GTY Technology Holdings Inc.

gentlemen thank you for your patience welcome to the gty technology holdings inc fourth quarter earnings conference my name is louise and i'll be operating your call today if you wish to ask a question you'll 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 to remove your question please press star followed by two and i have the pleasure of handing over to your host today john corran to begin so john please go ahead thank you good afternoon everyone

I'm John Curran, GTY CFO, and I'd like to welcome you to our fourth quarter and full year 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 GTY 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 GTY, 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 for 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. Similar to the private sector, governments have been moving away from heavy, monolithic, on-prem solutions to modern cloud and SaaS applications based on the lower initial purchase price and the fact they don't require large implementation timelines. This trend has been a decade in the making, but it's really started to accelerate in recent years. We are still in the early innings of government's migration to the cloud. Included in our primary target sectors are municipalities and counties, colleges and universities, K-12 school districts, public health care agencies, public utilities like water and power, transportation and transit, state governments, and federal agencies. As of today, we have over 1,900 customers and approximately 400 amazing staff across the business units, with both numbers increasing weekly as we've been leaning into growth. To add some color to the size of our opportunity, in 2021, state and local government in the U.S. was expected to spend just under $120 billion 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 as more organizations continued to shift workloads to the cloud. As our customers are starting to modernize their infrastructure, GTY is well-positioned to capture the opportunity the transition to the cloud represents. Let me unpack that a bit for you. Our best-of-breed product suites provide budgeting, grants management, permitting, procurement, and payment solutions. Combined, these product suites give GTY a 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. First, they are cloud and largely SaaS. This means highly recurring revenue streams with remarkably low churn, often multi-year contracts, strong gross margins, and predictable cash flows. Second, each of our product suites were created specifically for government's unique requirements and are considered leaders in the respective functional areas. This leads to high win rates against older GovTech competitors, as well as against horizontal players that often struggle to meet the compliance or government-specific feature requirements. Finally, combined, our product suites allow us to access the full spectrum of sizes and segments of our 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. With that context, for the newcomers to GTY, let's turn to our results. I am thrilled to report that GTY's fourth quarter performance was a strong finish to what was a strong year for the company. we are seeing all levels of the government embrace the business, operational, and financial benefits from moving to the cloud. This trend drove 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 quick overview 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 an 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 business is our ARR, which remained robust over the quarter yet again. Though our ARR growth rate of 23% in Q4 was slightly below our recent quarterly trend, it remains very strong. More importantly, we have been able to deliver consistently solid mid-20s ARR growth for nine consecutive quarters and expect our ARR growth to accelerate in 2022. Turning to bookings, Q4 was in line with Q3, but did not grow as expected since a few deals slipped into January. I'm pleased to report that one of those larger deals is already closed in January, which provides a solid base as we start 2022. As we have stated in the past, the exact timing of yields 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, the average ARR per customer is consistently growing, up 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 increase as the impact of the pandemic continues to subside, and our customers continue to adapt to more virtual or touchless activities. Most recently, we announced the deployment of our self-service kiosks in two of New York City's five boroughs to improve the self-service payments options within the city's business centers. Our cloud-based budgeting tools, Quesca and Sherpa, have been selected by a wide range of organizations, including Orange County, Florida, Merced County, California, and Colorado Spring Utilities. Additionally, we had almost 1 million upsell activity in the quarter. which highlights 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. A few notable wins during the quarter were Colorado Springs and Polk County, Florida. As we head into 2022, we see a number of opportunities that are expected to use ARPA funds for their purchase. Our grant management platform, eCivis, continues to move upmarket from small nonprofits to larger state and local governments. During the quarter, we had solid customer wins with City of Philadelphia, City of Grand Junction, Colorado, Solano County, California, City of Denton, Texas, and an upsell with Sonoma County, California. Finally, our procurement platform, Bonfire, successfully won an RFQ with IndyGo. otherwise known as Indianapolis Public Transport Corporation. We are extremely pleased that four of GQI's business units 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 these RFQs, 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 with the Ontario Colleges Purchasing Managers Association that expanded Bonfire's 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 of 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 governments. 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 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 have 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 the backbone for citizen 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 a similar trend over a decade ago in the private sector when businesses realized 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 the go-to-market strategy and lead to larger average contract values. Turning to our outlook. As we look towards 2022, we are excited about the opportunities in front of us our growth. Our main focus is expanding our sales capacity and enhancing our go to market motion that will allow us to execute 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 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, a new Chief Growth Officer, James Ha, who's dedicated to expanding and enhancing our go-to-market. James' immediate focus is to continue the expansion of our sales and marketing teams as he coordinates the best practices between all of our business units. In addition to this work, James will be spending a considerable amount of time on partnerships and our cross-selling plans. We also welcome Katerina Goros, our new head of HR. Katerina is highly focused on attracting the right talented GTY and helping us to continue to add to our 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 tracked six state enterprise RFPs, but in Q4, there were nine RFPs with many more expected in the first half of the year. Another business units pipeline is tracking about 40% larger than in recent years, mostly due to accelerated interest in GTY 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 2022. Public sector entities have reallocated and we anticipate will continue reallocating budget dollars earmarked for something else that could be paid for with ARPA funding, freeing up budget dollars for technology infrastructure spending. We're already seeing this 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 and 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 customers' experience, staffing shortages continue to be a challenge, but as a short-term measure, we are helping them with that challenge and also speeding up implementations by providing consulting services as needed to our customers. On the positive side, this generational shift in public sector employees will give rise to a new level of tech-fluent leaders that will remove additional obstacles to 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 its citizens. In conclusion, we are excited to have multiple tailwinds supporting our business and look forward to executing on our growth initiatives in 2022. Thank you. Back to you, John.