Q4 2021 Gty Technology Holdings Inc Earnings Call
Approaching your call today, if you wish to ask a question you will have the opportunity to do so at the end of the presentation. Please press star followed by one on your telephone keypad and if you wish you move your question. Please press star followed by <unk> and I have the pleasure of having over to your host today John current to begin so John Please go ahead.
Thank you and good afternoon, everyone.
I'm, John Curran, <unk>, CFO and I'd like to welcome you to our fourth quarter full year 2021 earnings conference call.
With me on today's call is T J, Paris <unk> CEO .
We will be presenting slides on todays call and encourage you to view the presentation found on our website at www Dot GT wide technology Dot com.
Please note that our earnings release is also available on the <unk> website. It contains additional information about our financial results.
Any forward looking statements we made in the earnings release or any that we may make during this call are based upon information that we believe 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 most recent Form 10-K , and our subsequent SEC filings for.
For a list of risk factors applicable to GTI.
Including risks associated with COVID-19.
As you will hear in our comments the pandemic is impacting our business today and for an undetermined time into the future.
During the call we may refer to non-GAAP financial measures. If we believe they are useful to investors. We believe that will help investors better understand our results for business trends.
You can see a reconciliation of our non-GAAP financial measures to their nearest comparable GAAP financial measure in exhibit two of the earnings release and the appendix of the slide deck.
With that I'll turn the call over to T J.
Thank you John Good afternoon, and thank you all for joining us.
For those that are new to <unk>.
<unk> provides cloud based platforms that help government organizations transform the way they engage citizens and manage their operations.
Similar to the diamond sector <unk> been moving away from heavy monolithic on Prem solutions and modern cloud applications based on a lower initial purchase price and.
They don't require large implementation timelines.
This trend has been a decade in the making but it's really starting to accelerate in recent years.
We are still in the early in the government's migration to the cloud.
Included in our primary target sectors are municipalities and counties colleges.
Colleges and universities.
K 12 school districts public.
Public health care agencies public utilities like water and power.
Transportation and transit state government and federal agencies.
As of today, we have over 90 to 100 customers and approximately 400 amazing back across the business units.
With both number of increasing weekly.
Leaning into growth.
To add some color to the size of our opportunity in 2021 state and local governments in the U S was expected to spend just under $120 million in it.
Total it spending grew at a healthy 7% for state and local government and within that cloud spending grew at more than twice that rate.
More organizations continue to shift workloads to the cloud.
As our customers are starting to modernize their infrastructure <unk> is well positioned to capture the opportunity to transition to the cloud represents.
Let me unpack that a bit for you.
Our best of breed product suite provides budgeting grants management permitting procurement and payment solutions combined these product suites, given <unk> strong starting position to capture the enormous opportunity ahead.
Our go to market brands are on the right.
All of our solutions have three broad characteristics that position us for success.
<unk>.
They are cloud and Barclays that this means highly recurring revenue streams with a remarkably low churn often multiyear contracts strong gross margins and predictable cash flows.
Second each of our product suites were created specifically for governance unique requirements and are considered leaders in their respective functional areas.
This leads to high win rates against older gap that competitors as well as against horizontal players and often struggled to meet the compliance or government specifics feature requirements.
Finally combine our product suite to allow us to access the full spectrum of sizes and segments of our customers.
From 10000 to $1 million and higher price points and across our eight subsectors to small municipalities all the way up to large state government and federal agencies.
With that context for the newcomers the GTI, let's turn to our results.
I am thrilled to report that <unk> fourth quarter performance was a strong finish to what was a strong year for the company.
We are seeing all levels of the government embraced the business operational and financial benefits from moving to the cloud.
This trend drove a great demand of our best of breed cloud product suites in fiscal 2021, we believe the continued trend of governments moving to the cloud puts us in a great position to generate strong growth for the foreseeable future.
Let me start with a critical review of our financial results for both the full year and fourth quarter.
For the full year, we reported total revenue of $60 4 million up 26% year over year and this was underpinned by recurring revenue of $46 5 million up 28% year over year and.
And in the annual recurring revenue base of 51 million up 23% year over year.
For the fourth quarter, we reported total revenue of $16 6 million up 27% year over year and recurring revenue of $13 million up 24% year over year.
