GTY Technology Holdings Inc.

Good day. Thank you for standing by, and welcome to GTY Q1 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I will now hand the conference over to Mr. John Curran, GTY CFO.

Thank you. Good afternoon, everyone. I'm John Curran, GTY CFO, and I'd like to welcome you to our first quarter 2021 earnings conference call. With me on today's call is TJ Paris, GTY CEO. We will be presenting slides on today's call and encourage you to view the presentation found on our website at www.gtytechnology.com. Please note that our earnings release is also available on the GCUI website and 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 a list of risk factors applicable to GPY. 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 or if we believe it will help investors better understand our results or business trends. You can see a reconciliation of our non-GAAP financial measures to their nearest comparable GAAP financial measure in Exhibit 2 of the earnings release and in the appendix of this slide deck. With that, I'll turn the call over to TJ.

Thank you, John. Good afternoon, and thank you all for joining us. For those that are new to GTY, GTY provides cloud-based platforms that help government organizations transform the way they engage citizens and manage their operations. While the common perception is that government lags behind private sector, GQI was formed based on the founders' vision that governments were starting to accelerate the digital transformation. Even before the pandemic, governments were moving away from heavy, monolithic, on-prem solutions to modern cloud and SaaS applications. And this trend has gotten even stronger in the wake of last year. State local governments' modernization represents a massive opportunity for native cloud and SaaS-based platforms. Here's how we're going about it. We're providing our best of breed cloud technologies through five product suites that cover the front and back offices of state and local governments. Included in our primary target sectors are municipalities and counties, colleges and universities, K-12 school districts, public healthcare agencies, public utilities like water and power, transportation and transit, state governments, and federal agencies. Today we have what I'd call a good start, 1,800 clients and over 360 employees across our business units, with both of these numbers increasing weekly as we start leaning into growth. To add some color to the size of our opportunity, in 2021, state and local government in the U.S. is expected to spend just under $120 billion in IT. That's 7% higher than in 2020, a healthy underlying growth rate. As our customers are starting to modernize their infrastructure, GTY is well positioned to capture the opportunity that the transition to the cloud represents. Let me unpack that a bit for you. Before I describe the product suites themselves, it's important to understand that GTY products have three broad characteristics that position us for success. First, they are cloud and largely SaaS. This means highly recurring revenue streams with a remarkably low churn often multi-year contracts, strong growth margins, and predictable cash flows. Second, each of our product suites were created specifically for government's unique requirements and are considered leaders in their respective functional areas. This leads to high win rates against older GovTech competitors, as well as against horizontal players that often struggle to meet compliance or government-specific feature requirements. Finally, combined, our product suites allow us to access the full spectrum of sizes and segments of our target customers, from $10,000 to $1 million in higher price points and across our eight subsectors, from small municipalities all the way up to large state governments and federal agencies. So let's meet the products and business units. First is Bonfire, a next-generation sourcing and procurement platform. Second is Citibase, our payment platform that helps centralize the citizen interface of a government agency. Third, eCivis provides a grant management platform that helps government stay on top of one of the most important sources of funding. Fourth, OpenCounter streamlines government permitting, which is one of the major touch points with citizens. And finally, rounding out our product suites are our budgeting platform companies, Quesca and Sherpa, which we collectively call GTY Budget. Budgeting is a core and mission-critical financial activity of all levels of government. Combined, these product leads give GTY a strong starting position to capture the opportunity ahead. With that context for the newcomers to GTY, let's turn to Q1. 2021 is off to a strong start as we delivered solid first quarter results that exceeded guidance, even as we navigated through a challenging economic environment. First, and most importantly, we saw strong ARR and recurring growth rates, which shows a continued momentum in government transformation. We added 65 new clients, which includes large customers like the state of North Dakota, and wins across all eight of our target sectors. In all, this is one of our highest Q1 bookings to date, despite the pre-stimulus uncertainty facing our customers with respect to their 2021 budgets. As I'll touch on when I get to my outlook, there are several short and long-term tailwinds starting this market, and we saw evidence of that already in Q1. First, our customer base Q1 churn rates remained low and happiness high, which arguably are the most important bellwethers for a SaaS company. Second, our expansion pipeline across our 1,800 clients and our new client pipeline are growing faster than anticipated, which gives us confidence in our projected performance to guidance for Q2, as John will share shortly. Finally, we are seeing our recurring revenue grow very well and payment transaction volumes have recently started to improve. Additional positives find that our clients and their constituents may be seeing the light at the end of the tunnel. Turning to our financial position, I'm proud to say that our actions in 2020 to strengthen our financial base continue to provide lift. In Q1, we saw strong year-over-year improvements in gross profit and operating loss. And while Q1 was cash flow negative, as expected, we believe our balance sheet is strong and provides a good base in which to increase our sales and marketing and R&D investments. Turning to our outlook. As I mentioned earlier, we believe there are both short and long-term factors that will provide tailwinds for growth starting in the second half of 2021 and coming into full effect in 2022. Specifically, we're seeing momentum build as more Americans are vaccinated and the economy opens up. Furthermore, the American Rescue Plan Act of 2021 includes provisions that will help state and local municipalities close their budget gaps, as well as provide additional funds for investments in technologies that provide long-term efficiencies. On a longer timeframe, government staff and CIOs are expecting some form of hybrid remote work to continue on a more or less permanent basis, which will provide a constant sense of urgency to transition platforms and applications into the cloud as much as possible. In response to these trends, we intend to begin scaling our go-to-market teams in a targeted fashion to help us catch this anticipated rise in demand. Additionally, we intend to increase R&D spend to bolster our existing product leads in the marketplace and bring new innovations to bear during this time of rapid digital transformation. In conclusion, we intend to transform into growth mode over the next few quarters as we continue to build our momentum. Thank you. Back to you, John.