record levels of new customers and users throughout 2020.
Total operating expenses were $51 million.
17% from the prior year period, and roughly flat from the previous quarter.
The year over year increase and operating expenses was driven primarily by the hiring of additional team members concentrated within R&D.
We ended the year with 1749 employees.
Up from 1574 at the end of 2019.
The sequential increase and R&D costs and the fourth quarter were largely offset by decline in sales and marketing expenses from the previous quarter.
Due to the impact of a one time event cancellation fee that we incurred in the third quarter.
And EBITDA was $6 1 million.
Down from $10 $6 million and the fourth quarter of 2019, and $8 $1 million and the previous quarter.
Adjusted EBITDA for the full year was $22 2 million up from $19 $6 million and 2019.
Cloud lending accounting adjustment and.
Contract asset impairment charge discussed earlier.
Negatively impacted adjusted EBITDA.
Reducing it from $9 9 million to $6 1 million for the fourth quarter.
And from $26 million to $22 $2 million for the full year 2020.
We ended the year with cash cash.
Cash equivalents and investments of $539 1 million up from $396 1 million at the end of the third quarter.
The increase was largely a result.
Of the net proceeds raised in November through the privately negotiated issuance of convertible notes due in 2025.
And the partial exchange of our previously issued convertible notes maturing in 2023.
This increased our net cash balance by $126 9 million.
Our capital expenditures for the quarter were $7 $2 million.
Driven by the investments to increase capacity and continue to support elevated levels of digital engagement for our customers and their account holders.
Cash flow from operations for the fourth quarter was $19 $1 million and we generated free cash flow of $11 $6 million.
Now, let me wrap up by sharing our first quarter and full year guidance.
We forecast first quarter, non-GAAP revenue and the range of $114.
$6 million.
The $116 $1 million.
And full year, non-GAAP revenue and the range of $488 million to $491 million.
Representing year over year growth of 20% to 21%.
The forecast first quarter adjusted EBITDA.
Of $8 5 million to $9 $1 million.
And full year 2021 adjusted EBITDA.
A $34 5 million to $36 $5 million.
We expect to see and increase in costs, such as travel and marketing programs that were suppressed throughout 2020 due to the pandemic.
While the magnitude and timing and which these costs will return is dependent on the ongoing developments regarding COVID-19.
Our guidance does assume a gradual resurgence and those costs beginning in the back half of the year.
As well as an increase and hiring throughout the year as compared to 2020.
In summary, the <unk>.
<unk> flexibility.
And resiliency of our financial model.
And helped to deliver financial results and 2020 and strengthened our financial position and that we believe position us to capitalize on the long term market opportunities that lie ahead.
And with that.
I will turn the call back over to Matt for his closing remarks.
Thanks, David and closing I'm very proud of our performance in 2020 I believe we'll look back on this year is one of the most transformative and our history and I'd like to thank our team members partners and customers across the globe for their perseverance and commitment to their communities and to Q2.
As we look ahead to 2021 I believe we've demonstrated that we're prepared to operate in this environment going forward.
While we clearly are not past the COVID-19, pandemic and and many implications my conversations with our customers and prospects indicate that and accelerated technology refresh is on its way.
With digital transformation and being a key initiatives across customers businesses in 2021 and beyond and while it's unclear when the predictability of deal timing. We enjoyed pre COVID-19 will return our pipeline is strong and I expect to see continued incremental improvement and sales performance quarter over quarter as customers continued to.
Adapt and return their focus towards digital initiatives.
And finally, I believe the strength of our underlying business model showed itself in 2020 and in 2021, I believe will continue to sustain strong revenue growth while steadily improving the profitability of the business, thanks, and with that I'll turn it over to the operator for questions.
Thank you and the reminder, in order to and ask your question. Please press star followed by the number one net telephone keypad once again that and star one to ask a question.
And our first question is from the line of Sterling all three of JP Morgan.
Yeah, Thanks, Hi, guys.
Before I ask my one question I think Texas is getting hit with unprecedented weather and conditions didn't know if maybe you guys want to give us an update and hopefully you guys are holding up okay.