The core strength of our businesses are.
Which remain robust over the quarter yet again.
So our <unk> growth rate of 23% in Q4 was slightly below our recent quarterly trend it remained very strong.
More importantly, we have been able to deliver consistently solid mid twenty's AOR growth for nine consecutive quarters and expect our <unk> growth to accelerate in 2022.
Turning to bookings Q4 was in line with Q3 did not grow as expected since a few deals slip into January .
I am pleased to report that one of those larger deals has already closed in January which provides a solid base as we start 2022.
As we have stated in the past the exact timing of deals is somewhat hard to predict but we are seeing a strong pipeline of opportunities and a solid momentum in the market.
In total we added 69, new clients in the quarter for a total of 295 new clients in 2021.
Our new clients include wins across all eight of our target sectors as well as many customer expansions. Additionally.
Additionally, the average <unk> per customer is consistently growing up four.
4% quarter over quarter, and 15% from the same time last year.
I want to take a moment to highlight some of the more impactful new clients from the quarter.
Our city based business unit continues to see transaction volumes increased as the impact of the pandemic continues to subside and our customers continue to adapt to more virtual or types of activities.
Most recently, we announced the deployment of our self serve kiosks and two in New York city's five boroughs to improve the self service payments options within the city's business centers.
Our cloud based budgeting tools quest can sherpa have been selected by a wide range of organizations, including Orange County, Florida Mercer.
Immersive count in California, and Colorado Springs Utilities. Additionally, we had almost $1 million up sell activity in the quarter, which highlight the expansion opportunities we have with our existing clients.
Our permitting platform open counter continues to add functionality and features in our internal configuration tooling that improves the speed consistency and reliability of our deployments.
Notable wins in the quarter with Colorado Springs in Polk County, Florida.
As we head into 2022, we see a number of opportunities that are expected to use our profiling for their purchase.
Our grants management platform. These visits continues to move up market from small nonprofit.
The largest state and local governments.
During the quarter, we had solid customer wins with city of Philadelphia City in Grand Junction, Colorado.
Atlanta County, California.
At the Denton, Texas, and an upsell of Sonoma County, California.
Finally, our procurement platform bonfire successfully won and higher SKU with indigo, otherwise known as Indianapolis Public Transport Corporation.
We are extremely pleased about for our <unk> businesses have relationships with different entities within the city of Indianapolis.
This latest win was not a cross sell opportunity. However, having said that our reputation precedes us as we respond to meet our Skus and that is a result of a solid customer experience and reputation from our other business units.
During the quarter, we had a material expansion of the Ontario colleges purchasing managers Association that expanded bond buyers use under an umbrella agreement to nine additional colleges, bringing all colleges in Ontario under one agreement.
Other significant customers in the quarter include the city of Tallahassee, Florida, the government in Barbados University of Texas, Austin, and the Utah Department of transportation.
Before I discuss our outlook for 2022 I wanted to highlight the three primary drivers that are accelerating the digital transformation within government.
While the common perception is that government lags behind private sector, which is true they are catching up and starting to accelerate their digital transformation.
First and foremost as we exit the pandemic all levels of government have the budget surpluses from improved tax revenues along with additional financial support from the cares Act and ARPA funding.
Most importantly.
There will be deadlines on the spending that we expect to cause a spike in technology procurements in 2022.
We've all heard about the current labor challenges facing organizations today, and the difficulty in attracting and retaining competitive workforce.
Historically public sector entities have had a more mature employee base and they have experienced a sharp increase in employees retiring over the last year or two.
While in the short term staffing shortages may create some challenges over the medium to long term it will accelerate the adoption of cloud technology as leaders look to improve productivity and younger tech friendly employees demand modern tools.
As information technology becomes a backbone precision engagement chief information officers are being elevated into more strategic roles, which is accelerating their modernization efforts and represents a massive opportunity for native cloud based platforms.
We saw similar trend over a decade ago in the private sector and businesses realize that their information technology infrastructure was vital to not only increasing operational efficiency, but increasing sales and enhancing customer service.
This emergence in the public sector will impact of go to market strategy and lead to larger average contract values.
Turning to our outlook.
As we look towards 2022, we're excited about the opportunities in front of us, which will lead to an acceleration in our IRR growth.