Yeah, Hey, Sterling. Thanks, very much I. Appreciate the question right now it is a natural disaster with a splash of manmade.
$2 5 million Texans are without power heat or water, 50% of our employees are without power heat and hot water. So it's pretty crazy as it from an earnings call perspective, we are all at our different locations and I would just suggest that there's a reasonable chance that we will have some technical difficulties on this.
So.
Don't worry about us on the call we will all be fine, but it's a tough time down here, but we really appreciate the support everybody has given us.
And.
Attitudes all you have right now and we had a great Q4, we had an amazing 2000, and 'twenty and 'twenty, one setting up to be a really good so.
And everybody would try to keep the questions to one we've got a hard stop at 830% I'd appreciate it but thanks for asking Sterling and that's new.
Not going to be your question you get one question so firewood.
Appreciate it so just on your closing remarks, and by the way thoughts and prayers to all the families that are going through this situation, but your and your closing comments that the demand from new customers for new solutions from Q2, you talked a little bit about it last quarter, you kind of made some comments here I'm curious.
Are those potential customers actually budgeting for potential projects here in 2021 whats the early kind of bread crumbs that has your confidence that you will see an improvement and that new customer demand.
Yes, it's a great question I think.
And that's that's that's the real question I think that people need to get to everybody can talk about top of the funnel, but nobody cares about anything until it gets through the funnel. So.
Right now what I'm, saying is.
Tier two and tier three we're pretty steady in 2000 and.
<unk> and <unk>.
And while they didn't hit the pre Covid plans and they came pretty close it was the tier one deals that just kind of dried up across the board on digital banking and lending and globally, but what we're seeing now is that the tier one pipe is back with deals that have committees budgets project plans and timelines and so I think youre going to begin to see that material.
<unk>, both on the lending and the digital banking side.
Into 2021, I don't know how quickly theyre going to happen, but there are much more real deals with real engagement that's occurring right now so.
The tier one pipeline is back and and I'm not just talking top of the funnel. There are deals that are out there they're active I don't I wouldn't expect a floodgate to open in Q1, but I think you'll begin to see some of these happen to where hopefully it gets back to the cadence. It was 18 17 18 and 19.
Alright, great. Thank you.
Thanks Sterling appreciate it.
Your next question is from the line of Tom Roderick of Stifel.
Yeah, great. Thanks, Thanks for taking my questions and I'll Echo Sterling comments hope you and your families are staying safe down there and hopefully stay and somewhat warm but.
But keep at it I appreciate you guys still hold and this call. This morning. So we've kind of go through this every single year, where it's the cadence of the deals as they come in and you had a great Q2 for big deals and a great Q4 for big deals and it seems like and and I was hoping you could obviously you gave Q1 guidance and the full year guidance, but the day.
And Matt if you if you wouldn't mind, just sort of walking us through sort of the cadence of how that kind of plays into the numbers as we think about our models going through this year.
And I know you can't guide to Q2 Q3, exactly but just how much of it is back end loaded and how we think about that and then maybe piggybacking on <unk> question regarding the pipeline as.
As we think about this year.
How do we think about when and how some of these tier one deals continue to come through because it seems like precision lender and the and the and the.
Our lending intelligence side of the equation.
And is really starting to the floodgates are breaking up and on that so that might be a little bit different that we've seen and your pass.
Yes, so I'll take the first part and David can kind of walk through how it plays out first of all I would say the cadence and the word I would use for 2020, because there wasn't really a steady cadence but.
It did build right Q3 was the trough I believe for us and so those deals that we got this year.
Fourth quarter was interesting because the momentum started Q4, and then and the last three weeks of the year, we got hit with the Covid surge plus a stimulus program, but those deals rolled into January and we got them done so.
You're beginning to see the timing of these things I think you may get back to more.
A big Q2, and then a big Q4, a big second quarter and a big fourth quarter.
<unk> like it normally.
Normally happens I would be a little hesitant on the second quarter right now just because I want to see how things play out, but David do you want to walk through how that rolls out.
It plays out and the model.