Our main focus is expanding our sales capacity and enhancing our go to market motion that will allow us to execute on our expanding pipeline.
During the second half of 2021, we added a net of 23 sales and marketing staff and expect to hire more in the first half of 2022 it.
It will take some time for these new team members to ramp up the full capacity, but we are expecting them to contribute later in 2022 and to be fully ramped up heading into 2023.
One of our recent hires was at the corporate level, our new Chief growth Officer, James pop is dedicated to expanding and enhancing our go to market changes. The immediate focus is to continue the expansion of our sales and marketing teams as they coordinate the best practices between all of our business units.
In addition to this work <unk> spending a considerable amount of time of partnerships and our cross selling plans.
They also welcome Kathryn <unk>, our new head of HR Kathryn is highly focused on attracting the right talent, the GTI and helping us to continue to add to a strong group of staff.
Our business unit leaders are noticing a sharp uptick in procurement activity for example in the first nine months of the year one business unit track six state enterprise Rfps, but in Q4, there were nine rfps with many more expected in the first half of the year.
Another business unit pipeline is tracking about 40% larger than in recent years, mostly due to accelerated interest in <unk> solutions and expansion of our sales teams.
As noted earlier, we are seeing budget surpluses at all levels of the public sector and ARPA funding is providing additional financial support.
We expect these factors will cause a spike in technology procurements in 'twenty two.
Public sector entities have reallocated and we anticipate will continue reallocating budget dollars earmarked for something else that can be paid for with ARPA funding freeing up budget dollars for technology infrastructure spending we're already seeing that in a number of small closed deals and a large number of deals in the pipeline.
We are addressing a number of the hiring challenges we experienced in the latter part of 2021 are now starting to feel the results our investments in recruiting and new leadership have led to solid improvements in retention and recruiting.
Turning to our company has experienced staffing shortages continued to be a challenge, but it is a short term measure we are helping them with that challenge and also speeding up enrolling patients by providing consulting services as needed to our customers on.
On the positive side this generational shift in public sector employees will give rise to a new level of tech fluid leaders that will remove additional obstacles adopting a digital government strategy.
As noted we believe we are in the very early stages of a dramatic shift in how the public sector provides services to citizens.
In conclusion, we are excited to have multiple tailwind supporting our business and look forward to executing on our growth initiatives in 2022.
Thank you back to you John .
Thank you P J.
As TJ mentioned Q4 was another excellent quarter highlighted by solid revenue growth and success in hiring new sales and marketing as well as R&D talent to our team.
For Q4, our GAAP revenue increased 27% to $16 6 million compared with $13 1 million in Q4 of 2020.
On a non-GAAP basis.
Revenue was $16 7 million for Q4 of 2021, compared with $13 2 million in Q4 of 2020.
The increase of 26%.
A reconciliation between our GAAP and non-GAAP results is included in exhibit two of our press release and in the appendix of our slide deck.
We'll provide a more detailed explanation of the change in revenue on a subsequent slide.
Our fourth quarter 2021, GAAP gross profit was $10 1 million or 61% margin.
Compared with $8 2 million in Q4 of 2020 or 62% margin.
Our fourth quarter non-GAAP gross profit increased to $10 6 billion or 63% margin compared with $8 5 million or 65% margin for Q4 of 2020.
Our mix of revenue and some one time costs negatively impacted our margins year over year.
Turning to our operating expenses, our total GAAP expenses were $31 million and include a goodwill impairment charge of $15 8 million.
Our fourth quarter, non-GAAP operating expenses increased by $1 million or 9% compared with Q3 of 'twenty one.
Primarily related to additional head count R&D sales and marketing.
Our fourth quarter 2021, GAAP operating loss was $21 million compared with a loss of $8 5 million in Q3 of 2021 and a loss of $11 1 million at Q4 of 2020.
Our fourth quarter non-GAAP operating loss.
<unk> to $1 4 million compared with $100000 in Q3 of 2021.
Driven primarily by increases in operating expenses throughout the quarter.
Consistent with previous quarters, we wanted to provide a little more color on the change in non-GAAP revenue.
As you can see in this chart our recurring revenue grew by 11% on a quarter over quarter basis and grew by 24% on a year over year basis.