Yeah, sure Matt and.
A couple of things I'll call out in that regard first as we talked about the two big deals that we implemented in Q4.
Those were in November and December implementation, so youre going to get a full quarter of those and Q1. So as you look at that Q1 guidance. It does assume a full quarter of those two large implementations and then to Matt's point as we look at the demand environment first and foremost it's great news that we're seeing the tier ones returned to the pipe and those again are.
Starting to materialize and a much more real fashion, we feel good about how those are starting to play out and.
And that's great for the long term profitability and revenue.
Project all of the business however.
The profitability aspect of that and when that turns into revenue because those are tier one is typically as you know about a 12 to 18 month lag. So the implementation timeline has to be factored in there. So as we see these deals start to materialize, we see them start to project out over the course of the year, we're not going to see that turn to revenue until and.
All likelihood 'twenty two so great news that we're seeing those deals come through we feel really good about our prospects and many of them. However, youre not going to see those turned to revenue as we land them until 'twenty two one other key point to factor into how youre thinking about things as we do have a bit of a headwind.
And about 100 basis point plus headwind when you look at the 2021% to 20 excuse me 2021 impact of the accounting adjustment, we talked about because if you think about and were taking $3 $3 million that we would have recognized and 21 point that off the balance sheet and recognized in Q4, and then a year over year impact of both PPP and the cash.
Program. So you combine those three things and Thats, a little bit over a point.
Headwind of growth.
We still feel confident and our 'twenty to 'twenty, 1%, even with that factored in there.
Yeah really helpful. I appreciate it thank you stay safe out there.
Thanks, Tom.
Your next question is from the line of Brian Peterson of Raymond James.
And I hope you guys are staying warm and claim thick.
So and maybe just a follow up on Tom's question, Matt obviously, some encouraging comments about the shape of the pipeline and how that's looking into 'twenty and 'twenty. One I'm curious is there anything in terms of customers may be looking to try to accelerate implementations right I understand historically, it can be nine or 12 or 18 months.
Are they looking to get quicker in terms of make a decision and get that up and running is that something thats possible with remote delivery and just any thoughts on that.
Yes, Brian it's a good question and thanks for the comments.
Speeding up implementations is just not tip.
And typically how people think about it there's a lot there's not the delivery of the software is one thing, but the organizational readiness.
The teams have to have and I'm talking about the platform side of the business.
And it's just hard to speed it up and you and as I've said before that you usually try and get on the tier two and tier three they're trying to time it with the.
Expiration of a contract so I don't think that Youll see.
People speed up the implementation timeline now I think that on the.
On precision lender and cloud lending and the Bath side of things people are trying to move a little faster on those because those applications. It's either a net on the bath side. It could be a net new application that nobody has used before and you don't have data conversion and on precision lender. It's the same way as well. So some of those I think youll see people don't want expedited implementations, but on the.
Digital banking side, it's a little bit of a heart surgery and speeding up its typically not what people want to do.
Thanks, Brian and I appreciate it yeah. Thank you.
Your next question is from the line of Terry Tillman truly.
Yes, Thanks for taking my question and and Oh go some of the other comments I. Appreciate you all doing this call given everything going on and our thoughts are definitely with Q2 and Texas.
You know really mad and kind of relate to some of the earlier questions people were kind of probing around bookings and how you think about that and 'twenty, one and you just mentioned and heart surgeries on digital banking, what I'm curious about is what happened and 'twenty kind of.
Probably brought to light some really poor digital banking experiences that were occurring and so I'm curious as we're starting to kind of fallout here in 'twenty, one and beyond in terms of demand and people looking to do stuff do you see a potential multi year re platforming, even on the retail banking side and on the commercial banking side and just kind of curious if there is a theme that we could start seeing around.
Re platforming.
Cycle. Thank you.
Yes, Thanks Terry.
And not fallen out yet, but we're getting there.
I would say that.
And the re platforming.
Ties into the digital transformation conversation that we're having with these customers, which is you can't do it all at once so you have to go and you're going to do retail first and then commercial are you going to do corporate first and then work to digital are you going to do lending Treasury Onboarding, how does that all tie into it so I think that the.
The things that we're seeing from these tier ones, we're talking about our strategic plannings, where we may sign a retail deal.
Initially and then you move to a corporate banking down the road, but it's part of the plant and that they may not contract board initially, but if you deliver and you hit the schedules and.
And you and they have a good experience as they get to know you those are all the opportunities and pad, adding the lending element to it is interesting. We're building off of the lending element. We are seeing deals now that are a precision lender deal thats, becoming a platform deal for us and the pipeline and we're seeing we have a team that sells off platform. So they're basically call.
<unk> on customers that are not Q2 customers and they are selling our centric products are digital acquisition products. Our card swap products those are starting to land and it's beginning to be a meaningful number and a quarter and we're reaching back out to those customers and seeing whether they want to begin with digital engagement re platforming of their digital banking of their lending solutions as well.
And so there's a lot of cross pollination and I know, we use that word a lot that's happening and this base and that's leading to the conversations about whether it's re platforming, we're having a digital transformation roadmap that we can lead them on with our products because we have the broadest set of digital.
Digital experience technology, and the marketplace and we can give them a roadmap to how to get there.
Thank you Sarah and thanks take care.
Your next question is from the line of Andrew net.
Eddie.
Hey, guys. Thanks for taking my question here and let me Echo everyone else's comments hope everyone's staying safe.
And.
I wanted to touch on user growth briefly.
And he said and he talked about elevated user growth and the fourth quarter and that seems to be a theme all year, but could you talk about kind of expectations for FY 'twenty one.
Should we expect to see elevated organic user growth. It seems obviously, there's been a step up in and.
And digital engagement customers being pushed on these digital platforms. Just wondering how you guys are thinking about 2021 organic user growth relative to historical trends. Thanks.
Thank you Hey, David why don't you take that one.
Sure Matt.
Thanks, Andrew Yeah, we actually have seen and and I know that we've talked about this and the last call. The organic user growth has been on the high end of what we've historically had as a range and that range has typically been about 9% to 11%.
We've seen that now for three straight quarters, where we've been on the high end of that growth range as we're looking out into 'twenty one.
We are we're very confident and our ability to continue to operate in that high and range. So as you're modeling it out for the remainder of the year, we think that 10% to 11% range is going to be much more aligned with what you will see and 2021 versus the 9%, 11% and we've seen historically.
Got it that's great to hear and good to hear the comments and the demand environment.
And if guys. Thanks a lot.
Thanks, Andy appreciate Ya.
Your next question is from the line of Pete Heckman with D. A Davidson.
Hey, good morning, everyone. Thanks for taking my question could you just talk about some of the circumstances around the impairment on the Fintech contract with was that as a result of our customers being acquired or potentially just.
Switching some of their focus.
Yeah, Thanks, Pierre and David once you take that one.
Yeah, you got Matt AP.
First of all I think it's important to make sure we're clear that the size and the scope of this impairment is unusual.
It's not reflective at all about the strength of our Fintech partners as a whole and just to walk through the journey on this one we started to partner with Fintech and a couple of years ago, a lot of the partnerships, we have and with early stage for and Texas and as you can imagine those early stage free and text didn't have the strongest financial profile as well.
We've matured as a business the strength of the solutions that we've had has allowed us to move up.
Up the stack a fintech that we're partnering with the ones that we're partnering with today.
Our very strong financially, they're very secure partners financially and as we take a look at the top tier and fintech customers that we have the mix has shifted dramatically to those that are larger and more financially secure and we feel like the exposure going forward.
And is very low relative to any contracts like this and just to give you a little bit more context, Pete on your question around what was the situation. It was one of those early stage and tests that we partner with them and.
We had to renegotiate some of the terms of that contract given some financial instability they had.
But again, we feel really good about how the remaining customer base. If you look at those debt, our top 10 and <unk> material and.
The exposure that we have to some of those lower and is very minimal.
That makes sense that makes sense and does that contract contributed a little bit higher churn rate or is that not included.
It was about yes, and impacted churn by about a 10th alright.