Adjusting for seasonality in our payments business are quarter over quarter recurring revenue grew by 5%.
Services, and other decreased 20% quarter over quarter basis.
<unk>, 34% from the year ago period.
As you May recall Q3, 2021, we recorded $1 2 million in one time revenue primarily associated with the DTE energy kiosk installation.
Which provided a significant boost to our services and other revenue in the quarter.
Adjusting for this onetime revenue our services and other revenue increased 9% quarter over quarter.
Our service revenue can vary from quarter to quarter due to the timing of large projects and we expect professional services to decline as a percentage of revenue as our base of recurring revenue continues to grow.
Other revenue includes sales of kiosks and software license sale that we also expect to decline as a percentage of revenue over time.
Our current revenue growth should continue to be higher percentage and dollar terms that service and other revenue as we continue to forecast growth in our base of subscription business.
Turning now to our cash flow.
We started the quarter with $15 3 million ended with $13 3 million in cash.
Our cash burn from operations was approximately $1 $8 million this quarter, driven primarily by an increase in our operating expenses for the quarter and income taxes.
The change in working capital was positive for the quarter, primarily due to the timing of invoicing and collection.
We also paid $520000 in interest.
Based on our current forecast for 2022, we believe we have sufficient cash to support our growth initiatives as well as our ongoing operations through 2022 and beyond.
We also recently updated our S. Three shelf registration and an ATM agreement to give us flexibility to accelerate operational investments and to make potential acquisitions, if we see opportunities in the market.
Turning now to our outlook for the first quarter and full year of 2022.
For the first quarter of 'twenty, two we expect total revenue in the range of $15 million to $15 5 million or approximately 15% year over year growth at the midpoint.
From an operating loss perspective, we expect a loss to be in the range of $3 million to $3 5 million for the quarter.
For the full year 2022.
<unk> total revenue to be in the range of 71 million to $74 million or approximately 19% year over year growth at the midpoint.
From an operating loss perspective.
Our operating loss to be in the range of 12 million to $15 million.
2022 will be an investment year.
Back to onboard and ramp a number of sales marketing and development resources throughout the year.
This should result in improvements in our bookings as we go through the year, but we expect revenue improvements will be delayed into 2023.
To help investors better understand the benefits of our investments. This year, we've added a forecast per IRR, which is the leading indicator for revenue.
We expect <unk> will be in the range of $63 million to $66 million or approximately 26% growth at the midpoint.
Finally from an operating cash flow perspective, we expect Q1, 'twenty two and the full year 2022 to be negative.
For the first quarter of 2022, we expect the burn to be slightly higher in the first quarter of 2021.
<unk> of increase higher.
For the full year 2022, we see operating cash flow to be similar to the full year 2021.
With that I would like to turn things back to T. J.
In summary, we are very pleased with our fourth quarter with GAAP revenues up 27% in the quarter and are growing 23% year over year.
As we enter 2022, we're feeling good about our market opportunity and look forward to increasing our investments to meet the needs of our customers grew 22 and beyond.
I'm continuously amazed by the quality of the products, we briefings on the sector, our high NPS scores and loyal customers personally I want to thank all of the beverage D Y for their hard work and dedication in helping bring the public sector into the cloud.
With that I want to thank you all for your time today.
Operator would you please open the line for questions.
Of course, if you would like to ask a question. Please press star followed by one on your kind of think keypad now.
Just you made a question about your question.
<unk> has been answered please press star followed by <unk>.
Last question of today comes from Jeff Van <unk> of Craig Hallum Capital Group, Jeff. Please go ahead with your question.
Great. Thanks, Thanks for taking my question. So Im several guys first I guess you touched on.
Pipeline and I think you gave some snippets there can you roll that up Holistically give a broader sense of the <unk>.
Magnitude of the overall pipeline.
Preferably quantify give us a sense of how much that's grown and then I've got several follow ups.
Hey, Jeff how are you doing.
Go ahead go ahead, John Sorry go ahead.
Yes, I'll give you the.
Got it.
Yes, so from a quantification standpoint, Jeff we're not prepared to kind of share the dollar value, but rough order of magnitude increase over prior year would be certainly north of 20%.
Okay.
And then on the bookings front again I know you don't quantify you commented to the effect that you had one push out can you give a sense of how big that one was put the pushed out and already closed.
And maybe more importantly, just bookings if we can't have it quantitatively at least qualitatively was Q4.
Total bookings in Q4 larger than Q3.
So.
The first part of the question of the size of the deal was over $1 billion.
So just.
Right around 1.1.
That deal closed first half of January .
Bookings were essentially flat Q3 to Q4.
Okay.
Yes.
That's helpful. And then you commented on the professional services, obviously, the linearity or flow there can be highly unpredictable can you give us a sense of how youre thinking about services for Q1.
Yes, so we're anticipating the excellent question Jeff Thanks.
We are anticipating services will be lighter in the first quarter.
By about a half a million dollars.
And it is just simply timing.
Large implementations we had.
A couple of really good implementations.
In the second half that helped our services revenue in Q3 and Q4.
It's more of the middle market as.
We will be the core of our services business in Q1.
Okay Alright last from me then just on the sales side I know you counted in several cases, you've got a new head of HR and be very very focused on sort of offsetting the great resignation with capacity additions where did you end up in terms of overall <unk>.
<unk>.
The head count on capacity additions in sales if I missed it forgive me, but I didn't hear that and just some commentary about kind of current pipe and what youre seeing on sales recruiting.
Sure.
Yes, Jeff Good question, yes.
So Q2 last year, we announced we were going to add about 20% 23 people.
Im sorry about 20 people, we actually added about 23 people and then.
At the end of Q4 overall.
Net 33 people for the year, so making good progress.
Certainly ended up where we wanted.
This year, we're looking to add another I think 40% another quarter of 50 people. So we think that's right in line, where we're able to do last few quarters.
Yes.
Okay alright, good thanks, thanks for taking the questions.
Yes.
Thanks, Jeff.
Thank you for your question, Jeff. Our next telephone question comes from Joshua Reilly of Needham <unk> Company Joshua Please begin.
Hi, there thanks for taking my question.
Maybe starting out on getting some more color on the improvement in demand over the course of 2021.
Or would you characterize the improvement in the second half of the year with a pretty material step up in terms of demand improvement and then has there been any impact to overall demand due to omicron here in the first quarter. I know you mentioned that a couple of deals flipped for those deal specific or.
Would you characterize those as macro related slips.
The way I would answer.
Omicron question first I would say the omicron.
Was.
In around our area, but nothing we would point your finger too.
Deal delay.
In this case.
A large deal the $1 billion deal that closed in January .
Miss by a few days and it's just a matter of these large deals and as we've talked in prior quarters, we continue to.
As where atvs are going up and we're seeing our deals get larger larger those larger deals, we're just learning better and better the cadence of how to figure out when they closed some of them over the edge I don't I Wouldnt pointed omicron with that and we didn't think it was Amazon is a bit of a glue in the works in terms of.
So collections and some small thing, but we wouldn't hang your hat on any delays related to alphacat.
Turning to Q1, we're not the A&P, specifically pointing to garner culinary authority with that.
And I think your second question, Josh was around the demand, yes second half of.
<unk> 2021 we start to see some more demand with ARPA starting to flow our pipeline start to look like they are increasing which they have been as to kind of roll into 2020 to really note. The substantial increase in overall pipelines relative to same time last year.
Got it that's helpful and then.
I think you mentioned on the last quarter that you were expecting roughly 400, K Ncis revenue from that.
Large customer here in the fourth quarter was that number in line with your expectation.
I know that some of the there was a little bit of a pull forward there or whats the dynamic on that.
Okay.
Yes.
Joseph John So the majority of the large customer kiosks pretty much all of them were delivered in.
The third quarter.
Originally we thought they were going to be spread into Q3, and Q4, but that customer.
With fully delivered in the third quarter.
Good to see.
Some additional one time revenue.
Kiosk sales and license deals in the quarter.
As expected.
Got it and then.
One more for me you mentioned again in the presentation about the challenges around hiring salespeople you have a new leader now in HR.
Maybe you could help us understand what is the profile of the sales hiring that you are looking for and then do you need to make any adjustments to that given the leadership change in HR and it.
Just the overall difficulty in hiring tech.
<unk> salespeople right now.
That's a good question, Josh I think overall as we look back to 2021 were pretty happy with the outcome will be.