Alright, Thank you and me.
Hey, Thanks, Pete and have a great day. Thank you.
Your next question is from the line of Dan Perlin of RBC.
Thanks, and good morning, everyone.
I just had a question kind of trying to reconcile that.
The idea that tier one banks are kind of back I think you said you are there and committed to these are real deals happening now.
But then also a little bit more on the commentary around the possibility of churn being elevated.
Maybe because of slowdowns, even still in terms of decision, making but maybe more specifically around M&A and so the question is just kind of reconciling how you how you deal with that this year and then secondly.
To the extent that we do see higher churn rates as a result of M&A can you just remind us how you were able to toggle.
The model in order to sustain kind of the 20% plus.
Growth that you guys have laid out there and hope you guys stay safe.
Yes, I mean I think that.
We're anticipating we try and.
Part of this is just trying to set the right expectations. We just want to make sure that it churn picks up because of M&A.
And that we're able to two you guys don't surprise you at all but I don't I think that one of the things that we've seen and David said in his comments is that we are usually the winter and acquisitions because our customers are forward thinking and they want to use the next generation platform to compete whether it's for lending and for digital banking and so I think.
The churn piece is this something that we have to manage through and we're trying to communicate ahead of it but I think that for us.
Think will probably be the net beneficiary of a from a revenue perspective, adding more users onto the platform do due to acquisitions and 21, but.
Who knows whether theres going to be more acquisition or not in 'twenty, one and that's what people are saying, but we'll just see whether it happens.
And then David I think the other part was for you.
Yes.
So Dan I think the other parts.
Do you want to just clarify exactly if there's something else you want me to make sure I touch on.
And I was just talking about reconciling the commentary around tier one deals being strong and then you know again this kind of potential slowdown and bank. So I think you've pretty much covered it all.
I was just trying to understand what youre able to do in the event that some of these things don't play out too.
As I said kind of the toggle to get your debt to sustain the 20% growth rates, So I guess setting.
Said another way what are some of the things you've got the cookie jar that helps us be confident and that 20%.
Yeah, and one thing I'd, just add to that Dan is and we prove this out over the course of the last nine months.
We've got a very resilient portfolio of business and when we're struggling and one area of the business as you know there was.
Some cement decisiveness and understandably some of our customers were distracted with some of the other things they had going on and their business and that hurt net new.
But we are able to do with pivot towards renewals.
We have a business critical solution for them and we were able to reach out and make sure that they were.
Extending the.
Contracts that we have with them that helped us in terms of our backlog. The other thing that really helped was using the stickiness of our portfolio and the strength of our solutions to add incremental solutions, which is why you saw the strength and up sells so we have the ability to utilize those those levers and make sure that we have the balance between all of those ones not quite where it.
We hoped or thought it would be so that's the flexibility that we have and that's the flexibly that will continue to leverage as we go forward into 'twenty one.
Great insight and thank you, Dan and Dan just keep them on that when an acquisition happens.
And there's usually a term fee and some earn out that occurs in the a and.
And the buyout process. So it typically does and it takes 12 months to get them.
Off the system. So it typically doesn't impact the year you're in.
And as much as it does down the road. So thanks again for the question debt.
Thank you.
Your next question is and the line of Brett Huff upbeat.
Steven.
Good morning, guys again hope you're both safe and.
And welcome David quick question on organic growth want to make sure I got the organic growth roughly right per <unk> and then 'twenty. One I think my gut. It was maybe high teens organic and <unk> and thats accelerating and kind of low twenty's and I don't think theres anything inorganic and 21 and just wanted to so number one and then number two.
To us.
Can you disassociate, what is sort of maybe catch up.
And when people sign and deals later in the year and maybe it seems and those come on and versus sort of the ground swell. The digitization that youre seeing in terms of supporting that debt low twenties. Thank you.
And then once you take the first part of it.
Yeah, I'll start with the organic piece of that Brett and and what I would tell you there is.
Haven't broken it out discreetly in terms of organic versus inorganic, but what we said is we anticipate that and this was this was resets and when we did the post Covid plan, we anticipate that precision lending is going to be about 6% of our overall revenue.
That's where we have targeted and that's where we essentially finished.
And Youre right as we head into 'twenty, one there's nothing that you need to normalize from an organic standpoint for and inorganic standpoint to get to an organic number so the numbers that youre seeing and the guidance that youre seeing for 'twenty. One is the same for organic versus inorganic.
Yeah, and then Britt I didn't and the other part of the question was that was that the whole question.
Yes, I just wanted to make sure that if you could just kind of piggyback and the last question how much of the sort of acceleration of organic growth.
Is maybe some catch up as we get some deals implemented that maybe got pushed and how much of it is more of a ground swell of maybe faster digitization because of the COVID-19 and a more fundamental shift thanks guys.
Yeah, Thanks, but I don't know I don't know if I can.
That could break that out on this call here I think there's a combination of both that are occurring and there'll be some deals that have to catch up because they didn't do a deal last year there'll be some deals that had to renew last year, because they were and our pickle and then you'll have.
Pick up around more users on the system you'll have more.
People using the system and then there should be.
Somewhat of a groundswell of people that net realized the pain that they felt during during these times with lockdowns and everything else. So thanks again.
Great. Thank you.
Your next.
Question is from the line.
Robert Napoli of William Blair.
Thank you good morning, glad to hear you're doing well and we have several family members and Austin, So we understand what's going on.
Question on revenue per user.
And then talking about user growth at the high and.
And what are your thoughts on revenue per user, whereas the growth of revenue per user coming from like which part is it from new products versus.
Further penetration.
Of your clients and which new products are you most excited about.
Yes, Rob I'll answer that.
So what I would tell you is we did see a slight decline and average revenue per user in FY 'twenty and part of that was if you remember the cares program that we rolled out where we did reduce some pricing per user.
And in return we got extensions of many of the agreements that we had out there we thought that was very beneficial to our customers to help them short term and then obviously extends the relationship we have which benefits both of us longer term.
As we look forward into 'twenty, one and we do feel like we're going to see a slight uptick and average revenue per user and some of that is going to be driven by and I think this is what you are referencing some of the new solutions and cross sell opportunities and some aren't just new but they are enhanced with what we currently have the centric product continues to be very strong in terms of the demand that we're seeing.
And for that we're.
We're seeing improved demand for our growth solutions as well, Matt had talked last quarter about the treasury Onboarding solution, which we're just now coming to market and a more aggressive fashion with we think that that could really get some legs as we get into Q2 and Q3 of this year. So we feel really good about the ability to cross sell.
And with that cross sell comes and enhanced average revenue per user profile.
Great. Thank you.
Yes.
Thanks, Bob.
Your next question is from the line of Joe <unk> of Baird.
Yeah.
Great Hi, everyone.
Just focusing on product innovation and I know.
It's always been at the core of Q2, but just given some of the things that have played out over the last year and not just PPP, but you know and.
Treasury Onboarding precision lender has this new portfolio insights product that just came out do you feel like the velocity of the new products inside the organization is increasing and given many of these things seem to be leveraging the newer cloud platforms is there maybe the potential that some of those product and.
Asia and drives faster time to revenue and we start to see a change and kind of the dynamics of your revenue model, where there is the potential to see more near term upside and growth.
Yes, it's a good question I think one of the things you'll see is it.
Like I talked about earlier when Brian asked about whether you can speed up the implementation. If you take the digital banking segment I think it's very difficult to deliver digital banking faster than six months because the end user the account holder or the bank doesn't want to go through that much change that fast and there's a lot of it's not a technology delay as much as it is and operational.
<unk> readiness prepared to roll it out, but if you look at precision lender.
Banking as a service people people are.
Our writing against our corporate product and a week.
Precision lender is tied to the bank and ready to roll and get it out it and it can go live rather rather quickly cloud lending and the PPP product was built and three weeks with forgiveness tied to it and we haven't rolled out and up and running so.
And the technologies, where people sometimes get wrapped around but it's really the process that the financial institution on the Fintech has to go through and if you don't have customers when you're talking about moving 100000 digital banking customers from one system to another when they have to reset things up and log of new passwords, and what could happen with a call center.