Number of people, we wanted to hire.
I think our HR team and expansion of our recruiting team has worked.
Working really hard at it with.
With Catherine and onboard a lot of focus on looking at what the dynamic is and to come out of the pandemic and what makes for a great workforce, but the profile of our salespeople hasn't changed much at all we're looking for from our account executives are looking for experienced.
Three to seven years, not necessarily need to have any government experience. We can train that part and then our BD arts and the B.
Our up and comers they tend to be the ones that feed into easily we're pretty happy with the pipeline of what we got it.
Recruiting happening right now.
Got it thank you I'll pass line.
Thanks, Jeff.
Thank you Josh next question comes from Rudy <unk> of D. A Davidson. Please go ahead.
Hey, guys. Thanks for taking my questions.
I don't want to go back to gross margins I think they were down little over 3% sequentially. You said there were some onetime costs can you just elaborate on that and how should we think about gross margins for 'twenty two.
Yes, Josh sorry.
Sorry.
Rudy.
John .
Yes, so we did see a bit of a dip in our gross margin in the fourth quarter.
Did have some onetime costs.
An example would be.
One of our platforms over on to AWS.
So those costs.
Hit Cogs.
Bit of a.
Our mix of <unk>.
This is outside of our budgeting and those service.
Professional service margins are lower than those.
Those again.
So those would be the two primary factors this quarter.
We anticipate kind of getting back in line in the first quarter overall margin expectations for next year will be a little lower than this year.
About two percentage points.
Primarily driven by on boarding more implementation resources.
<unk>.
We anticipate our sales teams coming up to speed, we're going to need to add capacity for implementation. So we do anticipate some.
Interim hit to gross margins as we ramp those guys up next year, then following year get back into the upper <unk>.
It's back.
Sure.
Got it.
On the sales going back to.
What you just said to Jeff's question.
Looking to add another 40 to 50 heads next year and then you combine that with the 23, you just added thats got to be north of 50% sales capacity you'll be adding.
Certainly, they're not going to fully impact in 'twenty, two but youre guiding and 26% IRR growth exiting the year.
But with that capacity if you hit that 40 to 50 additional heads what kind of potential growth does that set you up for once all of those reps are fully ramped.
Yes.
About.
At the 20% to the 40% to 50 that gives us about 60% more capacity.
Coming out of 'twenty, two that we would have had going into 'twenty one.
A pretty substantial increase in bookings capacity once those resources are fully ramped.
Okay.
And is there a way you could speak to maybe like the kind of growth.
Once those resources a ramp to kind of growth you might be capable of if all of those additional reps that traditional capacity are hitting quotas et cetera.
You mean like in 'twenty three.
Well, yes, yes.
Don't know if its too early but again, if you're if you're looking for 26% IRR growth in 'twenty, two and thats with the unions.
These 23, new reps not fully yet contributing I guess I'm just kind of curious how you guys think about what kind of growth you'd be capable of if you add that 40 to 50 this year as well.
Yes, we're not quite prepared to go that far it would be certainly north well north of our growth rate.
We're projecting for 'twenty two.
Exactly how far north.
We're not quite ready to go public with that yet.
Yes, Yes fair enough. Just lastly, then just payments are pretty good.
Bounce back it looks like just where are you at in terms of being fully recovered.
Versus pre Covid.
Yes.
I would say certain areas, we are fully recovered so.
Turning his remarks had mentioned property taxes and business taxes, I think those volumes have come back we do have a certain activity thats more tied to travel.
Travel and leisure.
And those numbers havent quite bounce back yet.
I think we still have a little bit of room to kind of get back to what I'll call pre pandemic norm norms.
Probably 80% there at this point.
Got it great. Thanks for taking my questions.
Thanks Rudy.
<unk>.
Thank you Eddie as a reminder, ladies and gentlemen, if you would like to ask the management team. A question. Please press star followed by one on your telephone keypad now.
We have no questions from the audience on behalf of Atlas is today. Thank you Mark Jarman today for your presentation.
Tom back over to John for any closing remarks.
Just wanted to thank everybody for taking the time to join our call.
Hope you all have a great weekend. Thank you.
Thank you, ladies and gentlemen for joining today's call have a lovely rest your day this meacham with Barclays.
Okay.
Okay.