Complicated and and those are the crown jewels of the bank of the credit moving and we want to move them carefully and they do too. So I think yes, you will see an acceleration and the delivery of some of these things, but those businesses have to continue to get bigger to have more of a meaningful impact on on the revenue side of things and look there are they are all I talked about earlier and cloud lending banking as a service some of the.
Other data insights products that we have are really gaining some traction and we're starting to leverage the innovation and the sales team. The relationship management team has really come together with this one Q2 message and January we had our sales kickoff and we really spent most of it just educating and case studies and talking about how they can go out and have these conversations.
So there's gonna be a lot of leverage that comes out of that and these conversations are going to continue to drive more deal flow for us and I think you'll end up seeing that some of these bass.
And these products that don't have nasty conversions to go through we'll begin to have.
Significant traction and we'll get we'll get the revenue faster, but I don't know what the timing and that's going to be.
Thank you.
Thank you.
Your next question is from the line of Josh Beck of Keybank P. M.
Thanks for taking the question team and certainly with the growth pulling for a speedy recovery, there and Texas.
I just wanted to ask a little bit about the go to market.
Net.
Talked about more or less that you have lots of them.
And with different inroads now could be retail commercial and corporate lending and theirs.
A lot there and so I am curious from a go to market point of view are you.
Leaning on more of a generalist sales model is it and.
And you have.
Specialized forces and some of these areas the hybrid.
Just curious about how you're approaching that as we move forward.
Yes.
And I won't be cute here, Jonathan what I look forward I don't care, whether you're 25 or 55, I want passionate people that want to learn about how digital transformation is going to happen within these banks and credit unions and how we can use and how they can use our technology to go and sell these products and debt that passion is always translated and people can see buyers know, whether you believe it or not and.
And our track record of delivering and innovating and taking care of customers is what I think we will end up selling a lot of software force. So the go to market is really based on the segment and Youre going after so we've combined banks and credit unions and also sales reps are going after both of those you could have a credit union and your patch and you could have a bank and you patch you gotta be able to talk about digital transformation on both of them.
Talk about lending digital banking digital acquisition data and it's hard and so they've got to get up to speed and we're spending a lot of time educating them, whether it's our office and strategy or our product team that's doing that so.
Go to market. The interesting thing for me really is and this in the pandemic as the amount of coverage, we're able to get.
Whether it's technologist implementations people product people whenever it is where we can get them in front of these prospects more because and customers because we're not on airplanes and so if you just eliminate the travel time.
These these opportunities we're able to have a product specialists and get on a call with a prospect and go deep into how the technology works and that is a big advantage for us when we can do that because there's a there's some new shiny objects that don't go very deep when it comes and the operational side of the business, which is important so.
I don't think Theres, a big change and go to market I think it's a matter of how we are educating our team and picking the right folks to go do it so.
Not exactly what you asked but I think that's my view on how we're going to market and I think it's 'twenty one is going to be very interesting to see how it plays out.
No I think that.
Makes total sense thanks, Matt.
Got it.
Uh huh.
Your next question is from line of Arvind <unk> of Piper Sandler.
Yes.
Hi, Thanks for taking my question.
And hopefully you guys got the power back.
And.
And just kind of looking back at.
2016 2017.
And 2017 was a very strong year given it was a post.
Post the election here.
Can you talk about the dynamics in 'twenty and 'twenty one and.
And the context of a post election here.
Or is this kind of a very tough compare given that 'twenty and 'twenty was.
Pretty unusual.
Yeah.
One of my objectives on these calls one of these days is not and use the word unprecedented because that's overused at this point, but.
Now that the election is the only thing that was similar that there wasn't a election the way the election played out.
And the pandemic is what is the difference and that's the debt I can't really do like for like comparisons because it's.
It's not like there's a new administration, let's get back to business, there's stimulus programs there's.
Covid surges, there's all these different things that are happening vaccines, rollouts delays and different issues there.
We're going through right now so it's very difficult to compare the two of them I like where we are as a company and 2021 as opposed to where we were in 2016 and 17 the breadth of the products. The acquisitions are coming together the digital transformation. The requirement of these banks to begin to earn credit unions and be able to deliver this.
G remotely.
And we're just in a very good spot.
Compared to some vendors that may be single threaded with single products that don't have a lot of customers, who don't have a lot of the right customers. So it's hard to compare them Arvind.
As crazy as it may sound and our house with no power and the water.
That's frozen over.
I like where we are in 'twenty, one as opposed to where we were in 16 and 17.
Moving forward to the trajectory of this business.
So we've got time for one more question and I appreciate that color my question on him.
Great just.
Operationally, how long and thinking about staffing and this post.
The spending environment.
Specifically is in place start to travel and take take vacations tier levels over the next 12 to 18 months.
And I use staffing.
Building a team standard for potentially higher levels of vacation.
Oh not for higher levels of vacation I mean, I think we try to be we have a.
Unlimited PTO plan that people can use the company, but there is no change for vacationing I think the office space and the thing that we're trying to manage and figure out what we're gonna do moving forward, but essentially we have told our employees that we don't know when youre coming back to work or if you are coming back to work we have to operate as this is the world we're living in today and so.
We will I'm certain people will start coming back into the office at some point, but I'm not going to mandate that I don't want to be a pioneer on putting people back and the office. So.
Staffing for US is we want to try to find the efficiencies of what we can do as I said earlier, whether it's salespeople implementations people.
Keeping them.
Sure.
Where they feel safe and they feel they can do their job productively. If they don't have to be on an airplane and I don't want to make it would be on an airplane and if they want to go to see people and those people want to see them then.
And it will approach that as well, but how we interact and large client conferences those types of things I think those were put on the backburner for a while so.
No changes and on the staffing model other than the real estate piece. So we're trip, which were which were managing effectively.
And we've got we've got time for one more question.
And your next question is from the line of James Morgan Stanley.
Great. Thank you very much and you guys had mentioned and resilience a few times hopefully you start being able to be less resilient and pretty soon personally but.
Just quickly most of my questions have been answered.
But as far as international clearly a lot of the value you're bringing to your customers here and the U S. Could also be applicable outside the U S. So how are you thinking about that.
Potential and and how would you start to address that either organically or via acquisition just some thoughts there would be great. Thanks a lot.
Yeah. Thank you James So internationally remember we have a presence in Europe, we have and offices in London, and we have customers that are both there.
Lending customers over there we have precision lender, which is actually beginning to see some traction and the pipeline over there that I hope to see some deals and the second half of the year.
Take place, we will continue theres potential bass opportunities.
In Europe Asia also we have and office in Sydney, Australia that team.
And a pretty solid fourth quarter given that they is.
Their summer and December they they shut it down so there's a lot of opportunities not only in Australia, but Asia that we're working we have some pretty pretty large resellers they seem to be coming back online sooner. So we will continue to invest in those regions and in the products and those region digital banking is not something that were taking to those places where.
Really focused on North America, but there's opportunities there, but we're going there and a very measured way that can be very expensive and having big offices and spend and a bunch of marketing. When you don't really know exactly what youre doing is not what we're planning on doing so we're going to continue to push precision lender and our lynde, our lending products and Europe and cloud lending in Europe and and.
And Asia, and Australia at the time and I feel pretty good about where those are and I feel pretty good about where we are from a standpoint and.
We're not too heavy and those areas and Europe really took a hit and slowed down so I feel really good about international stuff. It's just going to take a little more time for us to generate those will be patient and measured and how we do this so thanks for the question James I appreciate it and thanks for everybody for joining US we will be on Investor calls.
Well, we'd be in investor conferences over the next couple of weeks and also.
We'll be available and that kind of a day. So I appreciate everybody's patience and I'm.
And just amazed and we got through this without any technical difficulties based on.
And how the power grid is behavior recently, so thanks, everybody and hope everybody has a great day, and a great weekend and stay safe.
Thank you Chris that concludes today's conference call you may now disconnect.
Yeah.